SECTION 12. UNIFORM

CAPITALIZATION (UNICAP) METHODS (§ 263A).

01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers .

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

(i) a reseller that is a former small business taxpayer, or a reseller-producer that is a former small business taxpayer, that wants to change from a permissible non-UNICAP inventory capitalization method to a permissible UNICAP method specifically described in the regulations in the first taxable year that it does not qualify as a small business taxpayer;

(ii) a reseller-producer that wants to change from a permissible UNICAP method for both its production and resale activities to a permissible simplified resale method described in § 1. 263A-3(d)

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(3) in any taxable year that it qualifies to use a simplified resale method for both its production and resale activities under § 1. 263A-3(a)(4) (resellers with de mini- mis production activities);

(iii) a reseller-producer that wants to change from a permissible simplified resale method described in § 1. 263A-3(d) (3) for both its production and resale activities to a permissible UNICAP method specifically described in the regulations for both its production and resale activities in the first taxable year that it does not qualify to use a simplified resale method for both its production and resale activities under § 1. 263A‑3(a)(4);

(iv) a reseller that wants to change its permissible UNICAP method to include a special reseller cost allocation rule;

(v) a reseller or reseller-producer that wants to change to a UNICAP method (or methods) specifically described in the regulations, including any necessary changes in the identification of costs subject to § 263A that will be accounted for using the proposed method, in any taxable year other than the first taxable year that it does not qualify as a small business taxpayer; or

(vi) a reseller or reseller-producer that wants to change from not capitalizing a cost subject to § 263A to capitalizing that cost under a UNICAP method (or methods) specifically described in the regulations that the reseller or reseller-producer is already using.

(b) Inapplicability . (i) Self constructed assets . This change does not apply to a taxpayer that wants to use either the simplified service cost method, the simplified production method, or the modified simplified production method for self-constructed assets under §§ 1. 263A-1(h)(2)(i)(D), 1. 263A-2(b)(2) (i)(D), and 1. 263A-2(c)(2), respectively.

(ii) Election or revocation of election to use a historic absorption ratio . This change does not apply to a taxpayer that ( 1 ) wants to make a historic absorption ratio election with the simplified production method, the modified simplified production method, or the simplified resale method under §§ 1. 263A-2(b)(4), 1. 263A2(c)(4), or 1. 263A-3(d)(4), respectively; or ( 2 ) wants to revoke an election to use a historic absorption ratio with the simplified production method, the modified sim

plified production method, or the simplified resale method ( see §§ 1. 263A-2(b)(4) (iii)(B), 1. 263A-2(c)(4), or 1. 263A-3(d) (4)(iii)(B), respectively).

(iii) Interest capitalization . This change does not apply to a change in method of accounting for interest capitalization (but see section 12. 14 of this revenue procedure).

(iv) Recharacterizing costs under the simplified resale method, simplified pro- duction method, or modified simplified production method . This change does not include a change to recharacterize section 471 costs, as defined in § 1.263A-1(d) (2), as additional section 263A costs, as defined in § 1.263A-1(d)(3) (or vice versa ) for a taxpayer that uses or is changing to the simplified resale method, the simplified production method, or the modified simplified production method. See section 12. 17 of this revenue procedure for certain changes to recharacterize section 471 costs as additional section 263A costs (or vice versa ).

(v) Revocation of election under § 263A(d)(3) . This change does not apply to a taxpayer that wants to revoke its election under § 263A(d)(3) not to have § 263A apply to certain plants produced by the taxpayer in a farming business. But see Rev. Proc. 2020-13, 2020-11 I. R. B. 515, for the procedures to revoke an election under § 263A(d)(3).

(vi) Direct reallocation or step-alloca- tion methods . This change does not apply to a taxpayer that wants to change either to or from the direct reallocation method or the step-allocation method under §§ 1. 263A-1(g)(4)(iii)(A) and 1. 263A1(g)(4)(iii)(B), respectively. (vii) Election or revocation of election to use 90-10 de minimis rule . This change does not apply to a taxpayer that presently uses the direct reallocation method or the step-allocation method under §§ 1. 263A1(g)(4)(iii)(A) and 1. 263A-1(g)(4)(iii)(B), respectively, and (1) wants to elect the 90-10 de minimis rule, under § 1. 263A1(g)(4)(ii), to allocate a mixed service department’s costs to resale activities; or (2) wants to revoke an election to use the 90-10 de minimis rule to allocate a mixed service department’s costs to resale activities.

(2) Eligibility rule inapplicable . The eligibility rule in section 5. 01(1)(f) of

Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to the change described in section 12. 01(1)(a)(i) of this revenue procedure.

(3) Definitions (a) “Reseller” means a taxpayer that acquires real or personal property described in § 1221(a)(1) for resale.

(b) “Producer” means a taxpayer that produces real or tangible personal property.

(c) “Reseller-producer” means a taxpayer that is both a producer and a reseller.

(d) “Permissible UNICAP method” means a method of capitalizing costs that is permissible under § 263A.

(e) “A UNICAP method specifically described in the regulations” does not include any other reasonable allocation method within the meaning of § 1. 263A1(f)(4). However, a “UNICAP method specifically described in the regulations” includes:

(i) the 90-10 de minimis rule to allocate a mixed service department’s costs to resale activities (§ 1. 263A-1(g)(4)(ii)) ( but see paragraph (1)(b)(vii) of this section);

(ii) the 1/3 - 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1. 263A-3(c)(3)(ii)(A));

(iii) the 90-10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1. 263A3(c)(5)(iii)(C)); (iv) the specific identification method (§ 1. 263A-1(f)(2));

(v) the burden rate method (§ 1. 263A1(f)(3)(i)); (vi) the standard cost method (§ 1. 263A-1(f)(3)(ii));

(vii) the direct reallocation method (§ 1. 263A-1(g)(4)(iii)(A)) ( but see paragraphs (1)(b)(vi) and (vii) of this section);

(viii) the step-allocation method (§ 1. 263A-1(g)(4)(iii)(B)) ( but see paragraphs (1)(b)(vi) and (vii) of this section);

(ix) the simplified service cost method (§ 1. 263A-1(h)) (with either a labor-based allocation ratio or a production cost allocation ratio);

(x) the simplified resale method without a historic absorption ratio election (§ 1. 263A-3(d));

(xi) the alternative method to determine amounts of section 471 costs by using a taxpayer’s financial statement (§ 1.263A1(d)(2)(iii));

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(xii) the method to determine amounts of section 471 costs by using the amounts incurred in the taxable year for federal income tax purposes (§ 1. 263A-1(d)(2) (i));

(xiii) the safe harbor method for certain variances and under- or over- applied burdens (§ 1. 263A-1(d)(2)(v));

(xiv) the removal of one or more costs from section 471 costs as required in § 1. 263A-1(d)(2)(vi);

(xv) the removal of one or more costs from section 471 costs using negative adjustments to additional section 263A costs as permitted in § 1. 263A-1(d)(3)(ii) (B);

(xvi) the de minimis rule for certain direct labor costs (§ 1. 263A-1(d)(2)(iv) (B));

(xvii) the de minimis rule for certain direct material costs (§ 1. 263A-1(d)(2) (iv)(C));

(xviii) the simplified production method without a historic absorption ratio election (§ 1. 263A-2(b));

(xix) the modified simplified production method without a historic absorption ratio election (§ 1. 263A-2(c));

(xx) the direct material costs or pre-production labor costs allocation methods for capitalizable mixed service costs under the modified simplified production method (§ 1. 263A-2(c)(3)(iii)(B)); and

(xxi) the 90-10 de minimis rule to allocate capitalizable mixed service costs under the modified simplified production method (§ 1. 263A-2(c)(3)(iii)(C)).

(f) “Special reseller cost allocation rule” means the 90-10 de minimis rule to allocate a mixed service department’s costs to property acquired for resale (§ 1. 263A-1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1. 263A-3(c)(3) (ii)(A)), and the 90-10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1. 263A-3(c)(5)(iii)(C)).

(g) “Permissible non-UNICAP inventory capitalization method” means a method of capitalizing inventory costs that is permissible under § 471.

(h) “Small business taxpayer” means a taxpayer, other than a tax shelter under § 448(d)(3), proposed § 1. 448-2(b) (2), or § 1. 448-2(b)(2), as applicable, that meets the § 448(c) gross receipts

test as provided in § 448(c), proposed § 1. 263A‑1(j), or § 1. 263A‑1(j), as applicable. The § 448(c) gross receipts test is met if a taxpayer has average annual gross receipts for the three prior taxable years of $25,000,000 or less (adjusted for inflation), as described in § 448(c), proposed §§ 1. 448-2(c), or § 1. 448-2(c), as applicable. For taxable years beginning in 2019, 2020 and 2021, the inflation-adjusted amount is $26,000,000. See Rev. Proc. 2018-57, 2018-49 I. R. B. 827, Rev. Proc. 2019-44, 2019-47 I. R. B. 1093, or Rev. Proc. 2020-45, 2020-46 I. R. B. 1016, as applicable. For a taxable year beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev. Proc. 2021-45, 2021-48 I. R. B. 764. For a taxable year beginning in 2023, the inflation-adjusted amount is $29,000,000. See Rev. Proc. 2022-38, 2022-45 I. R. B. 445. For a taxable year beginning in 2024, the inflation-adjusted amount is $30,000,000. See Rev. Proc. 2023-34, 2023-48 I. R. B. 1287. For a taxable year beginning in 2025, the inflation-adjusted amount is $31,000,000. See Rev. Proc. 2024-40, 2024-45 I. R. B. 1100. (i) “Former small business taxpayer” means a taxpayer that no longer qualifies as a small business taxpayer. A former small business taxpayer includes a taxpayer that no longer qualifies as a small business taxpayer for the year of change because it is a tax shelter under § 448(d) (3), proposed § 1. 448-2(b)(2), or § 1. 4482(b)(2), as applicable. (4) Section 481(a) adjustment period . Except as otherwise provided in this section 12. 01(4), beginning with the year of change, a taxpayer changing its method of accounting for costs under section 12. 01(1)(a)(ii) or 12. 01(1)(a)(iii) of this revenue procedure generally must take any applicable net positive § 481(a) adjustment for such change into account ratably over the same number of taxable years, not to exceed four, that the taxpayer used its former method of accounting. A taxpayer changing its method of accounting for costs under section 12. 01(1)(a) (i), 12. 01(1)(a)(iv), 12. 01(1)(a)(v), or 12. 01(1)(a)(vi) of this revenue procedure must take any applicable net positive § 481(a) adjustment for such change into account as provided in section 7. 03 of Rev. Proc. 2015-13.

Furthermore, X adopted the dollar-value LIFO inventory method and has the following LIFO inventory balances determined without considering the effects of the UNICAP method:

Example – Inventory Balance Calculation

X was not required to use the UNICAP method for 2017 and 2018 because its average annual gross receipts for such years made X a small reseller, as described in section 12. 01(3)(b) of Rev. Proc. 2019-43, prior to modification by Rev. Proc. 20229, 2022-2 I. R. B. 310 for 2017, and a small business taxpayer, as described in section 12. 01(3)(h)

(5) Multiple changes . A taxpayer making both this change and another change in method of accounting for the same year of change must comply with the ordering rules of § 1. 263A-7(b)(2).

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 01 is “22. ” (7) Example . The following example illustrates the principles of this section 12. 01 and 12. 16 for small business taxpayers and former small business taxpayers.

X is a C corporation incorporated on January 2, 2017, that adopted a taxable year ending December 31 and an overall accrual method of accounting. X is a reseller of personal property. To determine whether X is a small business taxpayer, as provided in section 12. 01(3)(h) of this revenue procedure, X calculated its average annual gross receipts for the three taxable years (or fewer, if applicable) immediately preceding the taxable year being analyzed as shown in the table below, in accordance with § 1. 263A-1(j):

Example – Average AGR Calculation

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X elected to use the simplified resale method without a historic absorption ratio election under § 1. 263A-3(d)(3) for determining the amount of additional § 263A costs to be capitalized to each LIFO layer. Assume that X was required to add $100,000 of additional § 263A costs to the cost of its 2019 ending inventory because of the $1,000,000 increment for 2019.

of this revenue procedure, for 2018. X was required by § 263A to change to the UNICAP method for 2019 because its average annual gross receipts for the three taxable years immediately preceding 2019 were $27,000,000, which exceeded the $26,000,000 threshold permitted by the small business taxpayer exemption under § 263A(i). Assume that X was required to capitalize $800,000 of “addi

X ’s 2019 Ending Inventory:

tional § 263A costs” to the cost of its 2019 beginning inventory because of this change in inventory method. In addition, X was required to include one-fourth of the § 481(a) adjustment when computing taxable income for each of the four taxable years beginning with 2019. Thus, X was required to include a $200,000 positive § 481(a) adjustment in its 2019 taxable income.

X ’s Unamortized 2019 § 481(a) Adjustment:

ment in its 2020 taxable income. Assume that X was required to add $100,000 of additional § 263A costs to the cost of its 2020 ending inventory because of the $1,000,000 increment for 2020.

Because X’s average annual gross receipts of $27,000,000 for the three taxable years immediately preceding 2020 exceeded the $26,000,000 threshold, X failed to qualify for the small business taxpayer

X ’s 2020 Ending Inventory:

exemption for 2020 and was required to continue using the UNICAP method for its inventory costs. Furthermore, X was required to include $200,000 of the unamortized 2019 positive § 481(a) adjust

X ’s Unamortized 2019 § 481(a) Adjustment:

of this negative § 481(a) adjustment is included in X ’s taxable income for 2021. In addition, X must take the $400,000 remaining portion of the unamortized 2019 § 481(a) adjustment into account in its taxable income for 2021, as provided in section 12. 16(5) of this revenue procedure.

Because X’s average annual gross receipts of $25,000,000 for the three taxable years immediately preceding 2021 did not exceed the $26,000,000 threshold, X satisfied the small business taxpayer exemption under section 263A(i) for 2021 and may change voluntarily from the UNICAP method to a method that no longer

capitalizes costs under § 263A for 2021, as provided in section 12. 16 of this revenue procedure. To reflect the removal of the additional § 263A costs from the cost of its 2021 beginning inventory, X must compute a corresponding § 481(a) adjustment, which is a negative $1,000,000 ($14,000,000 - $15,000,000). The entire amount

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X ’s 2021 Ending Inventory:

X ’s Unamortized 2019 § 481(a) Adjustment:

X ’s Unamortized 2021 § 481(a) Adjustment:

toric absorption ratio with the simplified production method or the modified simplified production method (see §§ 1.263A2(b)(4)(iii)(B) or 1. 263A-2(c)(4), respectively).

(iii) Interest capitalization . This change does not apply to a change in method of accounting for interest capitalization (but see section 12. 14 of this revenue procedure).

(iv) Recharacterizing costs under the simplified production method or modified simplified production method . This change does not include a change to recharacterize section 471 costs, as defined in § 1. 263A-1(d)(2), as additional section 263A costs, as defined in § 1.263A-1(d) (3), (or vice versa ) for a taxpayer that uses or is changing to the simplified production method or the modified simplified production method. See section 12. 17 of this revenue procedure for certain changes to recharacterize section 471 costs as additional section 263A costs (or vice versa ).

(v) Reseller-producer using the sim- plified resale method . This change does not apply to a reseller-producer that uses or is changing to the simplified resale method under § 1. 263A-3(d) (but see section 12. 01(1) of this revenue procedure

(8) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number). . 02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers .

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

(i) a producer as defined in section 12. 01(3)(b) of this revenue procedure or a reseller-producer as defined in section 12. 01(3)(c) of this revenue procedure that wants to change to a UNICAP method (or methods) specifically described in the regulations, including any necessary changes in the identification of costs subject to § 263A that will be accounted for using the proposed method, in any taxable year other than the first taxable year that it does not qualify as a small business taxpayer as defined in section 12. 01(3)(h) of this revenue procedure. This change includes a change from not capitalizing a cost subject to § 263A to capitalizing that cost for a producer or a reseller-producer under a UNICAP method (or methods) specifically described in the regulations that the producer or reseller-producer is already using; or

(ii) a producer or reseller-producer that is a former small business taxpayer, as defined in section 12.01(3)(i) of this revenue procedure, that wants to change from not capitalizing costs under § 263A(i) to capitalizing costs under a UNICAP method (or methods) specifically described in the regulations in the first taxable year that the taxpayer does not qualify as a small business taxpayer as defined in section 12.01(3)(h) of this revenue procedure.

(b) Inapplicability . (i) Self-constructed assets . This change does not apply to a taxpayer that wants to use either the simplified service cost method, the simplified production method, or the modified simplified production method for self-constructed assets under §§ 1. 263A-1(h)(2)(i)(D), 1. 263A-2(b)(2) (i)(D), and 1. 263A-2(c)(2), respectively.

(ii) Election or revocation of election to use a historic absorption ratio . This change does not apply to a taxpayer that ( 1 ) wants to make a historic absorption ratio election with the simplified production method or the modified simplified production method under §§ 1. 263A-2(b) (4) or 1. 263A-2(c)(4), respectively; or ( 2 ) wants to revoke an election to use a his

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for certain changes that may be made by a reseller-producer).

(vi) Direct reallocation or step-alloca- tion methods . This change does not apply to a taxpayer that wants to change either to or from the direct reallocation method or the step-allocation method under §§ 1. 263A-1(g)(4)(iii)(A) and 1. 263A1(g)(4)(iii)(B), respectively. (vii) Election or revocation of election to use 90-10 de minimis rule . This change does not apply to a taxpayer that presently uses the direct reallocation method or the step-allocation method under §§ 1. 263A1(g)(4)(iii)(A) and 1. 263A-1(g)(4)(iii)(B), respectively, and (1) wants to elect the 90-10 de minimis rule, under § 1. 263A1(g)(4)(ii), to allocate a mixed service department’s costs to production or resale activities; or (2) wants to revoke an election to use the 90-10 de minimis rule to allocate a mixed service department’s costs to production or resale activities.

(2) Definitions . A “UNICAP method specifically described in the regulations” does not include the simplified resale method under § 1. 263A-3(d)(4) or any other reasonable allocation method within the meaning of § 1. 263A-1(f)(4). However, a “UNICAP method specifically described in the regulations” includes:

(a) the 90-10 de minimis rule to allocate a mixed service department’s costs to production or resale activities (§ 1. 263A1(g)(4)(ii)) ( but see paragraph (1)(b)(vii) of this section);

(b) the 1/3 - 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1. 263A-3(c)(3)(ii)(A));

(c) the 90-10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1. 263A3(c)(5)(iii)(C)); (d) the specific identification method (§ 1. 263A-1(f)(2));

(e) the burden rate method (§ 1. 263A1(f)(3)(i)); (f) the standard cost method (§ 1. 263A1(f)(3)(ii)); (g) the direct reallocation method (§ 1. 263A-1(g)(4)(iii)(A)) ( but see paragraphs (1)(b)(vi) and (vii) of this section);

(h) the step-allocation method (§ 1. 263A-1(g)(4)(iii)(B)) ( but see paragraphs (1)(b)(vi) and (vii) of this section);

(i) the simplified service cost method (§ 1. 263A-1(h)) (with either a labor-based

allocation ratio or a production cost allocation ratio);

(j) the simplified production method without a historic absorption ratio election (§ 1. 263A-2(b));

(k) the alternative method to determine amounts of section 471 costs by using a taxpayer’s financial statement (§ 1.263A1(d)(2)(iii)); (l) the method to determine amounts of section 471 costs by using the amounts incurred in the taxable year for federal income tax purposes (§ 1. 263A-1(d)(2) (i));

(m) the safe harbor method for certain variances and under- or over-applied burdens (§ 1. 263A-1(d)(2)(v));

(n) the removal of one or more costs from section 471 costs as required in § 1. 263A-1(d)(2)(vi);

(o) the removal of one or more costs from section 471 costs using negative adjustments to additional section 263A costs as permitted in § 1. 263A-1(d)(3)(ii) (B);

(p) the de minimis rule for certain direct labor costs (§ 1. 263A-1(d)(2)(iv)(B));

(q) the de minimis rule for certain direct material costs (§ 1. 263A-1(d)(2)(iv)(C));

(r) the modified simplified production method without a historic absorption ratio election (§ 1. 263A-2(c)(3));

(s) the direct material costs or pre-production labor costs allocation methods for capitalizable mixed service costs under the modified simplified production method (§ 1. 263A-2(c)(3)(iii)(B)); and

(t) the 90-10 de minimis rule to allocate capitalizable mixed service costs under the modified simplified production method (§ 1. 263A-2(c)(3)(iii)(C)).

(3) Multiple changes . A taxpayer making both this change and another change in method of accounting in the same year of change must comply with the ordering rules of § 1. 263A-7(b)(2).

(4) Eligibility rule inapplicable . The eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to a change described in section 12. 02(1)(a)(ii) of this revenue procedure.

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 02 is “23. ”

(6) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 03 Impact fees (1) Description of change . This change applies to a taxpayer that incurs impact fees as defined in Rev. Rul. 2002-9, 2002-1 C. B. 614, in connection with the construction of a new residential rental building that wants to capitalize the costs to the building under §§ 263(a) and 263A. See Rev. Rul. 2002-9 for further information.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 03 is “25. ” (3) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 04 Change to capitalizing environ- mental remediation costs under § 263A

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for environmental remediation costs from a method that does not comply with the holding in Rev. Rul. 2004-18, 2004-1 C. B. 509, to capitalizing them to inventory under § 263A.

(2) Concurrent automatic changes . A taxpayer making both this change and another automatic change under § 263A for the same year of change may file a single Form 3115 for both changes, provided the taxpayer enters the designated automatic change numbers for both changes on the appropriate line on that Form 3115, and complies with the ordering rules of § 1. 263A-7(b)(2). 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 12. 04 is “77. ” (4) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 05 Change in allocating environmen- tal remediation costs under § 263A

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in section 5. 02 of Rev. Proc. 2010-44 is “151. ”

(5) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 07 Change to not apply § 263A to one or more plants removed from the list of plants that have a preproductive period in excess of 2 years

(1) Description of change . This change, as described in Rev. Proc. 201320, 2013-14 I. R. B. 744, applies to a taxpayer that is not a corporation, partnership, or tax shelter required to use an accrual method of accounting under § 447 or § 448(a)(3), and either (a) wants to not apply § 263A, pursuant to § 263A(d)(1) and § 1. 263A-4(a)(2), to the production of one or more plants that the IRS and the Treasury Department have removed from the list of plants that have a nationwide weighted average preproductive period in excess of 2 years, or (b) properly elected, pursuant to § 263A(d)(3) and § 1. 263A-4(d), to not apply § 263A to the production of a plant or plants that have been removed from the list of plants that have a nationwide weighted average preproductive period in excess of 2 years, and wishes to revoke its § 263A(d) (3) election with respect to those plants. See Notice 2013-18, 2013-14 I. R. B. 742, or its successor.

(2) Manner of making change . A change under this section 12. 07 is made with any necessary adjustments under § 481(a). For example, the revocation of an election under § 263A(d)(3) results in a § 481(a) adjustment that must take into account the change in depreciation from the alternative depreciation system to the general depreciation system included within such revocation.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 07 is “181. ” (4) Contact information . For further information regarding a change under this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).. 08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for self-constructed assets

(1) Description of change

(1) Description of change . This change applies to a taxpayer that capitalizes environmental remediation costs to inventory under § 263A, but allocates these costs to inventory using a method of accounting that does not comply with the holding in Rev. Rul. 2005-42, 2005-2 C. B. 67, and wants to change to allocating these costs to inventory produced during the taxable year in which the costs are incurred under § 263A. See Rev. Rul. 2005-42 for further information.

(2) Concurrent automatic changes . A taxpayer making both this change and another automatic change under § 263A for the same year of change may file a single Form 3115 for both changes, provided the taxpayer enters the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115, and complies with the ordering rules of § 1. 263A-7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 201513, 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 12. 05 is “92. ” (4) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 06 Safe harbor methods under § 263A for certain dealerships of motor vehicles

(1) Description of change . This change applies to a motor vehicle dealership, as defined in section 4 of Rev. Proc. 201044, 2010-49 I. R. B. 811, that is within the scope of section 3 of Rev. Proc. 201044 and wants to change its method of accounting to (1) treat its sales facility as a retail sales facility or (2) be treated as a reseller without production activities, as described in section 5 of Rev. Proc. 2010-44. A motor vehicle dealership that wants to make an automatic change in method of accounting to use one or both safe harbor methods described in section 5 of Rev. Proc. 2010-44 may make any corresponding changes in the identification of costs subject to § 263A that will be accounted for using the proposed method (for example, to remove internal profit from inventory costs) or to no longer include negative amounts as

additional § 263A costs in the numerator of the simplified resale method formula or the simplified production method formula. However, except as provided in the preceding sentence, a change under this section does not include a change for purposes of recharacterizing “§ 471 costs” as “additional § 263A costs” (or vice versa ) under the simplified resale method or the simplified production method.

(2) Concurrent automatic changes . A motor vehicle dealership making an automatic change to one or both safe harbor methods described in section 5 of Rev. Proc. 2010-44 and another automatic change under § 263A for the same taxable year may file one Form 3115 to make both changes, provided the dealership enters the designated automatic change numbers for all such changes in Part I on that Form 3115, and complies with the ordering rules of § 1. 263A-7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, for information on making concurrent changes.

(3) Multiple adjustments . In the event that a motor vehicle dealership is taking into account a § 481(a) adjustment from another accounting method change in addition to the § 481(a) adjustment required by a change to a safe harbor method described in section 5 of Rev. Proc. 2010-44, the § 481(a) adjustments must be taken into account separately. For example, a motor vehicle dealership that changed to comply with § 263A in 2009 and was required to take its § 481(a) adjustment into account over four years must continue to take into account that adjustment over the remainder of that four year § 481(a) adjustment period even though the dealership changed to a safe harbor method described in section 5 of Rev. Proc. 2010-44 in 2010 and has an additional § 481(a) adjustment required by that change.

(4) Designated automatic accounting method change numbers . The designated automatic accounting method change number for a change to treat certain sales facilities as retail sales facilities as described in section 5. 01 of Rev. Proc. 2010-44 is “150. ” The designated automatic accounting method change number for a change to be treated as a reseller without production activities as described

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(a) From not capitalizing sales-based royalties to capitalizing these costs and allocating them entirely to cost of goods sold under a taxpayer’s method of accounting;

(b) From not capitalizing sales-based royalties to capitalizing these costs and allocating them to inventory property under a taxpayer’s method of accounting;

(c) From capitalizing sales-based royalties and allocating these costs to inventory property to allocating them entirely to cost of goods sold; or

(d) From capitalizing sales-based royalties and allocating these costs entirely to cost of goods sold to allocating them to inventory property.

(2) Limitations. (a) A taxpayer may not make a change in method of accounting under this section 12. 10 if the taxpayer wants to change to capitalizing sales-based royalties and allocating them to inventory property using another reasonable allocation method within the meaning of § 1. 263A-1(f)(4).

(b) A taxpayer making the changes described in section 12. 10(1)(a) or 12. 10(1)(c) of this revenue procedure that uses a simplified method to determine the additional § 263A costs allocable to inventory property on hand at year end must remove sales-based royalties allocated to cost of goods sold from the formulas used to allocate additional § 263A costs to ending inventory in the same manner that the taxpayer included these amounts in the formulas.

(c) A taxpayer making a change in method of accounting under this section 12.10 that uses a simplified method with a historic absorption ratio election (see §§ 1. 263A-2(b)(4) and 1. 263A-3(d)(4)) and currently includes, or is changing its method to include, sales-based royalties in any part of its historic absorption ratio must revise its previous and current historic absorption ratios. To revise its historic absorption ratios, the taxpayer must apply its proposed method of accounting during the test period, during all recomputation years, and during all updated test periods to determine the § 471 costs and additional § 263A costs that were incurred. The revised historic absorption ratios must be used to revalue beginning inventory and must be accounted for in the taxpayer’s § 481(a) adjustment. The

(a) Applicability . This change, as described in Rev. Proc. 2014-16, 2014-9 I. R. B. 606, applies to a producer (as defined in section 12.01(3)(b) of this revenue procedure) or a reseller-producer (as defined in section 12.01(3)(c) of this revenue procedure) that wants to change to a reasonable allocation method within the meaning of § 1. 263A-1(f)(4), other than the methods specifically described in § 1. 263A-1(f)(2) or (3), for self-constructed assets produced during the taxable year, including any necessary changes in the identification of costs subject to § 263A that will be accounted for using the proposed method. This section 12. 08 also includes a change from not capitalizing a cost subject to § 263A to capitalizing that cost for a producer or reseller-producer under a reasonable allocation method within the meaning of § 1. 263A1(f)(4) that the producer or reseller-producer is already using for self-constructed assets, other than the methods specifically described in § 1. 263A-1(f)(2) or (3). See section 12. 02 of this revenue procedure for a producer or reseller-producer that wants to change to a method described in § 1. 263A-1(f)(2) or (3).

(b) Inapplicability . This change does not apply to an allocation method based on the number of units produced or an allocation method that does not allocate costs to the units of property produced. This change does not apply to a change described in another section of this revenue procedure or in other guidance published in the Internal Revenue Bulletin. For example, this change does not apply to a change described in section 12. 01 or 12. 02 of this revenue procedure. (2) No ruling on reasonableness of method . The consent granted in section 9 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, for this change is not a determination by the Commissioner that the taxpayer is using a reasonable allocation method for costs subject to § 263A and does not create any presumption that the proposed allocation method is permissible. The director will ascertain whether the taxpayer’s allocation method is reasonable within the meaning of § 1. 263A-1(f)(4).

(3) Multiple changes . A taxpayer making both this change and another change in method of accounting under section 11. 08 of this revenue procedure for the

same year of change must comply with the ordering rules of § 1. 263A-7(b)(2).

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 08 is “194. ” (5) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 09 Real property acquired through foreclosure

(1) Applicability . This change, as described in Rev. Proc. 2014-16, 2014-9 I. R. B. 606, applies to a taxpayer that capitalizes costs under § 263A(b)(2) and § 1. 263A-3(a)(1) to real property acquired through foreclosure, or similar transaction, where the taxpayer wants to change its method of accounting to an otherwise permissible method of accounting under which the acquisition and holding costs for real property acquired through foreclosure, or similar transaction, are not capitalized under § 263A(b)(2) and § 1. 263A3(a)(1). To qualify for this change in method of accounting, a taxpayer must:

(a) originate, or acquire and hold for investment, loans that are secured by real property; and

(b) acquire the real property that secures the loans at a foreclosure sale, by deed in lieu of foreclosure, or in another similar transaction.

(2) Inapplicability . This change does not apply to costs capitalized under § 263A(b)(1) and § 1. 263A-2(a)(1) by the taxpayer to the acquired real property as a result of production activities.

(3) Designated automatic accounting method change numbers . The designated automatic accounting method change number for a change under this section 12. 09 is “195. ” (4) Contact information . For further information regarding a change under this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number).

. 10 Sales-Based Royalties. (1) Description of change. This change, as described in Rev. Proc. 2014-33, 201422 I. R. B. 1060, applies to a taxpayer that wants to change its method of accounting for sales-based royalties (as described in § 1. 263A-1(e)(3)(ii)(U)( 2 )) that are properly allocable to inventory property:

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taxpayer must use a method described in § 1. 263A-7(c) to revalue beginning inventory.

(3) Concurrent automatic changes . A taxpayer making a change under this section 12. 10 and one or more automatic changes in method of accounting under § 263A for the same year of change may file a single Form 3115 for all changes, provided the taxpayer enters the designated automatic change numbers for all changes on the appropriate line on the Form 3115 and complies with the ordering rules of § 1. 263A–7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for changes in method of accounting under this section 12. 10 is “201. ”

(5) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method

(1) Description of change. This change, as described in Rev. Proc. 2014-33, 201422 I. R. B. 1060, applies to a taxpayer that wants to change its method of accounting to no longer include cost adjustments for sales-based vendor chargebacks described in § 1. 471-3(e)(1) in the formulas used to allocate additional § 263A costs to ending inventory under a simplified method.

(2) Limitations . (a) A taxpayer making this change that uses a simplified method to determine the additional § 263A costs allocable to inventory property on hand at year end must remove sales-based vendor chargebacks from the formulas used to allocate additional § 263A costs to ending inventory in the same manner that the taxpayer included these amounts in the formulas.

(b) A taxpayer making a change in method of accounting under this section 12.11 that uses a simplified method with a historic absorption ratio election (see §§ 1. 263A-2(b)(4) and 1. 263A-3(d)(4)) and currently includes sales-based vendor chargebacks in any part of its historic absorption ratio must revise its previous and current historic absorption ratio(s). To revise its historic absorption ratios, the taxpayer must apply its proposed

method of accounting during the test period, during all recomputation years, and during all updated test periods to determine the § 471 costs and additional § 263A costs that were incurred. The revised historic absorption ratios must be used to revalue beginning inventory and must be accounted for in the taxpayer’s § 481(a) adjustment. The taxpayer must use a method described in § 1. 263A-7(c) to revalue beginning inventory.

(3) Concurrent automatic changes . A taxpayer making both this change and one or more automatic changes under § 263A, or both this change and the change described in section 21. 15 of this revenue procedure for the same taxable year of change may file a single Form 3115 for both changes, provided the taxpayer enters the designated automatic change numbers for all changes on the appropriate line on the Form 3115 and complies with the ordering rules of § 1. 263A-7(b) (2). See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for changes in method of accounting under this section 12. 11 is “202. ”

(5) Contact information . For further information regarding a change under this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number)..

12 U.S. ratio method (1) Change to the U.S. ratio method (a) Description of change . This change applies to a foreign person, as defined in Notice 88-104, 1988-2 C. B. 443, as modified by Notice 89-67, 1989-1 C.B. 723, that is required to capitalize costs under § 263A and wants to change its method of accounting to the U. S. ratio method, as described in Notice 88-104.

(b) Manner of making change . A taxpayer requesting a change on behalf of a foreign person under section 12. 12(1) of this revenue procedure must make the change in accordance with the requirements set forth in section 12. 12(1)(c) of this revenue procedure, and must attach a statement to the Form 3115 providing the following information:

(i) Foreign person requirement . A representation that the foreign person is a qualified business unit (QBU), as defined

in § 1. 989(a)-1(b), of a foreign person, or the foreign branch of a U. S. person that constitutes a separate QBU, within the meaning of Notice 88-104. If the taxpayer is requesting a change in method of accounting on behalf of multiple foreign persons, please provide a representation that each foreign person is a QBU, as defined in § 1.989(a)-1(b), of a foreign person or the foreign branch of a U. S. person that constitutes a separate QBU, within the meaning of Notice 88-104;

(ii) Description of trade or business . The name and employer identification number (if applicable) for each foreign person and an explanation of each trade or business, as defined in § 1.446-1(d), for which a request to change to the U. S. ratio method is being made under this section 12. 12(1); (iii) Applicable U.S. trade or business requirement . The identity of the “applicable U.S. trade or business,” as defined in Notice 88-104, that the foreign person wishes to use and an explanation of how this U. S. trade or business is “the same as, or most similar to” the trade or business conducted by the foreign person. If the taxpayer is requesting a change in method of accounting for multiple foreign persons, the taxpayer must identify the “applicable U. S. trade or business” for each foreign person, and explain how the respective U. S. trade or business is “the same as, or most similar to” the trade or business conducted by the foreign person; and

(iv) Relationship requirement . An explanation of how the “applicable U. S. trade or business” identified in section 12. 12(1)(b)(iii) of this revenue procedure is a trade or business conducted in the United States by a “related person,” as defined in Notice 88-104, with respect to the foreign person requesting a change under this section. If the taxpayer is requesting a change in method of accounting for multiple foreign persons, the taxpayer must explain how the “applicable U.S. trade or business” identified in section 12. 12(1)(b)(iii) of this revenue procedure is a trade or business conducted in the United States by a “related person” for purposes of Notice 88-104 for each foreign person requesting a change in method of accounting. Use § 267(b) or § 707(b), as applicable, to explain the relationship.

(c) Additional requirements .

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(i) A foreign person must continue to use the U. S. ratio of the applicable U. S. trade or business identified in section 12. 12(1)(b)(iii) of this revenue procedure unless consent of the Commissioner is obtained to use the U.S. ratio of a different applicable U. S. trade or business under § 446(e) (see section 12. 12(2) of this revenue procedure);

(ii) In the case of a controlled foreign corporation, the controlling U. S. shareholder, or in the case of a foreign branch of a U. S. person, the U. S. person, must maintain records of the U. S. ratio used by each foreign person to calculate the additional § 263A costs capitalized to property produced and property acquired for resale for the year of change and for subsequent taxable years for each foreign person requesting a change in method of accounting under this section 12. 12. In the case of a controlled foreign partnership, the U. S. partner must maintain records of the U. S. ratio used by each foreign person to calculate the additional § 263A costs capitalized to property produced and property acquired for resale for the year of change and for subsequent taxable years for each foreign person requesting a change in method of accounting under this section 12. 12(1). (iii) The § 481(a) adjustment is computed in the manner provided in Notice 88-104; (iv) The U. S. ratio is determined, and the ratio is applied to the costs of property produced or property acquired for resale incurred by the foreign person, in accordance with Notice 88-104; and

(v) If any foreign person is unable to obtain a U. S. ratio from the applicable U.S. trade or business identified in section 12. 12(1)(b)(iii) of this revenue procedure, or is otherwise no longer eligible to use the U. S. ratio method, the foreign person is no longer permitted to use the U. S. ratio method. However, the foreign person is not ineligible to use the U. S. ratio method if the foreign person is able to obtain a U.S. ratio from a different applicable U.S. trade or business, and changes the applicable U. S. trade or business pursuant to section 12. 12(2) of this revenue procedure or under the non-automatic change procedures of this revenue procedure, as applicable. If a foreign person is no longer eligible to use the U. S. ratio method,

it is required to change its method of accounting to a method that complies with §§ 263A and 471 using either the automatic change procedures of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, and sections 12. 01, 12. 02, or 12. 08, as applicable, of this revenue procedure or the non-automatic change procedures of Rev. Proc. 2015-13. (2) Change within U.S. ratio method . This change applies to a foreign person currently using the U. S. ratio method that wants to use the U.S. ratio of a different applicable U. S. trade or business for purposes of applying the U. S. ratio method as described in section 12. 12(2)(a) or 12. 12(2)(b) of this revenue procedure. (a) Required change in the applicable U.S. trade or business

(i) In general . A foreign person is permitted to change its method of accounting under this section 12. 12(2)(a) to use the U.S. ratio of a different applicable U.S. trade or business, as defined in Notice 88-104, if the foreign person is no longer able to obtain the U. S. ratio from the applicable U. S. trade or business previously identified and if: (A) the U.S. person or related person in which the applicable U. S. trade or business is conducted terminates its existence; (B) the foreign person is no longer related, within the meaning of § 267(b) or § 707(b), to the U. S. person or related person in which the applicable U. S. trade or business is conducted; or (C) the U. S. person or related person ceases to conduct the applicable U. S. trade or business.

(ii) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13 does not apply to the change described in section 12. 12(2) (a) of this revenue procedure.

(iii) Manner of making change . A foreign person making a change in method of accounting under this section 12. 12(2) (a) must make the change in accordance with the requirements set forth in section 12. 12(2)(c) and (d) of this revenue procedure.

(b) Other changes in the applicable U.S. trade or business .

(i) In general . If the foreign person cannot make the change in method of accounting described in section 12. 12(2) (a) of this revenue procedure, or there is more than one U. S. trade or business that

can reasonably be considered the “same as, or most similar to” the foreign person’s trade or business, the foreign person is permitted to change its method of accounting under this section 12. 12(2)(b) to use the U.S. ratio of a different applicable U. S. trade or business.

(ii) Manner of making change . A foreign person making a change in method of accounting under this section 12. 12(2) (b) must make the change in accordance with the requirements set forth in section 12. 12(2)(c) and (d) of this revenue procedure.

(c) Section 481(a) adjustment . The § 481(a) adjustment is computed in the manner provided in Notice 88-104.

(d) Short Form 3115 in lieu of a standard Form 3115 . In accordance with § 1. 4461(e)(3)(ii), the requirement of § 1. 4461(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 for a change described in section 12. 12(2)(a) or 12. 12(2)(b) of this revenue procedure. The short Form 3115 (Rev. December 2022) must include 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); (iv) Part IV, all lines except Line 25; (v) the information required under section 12. 12(1)(b) of this revenue procedure; and

(vi) a statement that the change in method of accounting is made under section 12. 12(2)(a) or 12. 12(2)(b) of Rev. Proc. 2025-23, as applicable.

(3) Designated automatic accounting method change numbers . The designated automatic accounting method change number for a change under this section 12. 12 is “214. ” (4) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 13 Depletion (1) Description of change. This change applies to a taxpayer that wants to change its method of accounting for depletion to treat these amounts as an indirect cost that is only properly allocable to property that has been sold (that is, for purposes of

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determining gain or loss on the sale of the property) under § 1. 263A-1(e)(3)(ii)(J).

(2) Limitation. (a) A taxpayer making this change in method of accounting that uses a simplified method to determine the additional § 263A costs allocable to inventory property on hand at year end must remove depletion allocated to cost of goods sold from the formulas used to allocate additional § 263A costs to ending inventory in the same manner that the taxpayer included these amounts in the formulas.

(b) A taxpayer making this change in method of accounting that uses a simplified method with a historic absorption ratio election (see §§ 1. 263A-2(b) (4) and 1. 263A-3(d)(4)) and currently includes depletion in any part of its historic absorption ratio must revise its previous and current historic absorption ratios. To revise its historic absorption ratios, the taxpayer must apply its proposed method of accounting during the test period, during all recomputation years, and during all updated test periods to determine the § 471 costs and additional § 263A costs that were incurred. The revised historic absorption ratios must be used to revalue beginning inventory and must be accounted for in the taxpayer’s § 481(a) adjustment. The taxpayer must use a method described in § 1. 263A-7(c) to revalue beginning inventory.

(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) Concurrent automatic changes . A taxpayer making both this change and another automatic change under § 263A for the same year of change may file a single Form 3115 for both changes, provided the taxpayer enters the designated automatic change numbers for both changes on the appropriate line on that Form 3115 and complies with the ordering rules of § 1. 263A–7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(5) Designated automatic accounting method change number. The designated automatic accounting method change number for a change in method of accounting under this section 12. 13 is “215. ”

(6) Contact information. For further information regarding a change under

this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number)..

14 Interest capitalization . (1) Description of change (a) Applicability . This change applies to a taxpayer that wants to change its method of accounting for interest from not capitalizing any interest, capitalizing interest in accordance with its method of accounting for financial reporting purposes, or applying an improper method of capitalizing interest under §§ 1. 263A-8 through -14, with respect to the production of designated property, to capitalizing interest with respect to the production of designated property in accordance with §§ 1. 263A-8 through -14.

(b) Inapplicability . This change does not apply to a taxpayer that wants to change its method of accounting for interest to apply either: (1) current §§ 1. 263A-11(e) (1)(ii) and (iii); or (2) proposed §§ 1. 263A8(d)(3) and 1. 263A-11(e) and (f) (REG133850-13), as published on May 15, 2024 (89 FR 42404) and corrected on July 24, 2024 (89 FR 59864). (2) Manner of making change . A taxpayer requesting a change under this section 12. 14 must attach a statement to the Form 3115 with the following information:

(a) Representations as to the following: (i) The taxpayer’s method is in accordance with the avoided cost method under § 1. 263A-9; and

(ii) The taxpayer will comply with § 1. 263A-14 and Notice 88-99, 1988-2 C. B. 422, should the taxpayer incur average excess expenditures allocable to related persons; and

(b) Details with respect to the taxpayer’s sub-methods of accounting for determining capitalizable interest in accordance with §§ 1. 263A-8 through -14 (for example, whether the taxpayer elects to not trace debt under § 1. 263A-9(d); the computation period(s) used under the new method; and whether the taxpayer will suspend the capitalization of interest for units of property for which production has ceased for at least 120 consecutive days as determined under § 1. 263A-12(g)).

(3) Concurrent automatic changes . A taxpayer making a change under this section 12. 14 and one or more automatic changes in method of accounting under § 263A for the same year of change may

file a single Form 3115 for all changes, provided the taxpayer enters the designated automatic change numbers for all changes on the appropriate line on the Form 3115 and complies with the ordering rules of § 1. 263A-7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change in method of accounting under this section 12. 14 is “224. ”

(5) Contact information . For further information regarding a change under this section, contact Max Fishman at (202) 317-7007 (not a toll-free number).. 15 Change to not apply § 263A to replanting costs for lost or damaged cit- rus plants pursuant to § 263A(d)(2)(C) .

(1) Description of change (a) In general . This change, as described in Rev. Proc. 2018-35, 201828 I. R. B. 204, applies to a taxpayer, other than the owner described in § 263A(d)(2) (A), that: (i) paid or incurred replanting costs of citrus plants after the loss or damage of citrus plants by reason of freezing temperatures, disease, drought, pests, or casualty, as described in § 263A(d)(2) (A); (ii) paid or incurred the replanting costs after December 22, 2017, and on or before December 22, 2027; (iii) satisfies the ownership test provided in section 12. 15(1)(b) of this revenue procedure; and (iv) wants to change its method of accounting from applying § 263A to citrus plant replanting costs to not applying § 263A to those costs, pursuant to § 263A(d)(2)(C).

(b) Ownership test . The taxpayer satisfies the ownership test if either: (i) the owner described in § 263A(d)(2)(A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which the taxpayer paid or incurred amounts for replanting costs, and the taxpayer holds any part of the remaining equity interest; or (ii) the taxpayer acquired the entirety of the equity interest of the owner described in § 263A(d)(2)(A) in the land on which the lost or damaged citrus plants were located at the time of the loss or damage, and the replanting is on such land.

(2) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1)

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(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to this change. (3) Section 481(a) adjustment . A taxpayer making a change under this section 12. 15 calculates a § 481(a) adjustment by taking into account only amounts paid or incurred after December 22, 2017, and on or before December 22, 2027.

(4) Multiple changes . A taxpayer making both this change and another change in method of accounting in the same year of change must comply with the ordering rules of § 1. 263A-7(b)(2).

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 15 is “232. ” (6) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 16 Small business taxpayer exception from requirement to capitalize costs under § 263A .

(1) Description of change . This change applies to a small business taxpayer, as defined in section 12.01(3)(h) of this revenue procedure, that chooses to no longer capitalize costs under § 263A, including for self-constructed assets, pursuant to § 263A(i) and § 1. 263A-1(j).

(2) Inapplicability. (a) Home construction contracts . This change does not apply to a taxpayer not required by § 460(e)(1) to capitalize costs under § 263A for home construction contracts, and that wants to make a change to no longer capitalize costs under section 263A. See section 19. 01 of this revenue procedure to make this change.

(b) Election under § 263A(d)(3) . This change does not apply to a small business taxpayer, as defined in section 12.01(3) (h) of this revenue procedure, that elected under § 263A(d)(3) not to have § 263A apply to certain plants produced by the taxpayer in a farming business and wants to revoke its § 263A(d)(3) election and change to a method of accounting that no longer capitalizes costs under § 263A. But see Rev. Proc. 2020-13, 2020-11 I. R. B. 511. (3) Eligibility rule inapplicable . For a change described in section 12. 16(1) of this revenue procedure, if the taxpayer changed from not capitalizing costs under

§ 263A in accordance with § 263A(i) and § 1. 263A-1(j) to capitalizing costs under § 263A and the accompanying regulations within the prior five taxable years ending with the year of change, and such change was made in the first taxable year that the taxpayer did not qualify as a small business taxpayer, then such change is disregarded for purposes of section 5. 01(1)(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419.

(4) Reduced filing requirement . A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2022) to make this change:

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

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

(c) Part I; (d) Part II, all lines except line 16; and (e) Part IV, all lines except line 25. (5) Acceleration of § 481 adjustment . If a taxpayer making a change described in section 12. 16(1) of this revenue procedure has a § 481(a) adjustment remaining on a prior change in method of accounting from not capitalizing costs under § 263A in accordance with § 263A(i) and § 1. 263A-1(j) to capitalizing costs under § 263A and the accompanying regulations, then it must take the remaining portion of such prior § 481(a) adjustment into account in the year of change.

(6) Concurrent automatic changes . A small business taxpayer making a change under this section 12. 16 and a change under sections 15. 17, 22. 18 and/or 22. 19 of this revenue procedure for the same year of change may file a single Form 3115 for such changes, provided the taxpayer enters the designated automatic accounting method change number for each change on the appropriate line of the Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(7) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 16 is “234. ” (8) Contact information . For further information regarding a change under this section, contact Max Fishman at (202) 317-7007 (not a toll-free number).. 17 Recharacterizing costs under the simplified resale method, simplified pro-

duction method, or the modified simplified production method .

(1) Description of change (a) Applicability . This change applies to a taxpayer that uses or is changing to the simplified production method, the modified simplified production method, or the simplified resale method under §§ 1. 263A-2(b), 1. 263A-2(c), and 1. 263A-3(d), respectively, and that wants to recharacterize a section 471 cost, as defined in § 1.263A-1(d) (2), as an additional section 263A cost, as defined in § 1.263A-1(d)(3), or vice versa, in accordance with the characterization requirements of § 1. 263A-1(d) (2) and (d)(3). For example, this change applies to a taxpayer using the modified simplified production method that treats a direct cost of property produced or property acquired for resale as an additional section 263A cost and that wants to change to characterize the direct cost as a section 471 cost, as required by § 1. 263A-1(d)(2)(ii).

(b) Inapplicability . This change does not apply to a change in method of accounting that is described in another section of this revenue procedure or in other guidance published in the Internal Revenue Bulletin. For example, this change does not apply to a taxpayer that wants to make a change described in section 12. 01 or 12. 02 of this revenue procedure, such as a change to use the methods described in § 1. 263A-1(d)(2)(iv), (v), or (vi), § 1. 263A-2(b), § 1. 263A-2(c), or § 1. 263A-3(d).

(2) Restatement of financial statement . A taxpayer’s restatement of its financial statement does not invalidate the taxpayer’s method of accounting or change its determination of section 471 costs in earlier taxable years.

(3) Reduced filing requirement . A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2022) to make this change:

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

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

(c) Part I; (d) Part II, all lines except lines 13, 15b, 16c, and 19; (e) Part IV, all lines except line 25; and (f) Schedule D, all Parts except Part I.

June 9, 2025 1540 Bulletin No. 2025–24

is otherwise deductible, but the bonus is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the bonus as deductible in the taxable year of the employer in which or with which ends the taxable year of the employee in which the bonus is includible in the gross income of the employee; or

(B) Bonuses that are subject to capital- ization under § 263A . If by the end of the taxable year all the 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. 446-1(c)(1)(ii)), and the bonus is otherwise deductible (without regard to § 263A), but the bonus is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the bonus as capitalizable (within the meaning of § 1. 263A-1(c) (3)) in the taxable year of the employer in which or with which ends the taxable year of the employee in which the bonus is includible in the gross income of the employee.

(ii) Vacation pay (A) Vacation pay not subject to cap- italization under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of the liability can be determined with reasonable accuracy ( see § 1. 446-1(c)(1)(ii)), and the vacation pay is otherwise deductible but the vacation pay is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the vacation pay as deductible in the taxable year of the employer in which the vacation pay is paid to the employee; or

(B) Vacation pay that is subject to cap- italization under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of the liability can be determined with reasonable accuracy ( see § 1. 446-1(c)(1)(ii)), and the vacation pay is otherwise deductible (without regard to § 263A), but the vacation pay is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the vacation pay as capitalizable (within the meaning of § 1. 263A-1(c)(3)) in the

(4) Limitation . If a taxpayer making this change in method of accounting uses a historic absorption ratio election under §§ 1. 263A-2(b)(4), 1. 263A-2(c)(4), or

1. 263A-3(d)(4), and the change in the characterization of cost(s) under this section 12.17 affects any part of the taxpayer’s historic absorption ratio, the taxpayer must revise its previous and current historic absorption ratios. To revise its historic absorption ratios, the taxpayer must apply its proposed method of accounting during the test period, during all recomputation years, and during all updated test periods to determine the section 471 costs and additional section 263A costs that were incurred. The revised historic absorption ratios must be used to revalue beginning inventory and must be accounted for in the taxpayer’s § 481(a) adjustment. The taxpayer must use a method described in § 1. 263A-7(c) to revalue beginning inventory.

(5) Concurrent automatic changes . A taxpayer making both this change and another automatic change under § 263A for the same year of change may file a single Form 3115 for both changes, provided the taxpayer enters the designated automatic change numbers for both changes on the appropriate line of that Form 3115 and complies with the ordering rules of § 1. 263A-7(b)(2). See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 12. 17 is “237. ” (7) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).