SECTION 1. GROSS INCOME — Internal Revenue Bulletin 2025-24

01 Up-front Payments for Network Upgrades received by Utilities

(1) Description of change . This change applies to a Utility that wants to change its method of accounting for Up-front Payments to the safe harbor method described in Rev. Proc. 2005-35, 2005-2 C. B. 76. In general, this change applies to a Utility that receives an Up-front Payment from a Generator to finance Network Upgrades to the Utility’s Transmission System. For federal income tax purposes, if an Up-front Payment is made pursuant to an Interconnection Agreement that satisfies all of the conditions of section 5.02 of Rev. Proc. 2005-35, a Utility may treat that Up-front Payment as not being taxable income under § 61 when received (the safe harbor method). In addition, a Utility that uses the safe harbor method is not entitled to any deduction for its reimbursements of the Up-front Payment. To the extent that Federal Energy Regulatory Commission (FERC) interest is deductible, it must be properly allocated to the periods in which it accrues. A Utility using the safe harbor method must comply with all other applicable provisions of Rev. Proc. 2005-35. See Rev. Proc. 200535 for the definitions of certain terms for purposes of this change.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section

01 is “91. ” (3) Contact information . For further information regarding a change under this

section, contact William E . Blanchard at (202) 317-3900 (not a toll-free number) .

SECTION 2 . COMMODITY CREDIT LOANS (§ 77)

.01 Treating amounts received as loans .

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for loans received from the Commodity Credit Corporation from including the loan amount in gross income for the taxable year in which each loan is received to treating each loan amount as a loan .

(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) Manner of making change . This change is made on a cut-off basis and applies only to loans received from the Commodity Credit Corporation on or after the beginning of the year of change . Accordingly, a § 481(a) adjustment is neither permitted nor required .

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 2 .01 is “1 .” (5) Contact information . For further information regarding a change under this section, contact Michael Finn at (202) 317-4718 (not a toll-free number) .

SECTION 3 . TRADE OR BUSINESS EXPENSES (§ 162)

.01 Advances made by a lawyer on behalf of clients .

(1) Description of change . This change applies to a lawyer who advances money to pay for costs of litigation or for other expenses on behalf of clients, and who wants to change the method of accounting for such advances from treating them as deductible business expenses to treating them as loans to clients . This change applies to cases handled either on a non-contingent or a contingent fee basis . See Pelton & Gunther, P.C. v. Commis- sioner, T .C . Memo . 1999-339 (non-contingent fee); Canelo v. Commissioner, 53 T .C . 217 (1969), aff’d per curiam, 447 F .2d 484 (9 ^th Cir . 1971) (contingent fee) .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3 .01 is “2 .” (3) Contact information . For further information regarding a change under this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number) . .02 ISO 9000 costs . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for costs incurred to obtain, maintain, and renew ISO 9000 certification to conform with Rev. Rul. 2000-4, 2000-1 C.B. 331, as modified by this revenue procedure .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3 .02 is “3 .” (3) Contact information . For further information regarding a change under this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number) . .03 Restaurant or tavern smallwares packages .

(1) Description of change . This change applies to a taxpayer engaged in the trade or business of operating a restaurant or tavern (within the meaning of section 4 .01 of Rev . Proc . 2002-12, 2002-1 C .B . 374) that wants to change its method of accounting for the costs of smallwares to the smallwares method described in Rev . Proc. 2002-12, as modified by this revenue procedure .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3 .03 is “4 .” (3) Contact information . For further information regarding a change under this section, contact Benjamin Masselli at (202) 317-7003 (not a toll-free number) .

.04 Timber grower fertilization costs . (1) Description of change . This change applies to a timber grower that wants to change its method of accounting to treat post-establishment fertilization costs of an established timber stand as ordinary and necessary business expenses deductible under § 162 . See Rev . Rul . 2004-62, 2004-1 C.B. 1072, as modified by this revenue procedure .

Bulletin No. 2025–24 1481 June 9, 2025

(4) Contact information . For further information regarding a change under this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).. 10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the busi- ness of generating steam or electric power .

(1) Description of change . This change applies to a taxpayer that is within the scope of Rev. Proc. 2013-24, 2013-22 I. R. B. 1142, and wants to change its treatment of generation property expenditures to use all or some of the unit of property definitions and the corresponding major component definitions described in Rev. Proc. 2013-24.

(2) Section 481(a) adjustment . (a) A taxpayer must take the entire net § 481(a) adjustment into account (whether positive or negative) in computing taxable income for the year of change. For guidance regarding the use of extrapolation in computing a § 481(a) adjustment, see section 6. 02 and Appendix B of Rev. Proc. 2013-24. (b) A taxpayer changing to this method of accounting must not include in the § 481(a) adjustment any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)–11(d)(2) for any taxable year in which the repair allowance election was made.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3. 10 is “182. ” (4) Contact information . For further information regarding a change under this section, contact Morgan Lawrence at (202) 317-7011 (not a toll-free number)..

11 Cable network asset capitalization methods of accounting under Rev. Proc. 2015-12 (1) Description of change . This change applies to a cable system operator that is within the scope of Rev. Proc. 2015-12, 2015-2 I. R. B. 266, and wants to make one or more of the following changes in method of accounting:

(a) Change its treatment of cable network asset expenditures to the cable network asset maintenance allowance method of accounting provided in section 5 of Rev. Proc. 2015-12;

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3. 04 is “86. ” (3) Contact information . For further information regarding a change under this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number)..

05 Materials and supplies . See section 11. 08 of this revenue procedure. . 06 Repair and maintenance costs . See section 11. 08 of this revenue procedure..

07 Wireline network asset mainte- nance allowance and units of property methods of accounting under Rev. Proc. 2011-27 (1) Description of change . This change applies to a wireline telecommunications carrier that is within the scope of Rev. Proc. 2011-27, 2011-18 I. R. B. 740, and wants to change its treatment of wireline network asset expenditures to use either (a) the wireline network asset maintenance allowance method of accounting, or (b) all or some of the units of property described in Rev. Proc. 2011-27.

(2) Section 481(a) adjustment . In general, a change to the wireline network asset maintenance allowance method of accounting or to use all or some of the units of property specified in Rev. Proc. 201127 requires an adjustment under § 481(a). The § 481(a) adjustment shall not include any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)-11(d) (2) for any taxable year in which the election was made.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3. 07 is “158. ” (4) Contact information . For further information regarding a change under this section, contact Ian Heminsley at (202) 317-5100 (not a toll-free number).. 08 Wireless network asset mainte- nance allowance and units of property methods of accounting under Rev. Proc. 2011-28 (1) Description of change . This change applies to a wireless telecommunications carrier that is within the scope of Rev. Proc. 2011-28, 2011-18 I. R. B. 743, and wants to change its treatment of wireless

network asset expenditures to use either (a) the wireless network asset maintenance allowance method of accounting, or (b) all or some of the units of property described in Rev. Proc. 2011-28.

(2) Section 481(a) adjustment . In general, a change to the wireless network asset maintenance allowance method of accounting or to use all or some of the units of property specified in Rev. Proc. 201128 requires an adjustment under § 481(a). The § 481(a) adjustment does not include any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)-11(d) (2) for any taxable year in which the election was made.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3. 08 is “159. ” (4) Contact information . For further information regarding a change under this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).. 09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the busi- ness of transporting, delivering, or selling electricity

(1) Description of change . This change applies to a taxpayer that is within the scope of Rev. Proc. 2011-43, 2011-37 I. R. B. 326, and wants to change its treatment of transmission and distribution property expenditures to use the method of accounting described in Rev. Proc. 2011-43. (2) Section 481(a) adjustment . A taxpayer must take the entire net § 481(a) adjustment into account (whether positive or negative) in computing taxable income for the year of change. The § 481(a) adjustment does not include any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)-11(d)(2) for any taxable year in which the election was made. For guidance regarding permissible § 481(a) calculation methodologies, see section 7. 02 and Appendix A of Rev. Proc. 2011-43.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 3. 09 is “160. ”

June 9, 2025 1482 Bulletin No. 2025–24

(b) Change to use any of the unit of property definitions provided in section 6 of Rev. Proc. 2015-12;

(c) Change to use the specific identification method for installations and customer drop costs described in section 7. 01(1) of Rev. Proc. 2015-12; (d) Change to use the safe harbor allocation method for installations and customer drop costs described in section 7. 01(2) of Rev. Proc. 2015-12; or (e) Change to deduct the labor costs associated with installing customer premises equipment under section 7. 02 of Rev. Proc. 2015-12.

(2) Concurrent automatic change . A taxpayer that wants to make one or more changes in method of accounting pursuant to this section 3. 11 and a change to a UNICAP method under section 12 of this revenue procedure for the same year of change should file a single Form 3115 that includes all of these changes and must enter the designated automatic accounting method change numbers for all of these 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.

(3) Section 481(a) adjustment . (a) In general, a change to one or more of the changes in method of accounting described in section 3. 11(1) of this revenue procedure requires an adjustment under § 481(a). The § 481(a) adjustment shall not include any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)-11(d)(2) for any taxable year in which the election was made.

(b) Itemized listing on Form 3115 . The taxpayer must include on Form 3115 (Rev. December 2022), Part IV, line 26, the total § 481(a) adjustment for all changes in methods of accounting being made. If the taxpayer is making more than one change in method of accounting under Rev. Proc. 2015-12, the taxpayer must include on an attachment to Form 3115:

(i) the information required by Part IV, line 26 for each change in method of accounting (including the amount of the § 481(a) adjustment for each change in method of accounting, which includes the portion of the § 481(a) adjustment attributable to UNICAP);

(ii) the information required by Part II, line 14 of Form 3115 that is associated with each change; and

(iii) the citation to the paragraph of Rev. Proc. 2015-12 that provides for each proposed method of accounting.

(4) Designated automatic account- ing method change number . The designated automatic accounting method change number for a change to a method of accounting provided in section 5 or 6 of Rev. Proc. 2015-12 is “208. ” The designated automatic accounting method change number for a change to a method of accounting provided in section 7 of Rev. Proc. 2015-12 is “209. ”

(5) Contact information . For further information regarding a change under this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).. 12 Natural gas transmission and dis- tribution property method of accounting under Rev. Proc. 2023-15

(1) Description of change (a) Applicability . This change applies to a taxpayer that is within the scope of Rev. Proc. 2023-15 and wants to change its treatment of natural gas transmission and distribution property costs to use the natural gas transmission and distribution property safe harbor method of accounting (NGSH Method) described in Rev. Proc. 2023-15. Specifically, this change applies to a taxpayer that wants to change to “the safe harbor method for linear property” or “the safe harbor method for non-linear property” and other applicable rules in accordance with Rev. Proc. 2023-15, including the making of a late general asset account election as required under section 5. 08(2) of Rev. Proc. 202315. This change also applies to a taxpayer that previously changed to the safe harbor method for linear property and wants to change to the safe harbor method for non-linear property for a subsequent taxable year.

(b) Inapplicability . This change does not apply to the making of a late general asset account election other than in accordance with section 5. 08(2) of Rev. Proc. 2023-15. (2) Certain eligibility rules temporarily inapplicable

(a) In general . The eligibility rules in section 5. 01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to a taxpayer that

changes to the NGSH Method provided in Rev. Proc. 2015-13 for its first, second, or third taxable year ending after May 1, 2023. (b) Concurrent automatic change (i) If a taxpayer makes both a change under this section 3. 12 and a change under section 6. 12(3)(b) and/or section 6. 15 of this revenue procedure for linear property and/or non-linear property for its first, second, or third taxable year ending after May 1, 2023, on a single Form 3115 for the same asset for the same year of change in accordance with section 3. 12(6)(b) of this revenue procedure, the eligibility rules in section 5. 01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to the taxpayer for these changes.

(ii) If a taxpayer makes both a change under this section 3. 12 and a change under section 11. 08, 12. 01, 12. 02, 12. 08, and/or 12. 12 of this revenue procedure, as applicable, for its linear property or non-linear property costs in its first, second, or third taxable year ending after May 1, 2023, on a single Form 3115 for the same year of change in accordance with section 3. 12(6) (c) of this revenue procedure, the eligibility rules in section 5. 01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to the taxpayer for these changes.

(3) Manner of making change (a) Late general asset account election (i) The late general asset account election change described in section 5. 08(2) of Rev. Proc. 2023-15 is made using a modified cut-off method under which the unadjusted depreciable basis and the depreciation reserve of the asset as of the beginning of the year of change are accounted for using the proposed method of accounting. The late general asset account election change requires each general asset account to include a beginning balance for both the unadjusted depreciable basis and the depreciation reserve. The beginning balance for the unadjusted depreciable basis of each general asset account is equal to the sum of the unadjusted depreciable bases as of the beginning of the year of change for all assets included in that general asset account. The beginning balance of the depreciation reserve of each general asset account is equal to the sum of the greater of the depreciation allowed or allowable as of the beginning of the year of change

Bulletin No. 2025–24 1483 June 9, 2025

for all assets included in that general asset account.

(ii) For the late general asset account election change described in section 5. 08(2) of Rev. Proc. 2023-15, the taxpayer must attach to its Form 3115 a statement providing that the taxpayer agrees to the following additional terms and conditions:

(A) The taxpayer consents to, and agrees to apply, all the provisions of § 1. 168(i)-1 to the assets that are subject to the election specified in section 5.08(2) of Rev. Proc. 2023-15; and

(B) Except as provided in § 1. 168(i)-1(c)(1)(ii)(A), (e)(3), (g), or (h), the election made by the taxpayer under section 5. 08(2) of Rev. Proc. 2023-15 is irrevocable and will be binding on the taxpayer for computing taxable income for the year of change and for all subsequent taxable years with respect to the assets that are subject to this election.

(b) Cut-off basis for certain changes . Except for changes to make a late general asset account election described in section 3. 12(3)(a) of this revenue procedure, a change to the NGSH Method described in Rev. Proc. 2023-15 is made on a cut-off basis and applies only to natural gas transmission and distribution property costs paid or incurred beginning in or after the year of change if (i) Sections 5. 08(2)(a)(ii) and 6. 04 of Rev. Proc. 2023-15 apply (the taxpayer changes to the NGSH Method described in Rev. Proc. 2023-15 for the first, second, or third taxable year ending after May 1, 2023, on a cut-off basis); or (ii) Section 5. 08(2)(a)(iii) of Rev. Proc. 2023-15 applies (the taxpayer changes to the NGSH Method described in Rev. Proc. 2023-15 for the fourth taxable year ending after May 1, 2023, or for any subsequent taxable year).

(c) Public Utility Property . If the taxpayer’s change to the NGSH Method described in Rev. Proc. 2023-15 applies to any asset that is public utility property within the meaning of § 168(i)(10), the taxpayer must attach a statement to its Form 3115 agreeing to the following additional terms and conditions:

(i) A normalization method of accounting (within the meaning of § 168(i)(9)) will be used for the public utility property subject to the Form 3115;

(ii) As of the beginning of the year of change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books of account by the amount of the deferral of federal income tax liability associated with the § 481(a) adjustment applicable to the public utility property subject to the Form 3115 if such amount is no longer being normalized for regulatory purposes by the taxpayer; and

(iii) Within 30 calendar days of filing the federal income tax return for the year of change, the taxpayer will provide a copy of the completed Form 3115 to any regulatory body having jurisdiction over the public utility property subject to the Form 3115.

(4) Section 481(a) adjustment (a) In general . Except as provided in section 3. 12(3)(b) of this revenue procedure, a taxpayer changing its methods of accounting under this section 3. 12 must take the entire net § 481(a) adjustment into account, whether positive or negative, in computing taxable income for the year of change in the manner provided in section 7. 03 of Rev. Proc. 201513. The entire net § 481(a) adjustment includes all aspects of the NGSH Method described in Rev. Proc. 2023-15, including a change to the methods of accounting permitted under § 1. 168(i)-1 pursuant to section 5. 08(2) of Rev. Proc. 2023-15. However, a § 481(a) adjustment is neither required nor permitted for the late general asset account election described in section 5. 08(2) of Rev. Proc. 2023-15. Further, a § 481(a) adjustment is neither required nor permitted if the taxpayer chooses to change to the NGSH Method on a cut-off basis under section 6.04 of Rev. Proc. 2023-15 or if the taxpayer changes to this method during the time described in section 5. 08(2)(a)(iii) of Rev. Proc. 2023-15.

(b) Repair allowance property . A taxpayer changing its method of accounting under this section 3. 12 must not include in the § 481(a) adjustment any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1. 167(a)-11(d)(2) for any taxable year in which the repair allowance election was made.

costs . A taxpayer changing its method of accounting under this section 3. 12 must not include in the § 481(a) adjustment any amount attributable to property for which the taxpayer elected to capitalize repair and maintenance costs under § 1. 263(a)-3(n) for any taxable year in which this election was made.

(d) Statistical sampling . A taxpayer changing to the NGSH Method under this section 3. 12 may use statistical sampling in determining the § 481(a) adjustment amount attributable to any single taxable year by following the guidance provided in Rev. Proc. 2011-42, 2011-37 I. R. B. 318. (e) Extrapolation . A taxpayer changing to the NGSH Method under this section 3. 12 may use the extrapolation methodology provided in Appendix B to Rev. Proc. 2023-15 (Appendix B) in determining the § 481(a) adjustment amount if the taxpayer is within the scope of section 1. 02 of Appendix B. Extrapolation methodologies not permitted in Appendix B are not permitted under the NGSH Method.

(5) No audit protection for certain tax- payers . If a taxpayer chooses to change to the NGSH Method described in Rev. Proc. 2023-15 on a cut-off basis as permitted under section 6. 04 of Rev. Proc. 2023-15 or is required to change on a cutoff basis under section 5.08(3)(b)(i) of Rev. Proc. 2023-15, the taxpayer does not receive audit protection under section 8. 01 of Rev. Proc. 2015-13 in connection with this change.

(6) Concurrent automatic changes (a) A taxpayer making changes under this section 3. 12 for more than one asset for the same year of change must file a single Form 3115 for all such assets. The single Form 3115 must provide a single net § 481(a) adjustment for all such changes.

(b) A taxpayer making changes under this section 3. 12 and changes under section 6. 12(3)(b) and/or section 6. 15 of this revenue procedure for linear property or non-linear property costs for the same year of change must file a single Form 3115 for all changes and 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.

June 9, 2025 1484 Bulletin No. 2025–24

(c) A taxpayer making changes under this section 3. 12 and also making a coordinating change to its linear property or non-linear property costs under section 11. 08, 12. 01, 12. 02, 12. 08, and/or 12. 12 of this revenue procedure, as applicable, 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 under section 5 of 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 cutoff 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

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 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 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.

Bulletin No. 2025–24 1485 June 9, 2025

(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 replacements. 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 .

June 9, 2025 1486 Bulletin No. 2025–24

(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.

(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 Riston Escher at (202) 317-5100 (not a toll-free number) .

SECTION 4 . BAD DEBTS (§ 166)

.01 Change from reserve method to specific charge-off method .

(1) Description of change . This change applies to a taxpayer (other than a bank as defined in § 585(a)(2)) that wants to change its method of accounting for bad debts from a reserve method (or other improper method) to a specific charge-off method that complies with § 166 . For procedures applicable to banks, see § 585(c) and the regulations thereunder and section 25 of this revenue procedure . (2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 4 .01 is “5 .” (3) Contact information . For further information regarding a change under this section, contact Benjamin Masselli at (202) 317-7003 (not a toll-free number) .

.02 Conformity election by bank after previous election automatically revoked .

(1) Description of change . This change applies to a bank that wants to change its method of accounting for bad debts by making the conformity election under § 1 .166-2(d)(3)(iii)(C)( 3 ) .

(2) Applicability . This change only applies to a bank (as defined in § 1 .166-2(d)(4)(i)) that:

(a) is subject to supervision by Federal authorities, or by state authorities maintaining substantially equivalent standards;

(b) has previously adopted or elected to change to the method of accounting for bad debts described in § 1 .166-2(d)(3);

(d) meets the express determination requirement of § 1 .166-2(d)(3)(iii)(D) for the year of change; and

(e) now seeks the consent of the Commissioner to make an election under § 1 .166-2(d)(3)(iii)(C)( 3 ) .

(3) 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 . (4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 4 .02 is “211 .” (5) Contact information . For further information regarding a change under this section, contact K . Scott Brown at (202) 317-4423 (not a toll-free number) .

Bulletin No. 2025–24 1487 June 9, 2025

03 Change to the allowance charge- off method

(1) Description of change (a) Applicability . This change applies to a regulated financial company (as defined in proposed § 1.166-2(d)(4)(ii)) or a member of a regulated financial group (as defined in proposed § 1.166-2(d)(4) (iii)) that wants to change its method of accounting to the Allowance Charge-off Method described in proposed § 1. 1662(d)(1). See Bad Debt Deductions for Regulated Financial Companies and Members of Regulated Financial Groups, 88 FR 89636 (Dec. 28, 2023). (b) Inapplicability . This change does not apply to a bank (as defined in § 581) that wants to change its method of accounting for bad debts from the § 585 reserve method to the Allowance Charge-off Method described in proposed § 1. 166-2(d)(1). Any change to the Allowance Charge-off Method requested by such a bank must be made under the non-automatic change procedures in Rev. Proc. 2015-13.

(2) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13 does not apply to a change described in section 4. 03(1)(a) of this revenue procedure for the taxpayer’s first or second taxable year ending on or after December 28, 2023.

(3) Manner of making change (a) Charge-offs on or after beginning of the year of change . This change is made on a cut-off basis and only applies to chargeoffs (as defined in proposed § 1.166-2(d) (4)(i)) made by a regulated financial company or a member of a regulated financial group on its applicable financial statement (as defined in proposed § 1.166-2(d)(4) (viii)) that occur on or after the beginning of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) Charge-offs prior to the year of change . Any charge-offs that occurred prior to the year of change are accounted for under the taxpayer’s former method of accounting, and any charge-offs that occur in the year of change and in subsequent taxable years are accounted for under the taxpayer’s method of accounting for which consent is granted. In no event may a taxpayer take a deduction under its new method of accounting for

any amount of debt previously deducted as worthless under its former method of accounting.

(4) Revocation of conformity election under existing § 1.166-2(d)(3) . A regulated financial company or a member of a regulated financial group that previously made a conformity election under § 1. 166-2(d)(3) and that changes its method of accounting under this section 4. 03 is treated as having revoked its conformity election pursuant to § 1. 166-2(d) (3)(iv).

(5) Contact information . For further information regarding a change under this section, contact Jason Kristall at (202) 317-6945 (not a toll-free number). (6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 4. 03 is “272. ”