SECTION 14. DEFERRED

COMPENSATION (§ 404).

01 Deferred compensation (1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to treat bonuses or vacation pay as follows ( see § 404(a)(5) and § 1.404(b)-1T, Q&A 2):

(a) Applicability (i) Bonuses (A) Bonuses not subject to capitaliza- tion 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

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taxable year of the employer in which the vacation pay is paid to the employee .

(b) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 14 .01 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12 .01, 12 .02, 12 .08, or 12 .12 of this revenue procedure (as applicable) .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 14 .01 is “28 .” (3) Contact information . For further information regarding a change under this section, contact Thomas Scholz at (202) 317-5600 (not a toll-free number) . .02 Grace period contributions . (1) Description of change . This change applies to a taxpayer that wants to cease deducting contributions made during the § 404(a)(6) grace period to a qualified cash or deferred arrangement within the meaning of § 401(k) or to a defined contribution plan as matching contributions with the meaning of § 401(m) when the contributions are attributable to compensation earned by plan participants after the end of a taxable year as required by Rev . Rul . 2002-46, 2002-2 C .B . 117, as modified by Rev. Rul. 2002-73, 2002-2 C.B. 805 . (2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 14 .02 is “29 .” (3) Contact information . For further information regarding a change under this section, contact Jeremy Lamb at 202-3176799 (not toll-free numbers) .

SECTION 15 . METHODS OF ACCOUNTING (§ 446)

.01 Change in overall method from the cash method, or from an accrual method with regard to purchases and sales of inventories and the cash method for all other items, to an accrual method .

(1) Description of change . (a) Applicability . This change applies to a taxpayer that wants to change its overall method of accounting from the cash receipts and disbursements method (cash method), or from an accrual method with regard to purchases and sales of inventories and the cash method for computing all other items of income and expense, to an accrual method . A change under this section 15 .01 applies to (1) a taxpayer required to make this change by § 448, any other section of the Code or regulations, or in other guidance published in the Internal Revenue Bulletin (IRB), and (2) a taxpayer that wants to make this change but is not required to do so by § 448, any other section of the Code or regulations, or in other guidance published in the IRB . A taxpayer changing its overall method of accounting to an accrual method because it is prohibited from using the cash method under § 448 may use this section 15 .01 regardless of whether the year of change is the first taxable year that the taxpayer is required by § 448 to change from the cash method, as defined in § 1.448-2(g) (1) (“mandatory § 448 year”), or a taxable year other than the taxpayer’s mandatory § 448 year . Similarly, a taxpayer changing its overall method of accounting to an accrual method because it is prohibited from using the cash method under § 447 may use this section 15 .01 regardless of whether the year of change is the first taxable year that the taxpayer is required by § 447 to change from the cash method or a subsequent taxable year in which the taxpayer is newly subject to § 447 after previously making a change in method of accounting that complies with § 447 (“mandatory § 447 year”), or a taxable year other than a mandatory § 447 year, as applicable .

Additionally, a taxpayer qualifies to change its overall method of accounting to an accrual method using this section 15 .01 even if the taxpayer is also making one or more of the following changes in method of accounting for the same year of change:

(i) adopting the recurring item exception, as defined in section 15.01(2)(c) of this revenue procedure, for one or more types of recurring items . See § 1 .461-5(d);

(ii) adopting or changing to a permissible inventory method of accounting and is either adopting this inventory method

or qualifies to change to this inventory method using the automatic change procedures of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, and a section of this revenue procedure, or the change can be made automatically under any section of the Code or regulations, or other guidance published in the IRB . See Rev . Rul . 90-38, 1990-1 C .B . 57, regarding when a taxpayer may adopt a method of accounting;

(iii) adopting or changing to a permissible § 263A method of accounting and is either adopting this § 263A method or qualifies to change to this § 263A method using the automatic change procedures of Rev . Proc . 2015-13 and a section of this revenue procedure, or the change can be made automatically under any section of the Code or regulations, or other guidance published in the IRB . See Rev . Rul . 90-38 regarding when a taxpayer may adopt a method of accounting; or

(iv) adopting or changing to any other special method of accounting (as defined in section 15 .01(2)(d) of this revenue procedure) and is either adopting this special method or qualifies to change to this special method using the automatic change procedures of Rev . Proc . 2015-13 and a section of this revenue procedure, or the change can be made automatically under any section of the Code or regulations, or other guidance published in the IRB . See Rev . Rul . 90-38 regarding when a taxpayer may adopt a method of accounting .

Also, a taxpayer qualifies to use this section 15 .01 when that taxpayer, in the taxable year immediately preceding the year of change, has used a permissible inventory method for that year, and, if that taxpayer was subject to § 263A for that year, has also used a permissible § 263A method for that year, and the method(s) continue to be used for the year of change .

Lastly, a taxpayer with an applicable financial statement (AFS), as defined in § 1 .451-3(a)(5), that is changing its overall method of accounting to an accrual method qualifies to use this section 15.01 to comply with § 1 .451-3 .

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

(i) a taxpayer that uses any combination of the cash method and an accrual method as its present overall method of accounting other than an accrual method with respect to purchases and sales of inventories and

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the cash method for computing all other items of income and expense;

(ii) a taxpayer that is changing its method of accounting for one or more items of income or expense, but not its overall method of accounting. See section 15. 09 of this revenue procedure for a description of accounting method changes from the cash method to an accrual method for specific items that are to be made using the automatic change procedures of Rev. Proc. 2015-13 and that section;

(iii) a taxpayer that is required by the Code, regulations, or other guidance published in the IRB to use a special method such as, for example, an inventory method, a § 263A method, or a long-term contract method, in the year of change and fails to adopt or change to that method;

(iv) a taxpayer that has included in its § 481(a) adjustment any amount of deferred compensation that is described under § 457A(d)(3) that is attributable to services performed before January 1, 2009; (v) a taxpayer that is engaged in two or more trades or businesses, unless that taxpayer makes this change for each trade or business so that the identical accrual method is used for each trade or business beginning with the year of change;

(vi) a cooperative organization described in §§ 501(c)(12), 521, or 1381;

(vii) an individual taxpayer, except for activities conducted as a sole proprietorship;

(viii) a taxpayer with an AFS that wants to make a change in method of accounting for allocating transaction price between an item of gross income that is subject to § 451 and an item of gross income that is subject to a special method of accounting, as defined in § 1.451-3(a)(14), including a change to comply with the transaction price allocation rules in § 1. 451-3(d)(5);

(ix) a taxpayer with an AFS that wants to change to use the AFS cost offset method, as defined in § 1.451-3(c), if the taxpayer receives advance payments from the sale of inventory and does not also make a concurrent change to apply the advance payment cost offset method, as defined in § 1.451-8(e), for the same year of change by using section 16. 08 of this revenue procedure, or a taxpayer with an AFS that wants to change to use the advance payment cost offset method if

the taxpayer is required to include gross income from the sale of inventory under § 1. 451-3 and does not also make a change to apply the AFS cost offset method;

(x) a taxpayer with an AFS that wants to make a change in method of accounting for specified fees as defined in § 1.4513(j)(2), other than specified credit card fees; or

(xi) a taxpayer that wants to make a change in method of accounting for payments within the scope of the specified good exception, as defined in § 1.451‑8(a) (1)(ii), if the proposed method of accounting is to include such payments in gross income under § 1. 451-3 in one or more taxable years following the taxable year of receipt.

(2) Definitions (a) Cash method . The cash method is the method of accounting identified by § 446(c)(1) and §§ 1. 446-1(c)(1)(i), 1. 4511(a), and 1. 461-1(a)(1). See also § 1. 614(a) for specific rules relating to farmers’ income; § 1.162-12, in part, for specific rules relating to farmers’ expenses.

(b) Accrual method . An accrual method is a method of accounting identified by § 446(c)(2) and §§ 1. 446-1(c)(1)(ii),

1. 451-1(a), 1. 451-3, and 1. 461-1(a)(2). For a taxable year beginning after December 31, 2017, for which the taxpayer has an AFS, the all events test under § 451(b) (1)(C) and § 1. 451-1(a) for any item of gross income, or portion thereof, is met no later than when that item, or portion thereof, is taken into account as AFS revenue. See § 451(b)(1) and § 1. 451-3(b).

(c) Recurring item exception . The recurring item exception is the method described in § 461(h)(3) and § 1. 461-5.

(d) Special method of accounting . A special method of accounting within the meaning of this section 15. 01 is a method of accounting, other than the cash method, expressly permitted or required by the Code, regulations, or in other guidance published in the IRB, that deviates from the tax accrual accounting rules of §§ 446, 451, 461, and the regulations thereunder. For purposes of this section 15. 01, a deferral method under § 451(c) and the regulations thereunder is deemed to be a special method of accounting. Examples of special methods of accounting include the installment method of accounting under § 453, the mark-to-market method

under § 475, a long-term contract method under § 460, and the crop method under § 1. 162-12. In contrast, application of the all-events test under a specific set of facts is not a special method of accounting. See, for example, Rev. Rul. 69-314, 1969-1 C. B. 139 concerning the treatment of retainages.

(3) Manner of making change (a) Section 481(a) adjustment A taxpayer changing its overall method of accounting under this section 15. 01 must compute a § 481(a) adjustment. This adjustment must reflect the account receivables, account payables, inventory, and any other item determined to be necessary in order to prevent items from being duplicated or omitted. However, the adjustment does not include any item of income accrued but not received that was worthless or partially worthless, within the meaning of § 166(a), on the last day of the year immediately prior to the year of change.

(b) Change to comply with § 1.451- 3 . A taxpayer that uses section 15. 01(1) (a) of this revenue procedure to comply with § 1. 451-3 must also complete Line 3 of Schedule B of Form 3115, Application for Change in Accounting Method (Rev. December 2022).

(c) Adoption of recurring item excep- tion . The taxpayer must attach to its Form 3115 a statement describing the types of liabilities for which the recurring item exception will be used.

(d) Concurrent automatic change to a special method .

(i) Generally only one Form 3115 required . Except as provided in section 15. 01(3)(d)(ii) of this revenue procedure, a taxpayer that is changing its overall method of accounting to an accrual method under this section 15. 01 and changing to one or more special methods, as permitted under section 15. 01(1)(a)(ii), (iii), or (iv) of this revenue procedure, must timely 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 of Form 3115. For example, a taxpayer making both an overall change in method of accounting from the cash method to an accrual method under this section 15. 01 and a change to the deferral method for advance payments under section 16. 08 of

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this revenue procedure must timely file a single Form 3115 for both changes and enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513 for information on making concurrent changes.

(ii) Two Forms 3115 required when a concurrent change is being implemented under section 32.01 of this revenue pro- cedure for short-term obligations . When a taxpayer subject to § 1281 is changing its method of accounting for interest income on short-term obligations as part of the overall change in method of accounting to an accrual method under this section 15. 01, that taxpayer must request the change for the interest income under section 32. 01 of this revenue procedure. The taxpayer must timely file individual Forms 3115 for each change requested. This section 15. 01 will govern the overall change in method of accounting to an accrual method.

(e) Concurrent change in accounting method not permitted to be implemented using the automatic change procedures of Rev. Proc. 2015-13 and a section of this revenue procedure, any section of the Code or regulations, or other guidance published in the IRB . A taxpayer that does not qualify to change its overall method of accounting to an accrual method under this section 15. 01 because that taxpayer is concurrently changing to a method of accounting that may not be implemented using the automatic change procedures of Rev. Proc. 2015-13 and a section of this revenue procedure, any section of the Code or regulations, or other guidance published in the IRB, must timely request both changes using the non-automatic change procedures in Rev. Proc. 201513. See Rev. Proc. 2025-1, 2025-1 I. R. B. 1 (or successor), for more information on whether one Form 3115 is required to request the changes, and for information on the appropriate user fee.

(4) Change made in the taxpayer’s mandatory § 448 year . If the year of change is a mandatory § 448 year, as defined in § 1.448-2(g)(1), such taxpayer makes the change from the cash method to an accrual method under the provisions of this section 15. 01 and must comply with all the requirements and provisions

of § 1. 448-2(g), in addition to the requirements and provisions of this section 15. 01.

(5) Prior change eligibility rule inap- plicable . For a taxpayer making a change from the cash method in a mandatory § 448 year, a mandatory § 447 year, or in the first taxable year it is required to use an accrual method for purchases and sales of inventories as a result of becoming a former small business taxpayer, as defined in section 12. 01(3)(i) of this revenue procedure, and having to apply § 1. 446-1(c) (2)(i), as applicable, any prior change to the overall cash method is disregarded for purposes of section 5. 01(1)(e) of Rev. Proc. 2015-13.

(6) Designated automatic accounting method change number

(a) Change made in the mandatory § 448 year . The designated automatic accounting method change number for a change from the cash method to an accrual method in the mandatory § 448 year is “257. ”

(b) Change made for a taxpayer sub- ject to § 447 . The designated automatic accounting method change number for a change from the cash method to an accrual method for a taxpayer subject to § 447 under this section 15. 01 is “258. ”

(c) All other changes under this section 15.01 . The designated automatic accounting method change number for all other changes from the cash method or from an accrual method with regard to purchases and sales of inventories and the cash method for computing all other items of income and expense to an accrual method under this section 15. 01 is “122. ”

(7) Contact information . For further information regarding a change under this section, contact Elizabeth Boone at 202317-7007 (not a toll-free number). . 02 Multi-year insurance policies for multi-year service warranty contracts

(1) Description of change . (a) Applicability . This change applies to a manufacturer, wholesaler, or retailer of motor vehicles or other durable consumer goods that wants to change its method of accounting for insurance costs paid or incurred to insure its risks under multi-year service warranty contracts to the method described in section 15. 02(2) of this revenue procedure. Multi-year service warranty contracts to which this change applies include only

those separately priced contracts sold by a manufacturer, wholesaler, or retailer also selling the motor vehicles or other durable consumer goods underlying the contracts (to the ultimate customer or to an intermediary). The classification of goods as “durable consumer goods” for purposes of this change depends on the common usage of the goods, rather than the purchaser’s actual intended use of the goods.

(b) Inapplicability . This change does not apply to a taxpayer that covers its risks under its multi-year service warranty contracts through arrangements not constituting insurance.

(2) Description of method . If a taxpayer purchases a multi-year service warranty insurance policy (in connection with its sale of multi-year service warranty contracts to customers) by paying a lump-sum premium in advance, the taxpayer must capitalize the amount paid or incurred and may only obtain deductions for that amount by prorating (or amortizing) it over the life of the insurance policy (whether the cash method or an accrual method of accounting is used to account for service warranty transactions).

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 02 is “31. ” (4) Contact information . For further information regarding a change under this section, contact David Sill at (202) 3177011 (not a toll-free number).. 03 Nonaccrual-experience method (1) Description of change (a) Applicability . This change applies to a taxpayer that wants to make one or more of the changes in method of accounting to, from, or within a nonaccrual-experience (NAE) method of accounting that are described in sections 3. 01(1) through (5) of Rev. Proc. 2006-56, 2006-2 C. B. 1169, as modified by Rev. Proc. 2011-14, 2011-4 I.R.B. 330, and as modified and amplified by Rev. Proc. 2011-46, 2011-42 I. R. B. 518.

(b) Inapplicability . This change does not apply to a taxpayer within the scope of sections 3. 01(6) through 3. 01(8) of Rev. Proc. 2006-56, as modified and amplified by Rev. Proc. 2011-46.

(2) Manner of making the change .

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(a) Changes made with a § 481(a) adjustment . A change in method of accounting described in section 3. 01(1), (2), (3), or (5) of Rev. Proc. 2006-56, as modified and amplified by Rev. Proc. 2011-46, is made with a § 481(a) adjustment.

(b) Changes made on a cut-off basis (i) In general . A change described in section 3. 01(4) of Rev. Proc. 2006-56 is made on a cut-off basis and the new applicable period applies only to the taxpayer’s NAE calculation of its uncollectible amount for the year of change and for subsequent years. Moreover, a change described in sections 5. 02 and 5. 03 of Rev. Proc. 2011-46 is made on a cut-off basis and the proposed method applies only to accounts receivable earned on or after the first day of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required for a change described in section 3. 01(4) of Rev. Proc. 2006-56 or in section 5. 02 or 5. 03 of Rev. Proc. 2011-46.

(ii) Special filing rules for changes made under section 5.02 and 5.03 of Rev. Proc. 2011-46, as modified by this reve- nue procedure .

(A) 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 a change in method of accounting made under section 5. 02 or 5.03 of Rev. Proc. 2011-46, as modified by this revenue procedure.

(B) Filing rules . In accordance with § 1. 446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115 in section 3. 07 of Rev. Proc. 2015-13, the statement in lieu of a Form 3115 that is permitted under section 5. 02 or 5. 03 of Rev. Proc. 2011-46 and this section 15. 03 is considered a Form 3115 for purposes of the automatic change procedures of Rev. Proc. 2015-13. However, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived. See section 5. 02 or 5. 03 of Rev. Proc. 2011-46, as applicable, for what information is required to be provided on the statement.

(3) Concurrent change to overall accrual method and a NAE method of

accounting . A taxpayer making both an automatic change to, from, or within a NAE method of accounting under this section 15. 03 and an automatic change to an overall accrual method under section 15. 01 of this revenue procedure (whether or not it is the taxpayer’s mandatory § 448 year), must file a single Form 3115 for both changes. The taxpayer must complete all applicable sections of Form 3115, including sections that apply to the change to an overall accrual method and to the change to a NAE method, and must enter the automatic accounting method change numbers for both changes on Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513 for information on making concurrent changes.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change to, from, or within a NAE method of accounting under this section 15. 03 is “35. ”

(5) Contact information . For further information regarding a change under this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).. 04 Interest accruals on short-term consumer loans—Rule of 78’s method

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting from the Rule of 78’s method to the constant yield method for stated interest (including stated interest that is original issue discount) on shortterm consumer loans described in Rev. Proc. 83-40, 1983-1 C. B. 774, which was obsoleted by Rev. Proc. 97-37, 1997-2 C. B. 455.

(2) Background (a) A short-term consumer loan is described in Rev. Proc. 83-40, provided:

(i) the loan is a self-amortizing loan that requires level payments, at regular intervals at least annually, over a period not in excess of five years (with no balloon payment at the end of the loan term); and

(ii) the loan agreement between the borrower and the lender provides that interest is earned, or upon the prepayment of the loan interest is treated as earned, in accordance with the Rule of 78’s method.

(b) In general, the Rule of 78’s method allocates interest over the term of a loan based, in part, on the sum of the periods’

digits for the term of the loan. See Rev. Rul. 83-84, 1983-1 C. B. 97, for a description of the Rule of 78’s method.

(c) In general, the constant yield method allocates interest and original issue discount over the term of a loan based on a constant yield. See § 1. 12721(b) for a description of the constant yield method. The Rule of 78’s method generally front-loads interest as compared to the constant yield method.

(d) Rev. Proc. 83-40 was obsoleted because, under §§ 1. 446-2 and 1. 1272-1 (which were effective for debt instruments issued on or after April 4, 1994), taxpayers generally must account for stated interest and original issue discount on a debt instrument (loan) by using a constant yield method. As a result, the Rule of 78’s method is no longer an acceptable method of accounting for federal income tax purposes.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 04 is “71. ” (4) Contact information . For further information regarding a change under this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number)..

05 Film producer’s treatment of cer- tain creative property costs

(1) Description of change . This change applies to a taxpayer that wants to change the method of accounting for creative property costs to the safe harbor method provided by section 5 of Rev. Proc. 200436, 2004-1 C. B. 1063. This safe harbor method of accounting applies to a taxpayer engaged in the trade or business of film production and to creative property costs (as defined in section 2.01 of Rev. Proc. 2004-36) properly written off by the taxpayer under The American Institute of Certified Public Accountants Statement of Position (SOP) 00-2, “Accounting for Producers or Distributors of Film. ”

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 05 is “85. ” (3) Contact information . For further information regarding a change under this section, contact Christian Lagorio at (202) 317-7005 (not a toll-free number).

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06 Deduction of incentive payments to health care providers

(1) Description of change . This change applies to a taxpayer that wants to change to the method of accounting for provider incentive payments under which those payments are included in discounted unpaid losses without regard to § 404, as provided in Rev. Proc. 2004-41, 2004-2 C. B. 90. A payment by a taxpayer to a health care provider is a “provider incentive payment,” and thus eligible for this treatment, if (a) the taxpayer is taxable as an insurance company under Part II of subchapter L; (b) the payment is made pursuant to a written agreement the purpose of which is to encourage participating health care providers to provide quality health care to the taxpayer’s subscribers in a cost-efficient manner; (c) the taxpayer’s liability for the payment is dependent on the attainment of one or more preestablished goals during a performance period consisting of not more than 12 consecutive months; (d) the terms of the arrangement pursuant to which the payment is made are established unilaterally by the taxpayer, and are not negotiated with the health care providers; (e) the taxpayer normally makes payments to health care providers under the arrangement within 12 months after the close of the performance period; (f) deferring the receipt of income by the health care provider or otherwise providing a tax benefit to the provider is not a principal purpose of the arrangement; (g) the taxpayer records a liability for the payment on its annual statement filed for state regulatory purposes, and includes this liability in the determination of discounted unpaid losses under § 846; and (h) the health care provider is not an employee, and is not providing health care as an agent, of the taxpayer. See Rev. Proc. 2004-41.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 06 is “90. ” (3) Contact information . For further information regarding a change under this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number)..

07 Change by bank for uncollected interest

(1) Description of change . This change applies to a “bank” as defined in § 1.166

2(d)(4)(i) that: (a) uses an overall accrual method of accounting to determine its taxable income for federal income tax purposes; (b) is subject to supervision by Federal authorities, or by state authorities maintaining substantially equivalent standards; (c) has uncollected interest other than interest described in § 1. 446-2(a)(2); and (d) has six or more years of collection experience. Under the safe harbor method of accounting provided by section 4 of Rev. Proc. 2007-33, 2007-1 C. B. 1289, a bank determines for each taxable year the amount of uncollected interest (other than interest described in § 1. 446-2(a)(2)) for which it is considered to have a reasonable expectancy of payment by multiplying: (a) the total accrued (determined under § 1. 446-2) but uncollected interest for the year, by (b) the bank’s “recovery percentage” (determined under section 4. 02 of Rev. Proc. 2007-33) for that year. Solely for purposes of this safe harbor, the bank is not considered to have a reasonable expectancy of payment for the excess, if any, of the accrued but uncollected interest over the expected collection amount determined using the bank’s recovery percentage. The bank includes in gross income the portion of accrued but uncollected interest for which it has a reasonable expectancy of payment. The bank excludes from income the portion of accrued but uncollected interest for which it has no reasonable expectancy of payment.

(2) Recovery percentage . Subject to the limitations and conditions in Rev. Proc. 2007-33, sections 4. 02(2), (3), and (4), a bank determines its recovery percentage for each taxable year by dividing: (a) total payments that the bank received on loans (including principal and interest) during the 5 taxable years immediately preceding the taxable year, by (b) total amounts that were due and payable to the bank on loans during the same 5 taxable years. The recovery percentage cannot exceed 100 percent and must be calculated to at least four decimal places. The data used in the recovery percentage must take into account acquisitions and dispositions. If a bank acquires the major portion of a trade or business of another person (predecessor) or the major portion of a separate unit of a trade or business of a predecessor, then in applying Rev. Proc. 2007-33 for any

taxable year ending on or after the acquisition, the data from preceding taxable years of the predecessor attributable to the portion of the trade or business acquired, if available, must be used in determining the bank’s recovery percentage. If a bank disposes of a major portion of a trade or business or the major portion of a separate unit of a trade or business, and the bank furnished the acquiring person the information necessary for the computations required by Rev. Proc. 2007-33, then in applying the revenue procedure for any taxable year ending on or after the disposition, the data from preceding taxable years attributable to the disposed portion of the trade or business may not be used in determining the bank’s recovery percentage.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 07 is “108. ” (4) Contact information . For further information regarding a change under this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).. 08 Change from the cash method to an accrual method for specific items

(1) Description of change . (a) Applicability . This change applies to a taxpayer that uses an overall accrual method of accounting but has identified a specific item or items of income or expense (or both) that are being accounted for on the cash method of accounting. This change does not apply to a taxpayer that is changing its overall method of accounting to an accrual method. Such a taxpayer may be eligible to change using section 15. 01 of this revenue procedure. (b) Inapplicability . This change does not apply to:

(i) a taxpayer that presently uses an accrual method with respect to purchases and sales of inventories and the cash method for all other items (but see section 15. 01 of this revenue procedure); (ii) a taxpayer that will not have all items of income and expense on an accrual method subsequent to the change under this section 15. 08;

(iii) a cooperative organization described in § 501(c)(12), 521, or 1381;

(iv) an individual taxpayer, except for activities conducted as a sole proprietorship;

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(v) a taxpayer engaged in two or more trades or businesses, unless the taxpayer makes this change so that the identical accrual method is used for each such trade or business beginning with the year of change;

(vi) a change in method of accounting for any payment liability described in § 1. 461-4(g);

(vii) a change in the method of accounting for interest that is not taken into account under § 1. 446-2;

(viii) a taxpayer that has included in its § 481(a) adjustment any amount of deferred compensation that is described under § 457A(d)(3) that is attributable to services performed before January 1, 2009; (ix) a change in the method of accounting for any foreign income tax as defined in § 1. 901-2(a); and

(x) any change that is specifically provided in another section of this revenue procedure.

(2) Definitions (a) “Cash method of accounting” is the method identified by § 446(c)(1) and §§ 1. 446-1(c)(1)(i), 1. 451-1(a), and

1. 461-1(a)(1). (b) “Accrual method of accounting” is the method identified by § 446(c)(2) and §§ 1. 446-1(c)(1)(ii), 1. 451-1(a), 1. 4513, and 1. 461-1(a)(2). For a taxable year beginning after December 31, 2017, for which the taxpayer has an AFS, the all events test under § 451(b)(1)(C) and § 1. 451-1(a) for any item of gross income, or portion thereof, is met no later than when that item, or portion thereof, is taken into account as AFS revenue. See § 451(b) (1) and § 1. 451-3(b).

(3) Additional requirements . To change a method of accounting under this section 15. 08, a taxpayer must attach to its completed Form 3115 a full and complete description of each specific item for which the change in method of accounting is being made and how the accrual method of accounting applies to each item, and list the § 481(a) adjustment, if any, for each item associated with the change. The change is fully and completely described if each income and expense item is described with specificity and how the all-events test (and the economic performance requirement, if applicable) applies to each item is described

under the facts and circumstances of the taxpayer’s trade or business . For example, a taxpayer that merely states that it is changing its accounting method for advertising expenses from the cash method to an accrual method, recites the regulations under § 1 .461-1(a)(2), and enters the associated § 481(a) adjustment has failed to describe fully and completely the specific item for which the change in method of accounting is being made . In contrast, a taxpayer that states that it is changing its method of accounting for print advertising expenses from the cash method of accounting to an accrual method of accounting, describes all of the relevant facts related to the print advertising expenses, and explains how the all-events test applies to those facts and when economic performance occurs has fully and completely described the item and the change . See section 6 .03 of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, for additional filing requirements.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15 .08 is “124 .” (5) Contact information . For further information regarding a change under this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number) . .09 Multi-year service warranty con- tracts .

(1) Description of change . (a) Applicability . This change applies to a manufacturer, wholesaler, or retailer of motor vehicles or other durable consumer goods that uses an overall accrual method of accounting and wants to change to the service warranty income method described in section 5 of Rev . Proc . 97-38, 1997-2 C .B . 479 . Under the service warranty income method, a qualifying taxpayer may, in certain specified and limited circumstances, include a portion of an advance payment related to the sale of a multi-year service warranty contract in gross income generally over the life of the service warranty obligation .

(b) Inapplicability . This change does not apply to a taxpayer not within the scope of Rev . Proc . 97-38 .

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

(a) This change is made on a cutoff basis and applies only to qualified advance payments for multi-year service warranty contracts on or after the beginning of the year of change . Accordingly, a § 481(a) adjustment is neither permitted nor required .

(b) In accordance with § 1 .446-1(e)(3) (ii), the requirement of § 1 .446-1(e)(3)(i) to file a standard Form 3115 is waived and pursuant to section 6 .02(2) of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, a short Form 3115 is authorized for this change . 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); and (iv) the information required under section 6 .03 of Rev . Proc . 97-38, except that the statement under section 6 .03(2) (that the taxpayer agrees to all of the terms and conditions of the revenue procedure) also should refer to Rev . Proc . 2015-13 .

(3) Additional requirement . A taxpayer changing to the service warranty income method of accounting under this section 15 .09 must satisfy the annual reporting requirement set forth in section 6 .04 of Rev . Proc . 97-38 .

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15 .09 is “125 .” (5) Contact information . For further information regarding a change under this section, contact Morgan Lawrence at (202) 317-7011 (not a toll-free number) .

.10 Overall cash method for specified transportation industry taxpayers .

(1) Description of change . This change applies to a “specified transportation industry taxpayer” with “average annual gross receipts” of more than the inflation-adjusted amount, as defined in section 15 .10(2)(f) of this revenue procedure, and not in excess of $50,000,000 that wants to change to the overall cash receipts and disbursements (cash) method . For a small business taxpayer, as defined in section 15.17(4)(a) of this revenue procedure, see section 15 .17 of this revenue procedure for a change to the overall cash method .

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age annual gross receipts limitation. See § 448(c)(2) and § 1. 448-2(c)(2)(ii).

(f) Inflation-adjusted amount . The inflation-adjusted amount is the dollar amount specified in § 448(c)(1), adjusted for inflation. See § 448(c)(4). For a taxable year beginning in 2019, 2020, or 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. (g) Treatment of short taxable year . In the case of a short taxable year, a taxpayer’s gross receipts must be annualized by multiplying the gross receipts for the short taxable year by 12 and then dividing the result by the number of months in the short taxable year. See § 448(c)(3)(B) and § 1. 448-2(c)(2)(iii).

(h) Treatment of predecessors . Any reference to a taxpayer in this section 15. 10 includes a reference to any predecessor of that taxpayer. See § 448(c)(3)(D).

(i) Cash method . The “cash method” is the method identified by § 446(c)(1) and §§ 1. 446-1(c)(1)(i), 1. 451-1(a), and

1. 461-1(a)(1). (3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section
2. 10 is “126. ” (4) Example . Taxpayer X is an LLC and taxed for federal income tax purposes as a partnership. Taxpayer X does not have any C corporations as partners and Taxpayer X is not a tax shelter within the meaning of § 448(d)(3). Taxpayer X ’s business consists of short-haul trucking among various cities within State Y, which satisfies the description of the NAICS subsector code
3. Taxpayer X determines that its 3-year average annual gross receipts for each

(2) Definitions . For purposes of this section 15.10 the following definitions apply:

(a) Specified transportation indus- try taxpayer . A specified transportation industry taxpayer is a taxpayer that satisfies the following criteria for the year of change:

(i) The taxpayer reasonably identifies its “business” (as defined in section 15. 10(2)(b) of this revenue procedure) as being described in one of the following NAICS subsector codes (first three digits of the six-digit NAICS codes):

(A) Air Transportation, Rail Transportation, Water Transportation, Truck Transportation, Transit and Ground Passenger Transportation, or Scenic and Sightseeing Transportation, within the meaning of NAICS subsector codes 481485 and 487; or (B) Support Activities for Transportation within the meaning of NAICS subsector code 488.

(ii) The taxpayer is not prohibited from using the overall cash method under § 448.

(b) Business . A taxpayer may use any reasonable method of applying the relevant facts and circumstances to determine its business. A business may consist of several activities, which may or may not be related. For example, a taxpayer engaged in transportation activities may provide various services such as transporting air cargo and then subsequently trucking the cargo throughout a metropolitan area to warehouses and wholesale/retail stores. However, each activity within a taxpayer’s business must individually satisfy the description of a NAICS subsector code in section 15. 10(2)(a)(i)(A) or (B) of this revenue procedure. For example, a sightseeing bus operator that sells box lunches in connection with its tours is not a “specified transportation industry taxpayer” because one of the two activities of its business (food sales) does not satisfy the description of a NAICS subsector code in section 15. 10(2)(a)(i)(A) or (B) of this revenue procedure. While the sightseeing transportation activity satisfies the description of the NAICS subsector code in section 15. 10(2)(a)(i)(A) of this revenue procedure, the food sales activity does not satisfy the description of any NAICS subsector code in section 15. 10(2)

(a)(i)(A) or (B) of this revenue procedure, and thus, the taxpayer’s business fails to meet the criteria of section 15. 10(2)(a) (i). Similarly, a train operator who operates a dining car where meals are served is not a “specified transportation industry taxpayer” because one of the two activities of its business (food service) does not satisfy the description of a NAICS subsector code in section 15. 10(2)(a)(i)(A) or (B) of this revenue procedure. While the rail transportation activity satisfies the description of a NAICS subsector code in section 15. 10(2)(a)(i)(A) of this revenue procedure, the food service activity does not satisfy the description of any NAICS subsector code in section 15. 10(2)(a)(i) (A) or (B) of this revenue procedure, and thus, the taxpayer’s business fails to meet the criteria of section 15. 10(2)(a)(i).

(c) Average annual gross receipts . A taxpayer has average annual gross receipts of more than the inflation-adjusted amount and not in excess of $50,000,000 if the taxpayer’s average annual gross receipts for the three prior taxable-year period ending with the applicable prior taxable year are more than the inflation-adjusted amount and do not exceed $50,000,000. If a taxpayer has not been in existence for three prior taxable years, the taxpayer must determine its average annual gross receipts for the number of years (including short taxable years) that the taxpayer has been in existence. See § 448(c)(3)(A).

(d) Gross receipts . Gross receipts is defined consistent with § 1.448-2(c)(2) (iv). Thus, gross receipts for a taxable year equal all receipts that must be recognized under the method of accounting actually used by the taxpayer for that taxable year for federal income tax purposes. See also § 448(c)(3)(C).

(e) Aggregation of gross receipts . For purposes of computing gross receipts under section 15. 10(2)(d) of this revenue procedure, all taxpayers treated as a single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a single employer under these sections if the taxpayers had employees) will be treated as a single taxpayer. However, when transactions occur between taxpayers that are treated as a single taxpayer by the previous sentence, gross receipts arising from these transactions will not be treated as gross receipts for purposes of the aver

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prior taxable year have been more than the inflation-adjusted amount as defined in section 15. 10(2)(f) of this revenue procedure and not in excess of $50,000,000. Taxpayer X qualifies to change to the overall cash method using this section 15. 10.

(5) Contact information . For further information regarding a change under this section, contact Elizabeth Boone at (202) 317-7007 (not a toll-free number).. 11 Change to overall cash/hybrid method for certain banks

(1) Description of change . (a) Applicability . This change applies to a bank described in section 15. 11(2) (a) of this revenue procedure that wants to change to an overall cash/hybrid method described in section 15. 11(2)(b) of this revenue procedure.

(b) Inapplicability . A bank’s change to an overall cash/hybrid method under this section 15. 11 does not include any change in the accounting treatment of an item for which the bank uses a special method (as described in section 15. 11(2)(b) of this revenue procedure) before the change, or is required to use a special method, or will use a special method after the change. A bank may not change the accounting treatment of such an item under this section 15. 11. Any change in the accounting treatment of such an item must be made under an applicable section of this revenue procedure, under the non-automatic change procedures of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, or under another guidance published in the Internal Revenue Bulletin, as appropriate.

(2) Definitions . The following definitions apply for purposes of this section 15. 11. (a) Bank . A bank is described in this section 15. 11(2)(a) if the bank:

(i) is a bank as defined in § 581; (ii) is an S corporation as defined in § 1361(a)(1), or a qualified subchapter S subsidiary as defined in § 1361(b)(3)(B); and

(iii) has average annual gross receipts (computed as described in section 15. 11(5) of this revenue procedure) not in excess of $50,000,000.

(b) Overall cash/hybrid method . An overall cash/hybrid method is the use of a combination of accounting methods under which some items of income or expense are reported on the cash receipts

and disbursements method (cash method) and other items of income or expense are reported on methods permitted or required for the accounting treatment of special items (special methods).

(i) Cash method . The cash method is the method identified by § 446(c)(1) and §§ 1. 446-1(c)(1)(i), 1. 451-1(a), and

1. 461-1(a)(1). (ii) Special methods . A few of the special methods typically used by banks include those provided for the accounting treatment of the following items: securities held by a dealer in securities as defined in § 475(c)(1) (the mark-to-market method of § 475); securities held by a dealer in securities as defined in § 1.471-5 (inventories maintained under § 471 and § 1. 446-1(c)(2)(i)); hedging transactions (§ 1. 446-4); contracts to which § 1256 applies (§ 1256); original issue discount on debt instruments (§§ 163(e) and 12711275); interest income (including acquisition discount and original issue discount) on short-term obligations (§§ 1281-1283); and stripped debt instruments (§ 1286). For example, a bank that regularly purchases or originates mortgages in the ordinary course of its business and engages in more than negligible sales of those mortgages generally is a dealer in securities under § 475(c)(1) and § 1. 475(c)-1(c) and thus must use the mark-to-market method of § 475 for mortgages and any other securities (as defined in § 475(c)(2)) held by the bank.

(3) Additional condition of change . To change to an overall cash/hybrid method under this section 15. 11, a bank must comply with the following additional condition. In addition to complying with the terms and conditions set forth in section 7 of Rev. Proc. 2015-13, the bank must keep its books and records for the year of change and for subsequent taxable years on an overall cash/hybrid method allowed by this section 15. 11. This condition is considered satisfied if the bank reconciles the results obtained under the method used in keeping its books and records and those obtained under the method used for federal income tax purposes pursuant to this section 15. 11 and the bank maintains sufficient records to support such reconciliation. See also § 1. 446-1(a)(4).

(4) Additional filing requirement . To change to an overall cash/hybrid method

under this section 15. 11, a bank must include with its completed Form 3115 a description of each specific item of the bank’s income or expense that is affected by the change under this section 15. 11 and, for each such item, identify the following: the method of accounting under which the bank reports that item for federal income tax purposes immediately before the change; and the amount of the § 481(a) adjustment associated with changing that item to the cash method under this section 15. 11.

(5) Computation of average annual gross receipts . For purposes of section 15. 11(2)(a)(iii) of this revenue procedure, a bank’s average annual gross receipts are computed as described in this section 15. 11(5). (a) Average annual gross receipts . A bank has average annual gross receipts not in excess of $50,000,000 if, for each prior taxable year ending on or after December 31, 2006, the bank’s average annual gross receipts for the three prior taxable-year period ending with the applicable prior taxable year do not exceed $50,000,000. If a bank has not been in existence for three prior taxable years, the bank must determine its average annual gross receipts for the number of years (including short taxable years) that the bank has been in existence. See § 448(c)(3)(A).

(b) Gross receipts . Gross receipts is defined consistent with § 1.448-2(c)(2) (iv). Thus, gross receipts for a taxable year equal all receipts that must be recognized under the method of accounting actually used by the bank for that taxable year for federal income tax purposes. See also § 448(c)(3)(C).

(c) Aggregation of gross receipts . For purposes of computing gross receipts under section 15. 11(5)(b) of this revenue procedure, all taxpayers treated as a single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a single employer under these sections if the taxpayers had employees) will be treated as a single taxpayer (that is, a single bank). However, when transactions occur between taxpayers that are treated as a single taxpayer by the previous sentence, gross receipts arising from these transactions will not be treated as gross receipts for purposes of the average annual gross receipts limitation. See § 448(c)(2) and § 1. 448-2(c)(2)(ii).

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(d) Treatment of short taxable year . In the case of a short taxable year, a bank’s gross receipts must be annualized by multiplying the gross receipts for the short taxable year by 12 and then dividing the result by the number of months in the short taxable year. See § 448(c)(3)(B) and § 1. 448-2(c)(2)(iii).

(e) Treatment of predecessors . Any reference to a bank or taxpayer in section 15. 11(5) of this revenue procedure includes a reference to any predecessor of that bank or taxpayer. See § 448(c)(3)(D).

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 11 is “127. ” (7) Contact information . For further information regarding a change under this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).. 12 Change to overall cash method for farmers

(1) Description of change . (a) Applicability . This change applies to a taxpayer engaged in the trade or business of farming that wants to change to the overall cash receipts and disbursements (cash) method for its trade or business of farming. If a taxpayer is engaged in more than one trade or business, this change applies only to the taxpayer’s trade or business for which the change is being made.

(b) Inapplicability . This change does not apply to a taxpayer that is required to use an accrual method pursuant to § 447, or prohibited from using the cash method by § 448.

(2) Definitions (a) Cash method of accounting is the method defined by § 446(c)(1) and §§ 1. 446-1(c)(1)(i), 1. 451-1(a), and 1. 4611(a)(1). See also § 1.61-4(a) for specific rules relating to farmers’ income; § 1. 16212, in part, for specific rules relating to farmers’ expenses.

(b) The trade or business of farming is a farming business as defined by § 263A(e) (4) and § 1. 263A-4(a)(5).

(3) Manner of making change . Generally, a taxpayer changing its method of accounting under this section 15. 12 must compute a § 481(a) adjustment. However, if the taxpayer is changing from the crop method, that portion of the change

is made using a cut-off basis under which expenses reported on the crop method and not deducted prior to the year of change are deducted in the year the related crop is sold.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 12 is “128. ” (5) Contact information . For further information regarding a change under this section, contact Minho Seo at (202) 3175100 (not a toll-free number).. 13 Nonshareholder contributions to capital under § 118

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for payments or property received that do not constitute contributions to the capital of the taxpayer within the meaning of § 118 and the regulations thereunder, from excluding the payments or the fair market value of the property from gross income as nontaxable contributions to capital under § 118 to including the payments or the fair market value of the property in gross income under § 61.

(2) Additional requirement . A taxpayer that is making a change described in section 15. 13(1) of this revenue procedure must complete Schedule E of Form 3115 for the depreciable property to which the change relates (as well as all other relevant portions of the Form 3115).

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 13 is “129. ” (4) Contact information . For further information regarding a change under this section, contact David H. McDonnell at (202) 317-4137 (not a toll-free number)..

14 Debt issuance costs (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for capitalized debt issuance costs to comply with § 1. 446-5, which provides rules for allocating the costs over the term of the debt. This change also applies to a taxpayer that wants to change its method of accounting for capitalized debt issuance costs from one permissible method to another permissible method under the last sentence

in § 1. 446-5(b)(2) if the total original issue discount determined for purposes of § 1. 446-5 is de minimis .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 14 is “148. ” (3) Contact information . For further information regarding a change under this section, contact Jason Kristall at (202) 317-6945 (not a toll-free number).. 15 Transfers of interties under the safe harbor described in Notice 2016-36 (§ 118)

(1) Description of change (a) Safe harbor applicable . This change, as described in Notice 2016-36, 2016-25 I. R. B. 1029, applies to a utility that wants to change to the safe harbor method of accounting provided in section III. C of Notice 2016-36 for the treatment under § 118 of a transfer of an intertie, including a dual-use intertie, by a generator to a utility. Under this safe harbor method of accounting, such a transfer will not be treated as gross income under § 118(a) or a contribution in aid of construction (CIAC) under § 118(b) if all of the conditions specified in section III.C of Notice 2016-36 are met.

(b) Safe harbor terminates . This change, as described in Notice 2016-36, applies to a utility that is using the safe harbor method of accounting provided in section III. C of Notice 2016-36 and is required to terminate that safe harbor method of accounting because of the occurrence of an event specified in section IV of Notice 2016-36. The occurrence of such event will require the utility to recognize income as a consequence of the transfer of an intertie, including a dual-use intertie, to the utility by a generator.

(2) Definitions . For purposes of this section 15. 15, the terms “utility,” “intertie,” “dual-use intertie,” and “generator” are defined in section III.B of Notice 2016-36. (3) Certain eligibility rules inappli- cable . The eligibility rules in sections 5. 01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, do not apply to a utility making a change under this section 15. 15.

(4) Manner of making change (a) The change in method of accounting under section 15. 15(1)(a) of this rev

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enue procedure is made with a § 481(a) adjustment.

(b) The change in method of accounting under section 15. 15(1)(b) of this revenue procedure is made using a cut-off method and applies to a transfer of an intertie, including a dual-use intertie, by a generator to a utility made on or after the beginning of the taxable year in which the safe harbor method of accounting terminates.

(5) Concurrent automatic change . A utility making a change under this section 15. 15 for more than one transfer of an intertie, including a dual-use intertie, for the same year of change should file a single Form 3115 for all such transfers. The single Form 3115 must provide a single net § 481(a) adjustment for all changes under section 15. 15(1)(a) of this revenue procedure.

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change to the methods of accounting under this section 15. 15 is “226. ”

(7) Contact information . For further information regarding a change under this section, contact Barbara Campbell at (202) 317-4137 (not a toll-free number)..

16 Change to or from the net asset value (NAV) method .

(1) Description of change . This change, as described in Rev. Proc. 2016-39, 201630 I. R. B. 164, applies to a taxpayer that holds shares in a money market fund (MMF) as defined in § 1.446-7(b)(4) (giving effect to § 1.446-7(c)(5), under which MMF holdings in different accounts are treated as different MMFs) and that wants to change its method of accounting for gain or loss on the shares from a realization method to the NAV method described in § 1. 446-7 or from the NAV method to a realization method.

(2) Certain eligibility rules inappli- cable . The eligibility rules in sections 5. 01(1)(c), (d), and (f) of Rev. Proc. 201513 do not apply to this change. (3) Definitions (a) “Rule 2a-7” means Rule 2a-7 (17 CFR 270. 2a-7) under the Investment Company Act of 1940.

(b) “Floating-NAV MMF” means an MMF that is required to value its assets using market factors and to round its price

per share to the nearest basis point (the fourth decimal place, in the case of a fund with a $1. 0000 share price) under Rule 2a-7. (c) “Stable-NAV MMF” means an MMF that is not a floating-NAV MMF.

(4) Manner of making change (a) A change to or from the NAV method is made on a cut-off basis. See § 1. 446-7(c)(8). Accordingly, a § 481(a) adjustment is neither permitted nor required. A taxpayer making a change to or from the NAV method for shares in an MMF applies the new method only to the computation of gain or loss on the shares beginning with the year of change. Under § 1. 446-7(b)(7)(ii), a taxpayer changing to the NAV method takes a starting basis (as defined in § 1.446-7(b)(7)) in those shares for the year of change equal to the aggregate adjusted basis of the taxpayer’s shares in the MMF at the end of the immediately preceding taxable year. A taxpayer changing from the NAV method to a realization method for shares in an MMF must adjust the basis in the shares beginning on the first day of the year of change to account for gain or loss previously recognized under the NAV method. Accordingly, the taxpayer generally takes a basis in each MMF share at the beginning of the year of change equal to the fair market value of that share under § 1. 446-7(b)(3) used in computing the ending value (as defined in § 1. 446-7(b)(2)) of the shares in that MMF for the final computation period (as defined in § 1.446-7(b)(1)) of the taxable year prior to the year of change.

(b) Short Form 3115 in lieu of a stan- dard Form 3115 . In accordance with § 1. 446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is waived and, pursuant to section 6. 02(2) of Rev. Proc. 2015-13, a short Form 3115 is authorized for a taxpayer changing from a realization method to the NAV method, or changing from the NAV method to a realization method, for shares in an MMF. Unless the change meets the requirements of section 15. 16(4)(c) of this revenue procedure, the taxpayer must file a short Form 3115 (Rev. December 2022) that includes 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) a statement specifying whether the taxpayer is changing from a realization method to the NAV method or from the NAV method to a realization method; and

(v) a statement specifying the MMF or MMFs to which the change applies, if the change does not apply to all MMFs in which the taxpayer holds shares (and, to the extent applicable, whether the change applies only to shares of the MMF or MMFs held in a particular account).

(c) No Form 3115 Required . In accordance with § 1. 446-1(e)(3)(ii), a taxpayer changing to the NAV method for shares in a stable-NAV MMF may change to the NAV method on a federal tax return without filing a Form 3115 if the following requirements are satisfied:

(i) the taxpayer has not used the NAV method for shares in the MMF for any taxable year prior to the year of change; and

(ii) prior to the year of change, either (A) the taxpayer’s basis in each share of the MMF has been at all times equal to the MMF’s target share price, or

(B) the taxpayer has not realized any gain or loss with respect to shares in the MMF.

(5) Multiple changes . A taxpayer making multiple changes under this section 15. 16 for the same year of change on a short Form 3115 should file a single short Form 3115. The short Form 3115 will be treated as applying to all shares that the taxpayer holds in any MMF unless the taxpayer specifies the MMFs to which the change applies. If the taxpayer specifies an MMF, the short Form 3115 will be treated as applying to all shares in that MMF held in any account by the taxpayer, unless the short Form 3115 specifies the accounts to which the change applies.

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 15. 16 is “227. ” (7) Contact Information . For further information regarding a change under this section, contact Grace Cho at (202) 3176945 (not a toll-free number).. 17 Small business taxpayer changing the overall method of accounting to the cash method, or to a method of accounting in which a small business taxpayer uses an accrual method for purchases and sales of

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(6) Eligibility rule inapplicable . For a change described in section 15. 17(2) of this revenue procedure, any prior change in the overall method of accounting to an accrual method that was made in the taxpayer’s mandatory § 448 year (as defined in § 1. 448-2(g)(1)), or a mandatory § 447 year (as defined in section 15.01(1)(a) of this revenue procedure), as applicable, is disregarded for purposes of section 5. 01(1)(e) of Rev. Proc. 2015-13. (7) Manner of making change . (a) Acceleration of § 481(a) adjust- ment . If a taxpayer making a change described in section 15. 17(2)(a) or (b) of this revenue procedure has a § 481(a) adjustment remaining on a prior overall change in method of accounting to an accrual method, then it must take the remaining portion of such prior § 481(a) adjustment into account in the year of change;

(b) Cut-off basis for exempt long- term contracts . A change to account for exempt construction contracts described in § 1. 460-3(b)(1)(ii) under this section 15.17 is made on a cut-off basis and applies only to contracts entered into on or after the first day of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(8) Concurrent automatic changes . A small business taxpayer making a change under this section 15. 17 and a change under section 12. 16, 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 numbers for each change on the appropriate line of Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(9) Designated automatic accounting method change number

(a) Change to the cash method . The designated automatic accounting method change number for a change under section 15. 17(2)(a) of this revenue procedure is “233. ”

(b) Change to a method of accounting that uses an accrual method for invento- ries, and the cash method for computing all other items of income and expense . The designated automatic accounting method change number for a change under section

inventories and uses the cash method for computing all other items of income and expense .

(1) Description of change . This change applies to a small business taxpayer, as defined in section 15.17(4)(a) of this revenue procedure, that wants to make a change in method of accounting described in section 15. 17(2) of this revenue procedure. This change includes a change to account for any exempt construction contracts described in § 1. 460-3(b)(1)(ii) under the cash method or, in the case of an exempt construction contract described in § 1. 460-3(b)(1)(ii) that includes the sale of inventory, a method of accounting that uses an accrual method for purchases and sales of such inventory and the cash method for computing all other items of income and expense from such contract. A small business taxpayer may be required to use a method of accounting other than the cash method for one or more items of income or expense under certain provisions of the Code or regulations, including, for example §§ 475 and 1272.

(2) Applicability . This change applies to a small business taxpayer that wants to:

(a) change the overall method of accounting for a trade or business from an accrual method to the cash method of accounting, and is otherwise not prohibited from using the cash method or required to use another overall method of accounting;

(b) change the overall method of accounting for a trade or business from an accrual method to an accrual method for purchases and sales of inventories (inventories) and the cash method for computing all other items of income and expense, and is otherwise not prohibited from using the cash method under § 448 or required to use another overall method of accounting, such as an accrual method under § 447; or

(c) change the overall method of accounting for a trade or business from the cash method to an accrual method for purchases and sales of inventories (inventories) and the cash method for computing all other items of income and expense, and is otherwise not prohibited from using the cash method under § 448 or required to use another overall method of accounting, such as an accrual method under § 447.

(3) Inapplicability . This change does not apply to the following:

(a) Banks changing to hybrid method . This change does not apply to a bank described in section 15. 11(2)(a) of this revenue procedure. However, such a bank may be eligible to change its overall method of accounting to the cash/hybrid method under section 15. 11 of this revenue procedure if it meets the requirements of that section.

(b) Farmers changing to the cash method . This change does not apply to a farming business changing its overall method of accounting to the cash method. See, however, section 15. 12 of this revenue procedure.

(4) Special rules for open accounts receivable . Notwithstanding § 1001 and the accompanying regulations, a small business taxpayer that uses the cash method as the overall method of accounting for a trade or business includes amounts attributable to open accounts receivable, as defined in section 15.17(5) (c) of this revenue procedure, in income as the amounts are actually or constructively received on the receivables.

(5) Definitions (a) Small business taxpayer . “Small business taxpayer” means a taxpayer, other than a tax shelter under § 448(d) (3) and § 1. 448-2(b)(2) that meets the § 448(c) gross receipts test.

(b) Section 448(c) gross receipts test . 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) and § 1. 4482(c) or § 1. 460-3(b)(3), 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. (c) Open accounts receivable . For purposes of this section 15. 17, an open accounts receivable is any receivable that is due in full in 120 days or less and that is not subject to § 475.

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15 .17(2)(b) or (c) of this revenue procedure is “259 .”

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

SECTION 16 . TAXABLE YEAR OF INCLUSION (§ 451)

.01 Accrual of interest on nonperform- ing loans .

(1) Description of change . (a) This change applies to a taxpayer using an overall accrual method of accounting that is a bank as defined in § 581 (or whose primary business is making or managing loans) and wants to change its method of accounting to comply with § 451 and § 1 .451-1(a) for qualified stated interest (as defined in § 1.12731(c)) on nonperforming loans . (b) Section 1 .451-1(a) requires income to be accrued when all the events have occurred that fix the right to receive the income and the amount thereof can be determined with reasonable accuracy . A taxpayer may not stop accruing qualified stated interest on a nonperforming loan for federal income tax purposes merely because payments on the loan are overdue by a certain length of time, such as 90 days, even if a federal, state, or other regulatory authority having jurisdiction over the taxpayer permits or requires that the overdue interest not be accrued for regulatory purposes .

(c) Under § 451 and § 1 .451-1(a), a taxpayer must continue accruing qualified stated interest on any nonperforming loan until either (i) the loan is worthless under § 166 and charged off as a bad debt, or (ii) the interest is determined to be uncollectible . In order for interest to be determined uncollectible, the taxpayer must substantiate, taking into account all the facts and circumstances, that it has no reasonable expectation of payment of the interest . This substantiation requirement is applied on a loan-by-loan basis .

(d) A taxpayer that changes its method of accounting under this section 16 .01 must do so for all of its loans .

(2) Section 481(a) adjustment . In general, the § 481(a) adjustment for a method change under this section 16 .01 represents the amount of qualified stated interest on

the taxpayer’s nonperforming loans outstanding as of the beginning of the year of change that should have been accrued under § 451 and § 1 .451-1(a) and was not accrued . Interest for which the taxpayer, as of the beginning of the year of change, has no reasonable expectation of payment is not taken into account in determining the amount of the § 481(a) adjustment .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16 .01 is “36 .” (4) Contact information . For further information regarding a change under this section, contact K . Scott Brown at (202) 317-4423 (not a toll-free number) . .02 Advance rentals . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for advance rentals (other than advance rentals subject to § 467 and the regulations thereunder) to include such advance rentals in gross income in the taxable year received . See § 1 .61-8(b) .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16 .02 is “37 .” (3) Contact information . For further information regarding a change under this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number) . .03 State or local income or franchise tax refunds .

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that receives a state or local income or franchise tax refund and wants to accrue the refund in the taxable year the taxpayer receives payment or notice that the claim has been approved, whichever is earlier, as provided in Rev . Rul . 2003-3, 2003-1 C .B . 252 .

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16 .03 is “38 .” (3) Contact information . For further information regarding a change under this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number) .

.

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number for a change under this section 16.05 to a method that satisfies the all events test in accordance with Rev . Rul . 2004-52 is “80 .” The designated automatic accounting method change number for a change under this section 16 .05 to the Ratable Inclusion Method for Credit Card Annual Fees is “81 .”

(4) Contact information . For further information regarding a change under this section, contact Kate Sleeth at (202) 3177053 (not a toll-free number) . .06 Retainages . (1) Description of change . (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for treating retainages to a method consistent with the holding in Rev . Rul . 69-314, 1969-1 C .B . 139 . A taxpayer changing its method of accounting for retainages under this section 16 .06 must treat all retainages, that is both receivables and payables, in the same manner .

(b) Inapplicability . This change does not apply to retainages (receivables and payables) for long-term contracts that must be accounted for under the percentage-of-completion method (PCM) under § 460 . Nor does this change apply to long-term contracts otherwise accounted for under the PCM or long-term contracts accounted for under exempt percentage-of-completion method or the completed contract method . For the treatment of retainages under such methods, see §§ 1 .460-4(b)(4)(i)(A) and 1 .460-4(d)(3) .

(2) Manner of making change . (a) Except as provided in section 16 .06(2)(b) of this revenue procedure, a taxpayer changing its method of accounting under this section 16 .06 must take into account a § 481(a) adjustment .

(b) For retainages received and paid in connection with long term contracts that are exempt construction contracts (as defined in § 1.460-3(b)(1)) accounted for using the taxpayer’s overall accrual method of accounting, this change is made on a cut-off basis and applies only to longterm contracts entered into on or after the beginning of the year of change . See § 1 .460-1(c)(2) for a description of when a contract is treated as “entered into .” Accordingly, a § 481(a) adjustment is neither permitted nor required .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16 .06 for retainages not received under long-term contracts is “130 .” The designated automatic method change number for a change under this section 16 .06 for retainages received under long-term contracts is “217 .” A taxpayer making a change under this section 16 .06 that has both types of retainages must file a single Form 3115 and enter both change numbers on the appropriate line on Form 3115 .

(4) Contact information . For further information regarding a change under this section, contact Peter Cohn at (202) 3177011 (not a toll-free number) . .07 Change in applicable financial statements (AFS) for purposes of applying certain revenue recognition methods of accounting .

(1) Description of change . (a) Applicability . (i) This change applies to a taxpayer with an AFS, as defined in § 1 .451-3(a) (5), that: (A) includes amounts in income in accordance with § 1 .451-3; (B) changes the manner in which the item, or portion thereof, is taken into account as AFS revenue, as defined in § 1.451-3(a)(4), including, if applicable, a change in the manner in which transaction price is allocated to performance obligations; and (C) wants to change its method of accounting to use the new AFS method of taking into account the item, or portion thereof, in AFS revenue for purposes of § 1 .451-3(b) (1), including, if applicable, a change in the manner in which transaction price is allocated for purposes of § 1 .451-3(d) .

(ii) This change applies to a taxpayer with an AFS, as defined in § 1.451-3(a) (5), that: (A) receives an advance payment, as defined in § 1.451-8(a)(1); (B) uses the deferral method described in § 1 .451-8(c); (C) changes the manner in which it recognizes advance payments in AFS revenue, as defined in § 1.451-8(a)(4), including, if applicable, a change in the manner in which payments are allocated to performance obligations; and (D) wants to change its method of accounting to use the new AFS method of recognizing advance payments in AFS revenue for purposes of determining the extent to which advance payments are included in income under § 1 .451-8,

including, if applicable, a change in the manner in which payments are allocated for purposes of § 1 .451-8(c)(8) .

(b) Inapplicability . (i) Changes relating to § 1.451-3 or § 1.451-8 . A change described in section 16 .07(1)(a)(i) or (ii) of this revenue procedure does not apply to:

(A) a taxpayer whose present method of accounting is not described in § 1 .451-3, for a change described in section 16 .07(1) (a)(i) of this revenue procedure . A taxpayer that wants to change to a method of accounting described in § 1 .451-3 must use section 16 .08(2)(a)(i) of this revenue procedure to make such change;

(B) a taxpayer whose present method of accounting for advance payments is not the deferral method under § 1 .4518(c), for a change described in section 16 .07(1)(a)(ii) of this revenue procedure . For example, this change does not apply to a taxpayer that uses the full inclusion method under § 1 .451-8(b) or the nonAFS deferral method under § 1 .451-8(d) . However, this change does apply to a taxpayer that uses both the cost offset method under § 1 .451-8(e) and the deferral method under § 1 .451-8(c);

(C) a taxpayer that wants to change its method for allocating payments described in § 1 .451-8(c)(8)(iii); or

(D) a taxpayer that wants to change its method for allocating transaction price for contracts described in § 1 .451-3(d)(5) .

(c) Restatements of AFS . A taxpayer’s restatement of its AFS for financial accounting presentation does not affect the propriety of the taxpayer’s method of accounting for revenue recognized in the prior taxable year(s) . For example, if the taxpayer properly uses the deferral method described in § 1 .451-8(c) for including advance payments in gross income in accordance with its AFS, the taxpayer satisfies the requirement of section 16 .07(1)(a)(ii) of this revenue procedure even if the AFS for that taxable year is later restated and may change its method of accounting under this section 16 .07 if it is otherwise eligible . (2) Manner of making change . (a) Cut-off basis or a § 481(a) adjust- ment .

(i) Cut-off basis for certain changes . (A) In general . Except as provided in section 16 .07(2)(a)(i)(B) of this revenue

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procedure, a change made under section 16. 07(1)(a)(ii) of this revenue procedure is made on a cut-off basis and applies to advance payments received by the taxpayer on or after the beginning of the year of change. Accordingly, any advance payments received prior to the year of change (prior advance payments) are accounted for under the taxpayer’s former method of accounting, and any advance payments received in the year of change and in subsequent taxable years are accounted for under the taxpayer’s new method of accounting. A taxpayer that changes its method of allocating payments for purposes of § 1. 451-8(c)(8)(i) must allocate any payments received prior to the year of change using the taxpayer’s former method of accounting. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(B) Section 481(a) adjustment for cer- tain changes . If a taxpayer makes a change under section 16. 07(1)(a)(ii) of this revenue procedure, and the AFS treatment of prior advance payments in the year of change or a subsequent taxable year is relevant for purposes of determining the amount of such payments that is required to be included in gross income in the year of change or a subsequent taxable year, the taxpayer must implement the change with a § 481(a) adjustment as provided in sections 7. 02 and 7. 03 of Rev. Proc. 201513. (ii) Computing § 481(a) adjustments when the year of change is a year in which the taxpayer implements a change in accounting principle with a retained earnings adjustment . If the year of change is a year in which the taxpayer implements a change in accounting principle for AFS purposes, including a change in the method of applying an accounting principle for AFS purposes, and the change in accounting principle is implemented with a retained earnings adjustment that is taken into account during the year of change, the taxpayer is required to treat such adjustment as being taken into account in the taxable year prior to the year of change for purposes of computing the § 481(a) adjustment.

(iii) Example . Computing a § 481(a) adjustment when the taxpayer presently uses the AFS cost offset method - related accounts . B is in the trade or business of selling computers. B uses an accrual method of accounting and computes Federal income tax on

a calendar-year basis and has an AFS, as defined in § 1. 451-3(a)(5). B is not under examination within the meaning of section 3. 18 of Rev. Proc. 2015-13. B does not receive advance payments. For 2022, B makes two changes in method of accounting to comply with § 1.451-3. Specifically, pursuant to section 16. 08(2)(a)(i)(A) of this revenue procedure, B changes its method of accounting for gross income from the sale of computers to apply the AFS income inclusion rule and, pursuant to section 16. 08(2)(a)(i) (C) of this revenue procedure, changes its method of accounting to apply the AFS cost offset method. For 2023, B changes the manner in which income from the sale of computers is taken into account as AFS revenue, as defined in § 1.451-3(a)(4), and changes its method of accounting under section 16. 07(1)(a) (i) of this section to use the new AFS method. However, B continues to use the AFS cost offset method. In computing the § 481(a) adjustment resulting from the change to the new method of computing AFS revenue for 2023 under section 16. 07(1)(a)(i) of this revenue procedure, B must take into account its continued use of the AFS cost offset method. See section 3. 15 of Rev. Proc. 2015-13. (b) In accordance with § 1. 446-1(e) (3)(ii), the requirement of § 1. 446-1(e) (3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for a change made under this section 16.07. Notwithstanding the definition of Form 3115 in section 3. 07 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, the statement in lieu of a Form 3115 that is permitted under this section 16. 07 is considered a Form 3115 for purposes of the automatic change procedures of Rev. Proc. 201513. However, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived. The statement attached to the taxpayer’s return for the year of change must include the following information for each applicant:

(i) the designated automatic accounting change number for this change, which is “153;”

(ii) the applicant’s name, employer identification number (or social security number in the case of an individual), and type of applicant, as would be provided had a Form 3115 been required;

(iii) the year of change (both the beginning and ending dates);

(iv) the type of AFS used by the applicant, as defined in applicable guidance, and which change the applicant is making under section 16. 07(1)(a) of this revenue procedure. See § 1. 451-3(a)(5) and/or § 1. 451-8(a)(5);

(v) a detailed and complete description of each item affected by the change in AFS revenue recognition and the line

number (or schedule) where the affected item is reflected on the federal income tax return for the year of change, and if applicable, the § 481(a) adjustment for each change; and

(vi) a detailed description of the basis used for AFS revenue recognition (that is, the method the taxpayer uses in its AFS) both before and after the AFS change.

(c) Concurrent automatic change . A taxpayer may make more than one change under this section 16. 07 on the same statement in lieu of a Form 3115 for the same year of change. The taxpayer must separately provide all of the information required for each change on that statement.

(3) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13 does not apply to this change.

(4) No audit protection . A taxpayer does not receive audit protection under section 8. 01 of Rev. Proc. 2015-13 for this change. See section 8. 02(2) of Rev. Proc. 2015-13. (5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16. 07 is “153. ” (6) Contact information . For further information regarding a change under this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number)..

08 Changes in the timing of income recognition under § 451(b) and (c)

(1) Description of change . (a) In general . This change applies to an accrual method taxpayer with an applicable financial statement (AFS) that wants to make certain changes in method of accounting described in section 16. 08(2)(a) of this revenue procedure. This change also applies to a taxpayer without an AFS that wants to make certain changes in method of accounting described in section 16. 08(2)(b) of this revenue procedure.

(b) Applicable terms . For this section 16. 08, the term “AFS” has the meaning set forth in § 1. 451-3(b)(5). Additionally, because a change to comply with §§ 1. 4513, 1. 451-8, and/or 1. 1275-2(l), as applicable, is a change in method of accounting to which the provisions of § 446 and the accompanying regulations apply, the item

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being changed to comply with §§ 1. 451-3,

1. 451-8, and/or 1. 1275-2(l), as applicable, is determined by applying § 446 and the accompanying regulations. See §§ 1. 4513(l)(1) and 1. 451-8(g)(2). In that regard, while §§ 451(b) and (c) and the final regulations use the term “item of gross income” to generally refer to income that arises under a specific contract, the term “item of gross income” is not synonymous with the terms “item” or “material item” as used throughout the regulations under § 446.

(2) Applicability . (a) Taxpayer with an AFS . This change applies to an accrual method taxpayer with an AFS that:

(i) wants to make one of the following changes under § 1. 451-3:

(A) a change to comply with the AFS income inclusion rule in § 1. 451-3(b) under which the taxpayer determines the amount of an item of gross income that is treated as “taken into account as AFS revenue” by making the AFS revenue adjustments provided in § 1. 451-3(b) (2)(i) (including a change for specified credit card fees under §§ 1. 451-3(j)(2) and

1. 1275-2(l)) (but see paragraph (8) of this section);

(B) a change to comply with the AFS income inclusion rule in § 1. 451-3(b) under which the taxpayer determines the amount of the item of gross income that is “taken into account as AFS revenue” by making the AFS revenue adjustments provided in § 1. 451-3(b)(2)(ii) (including a change for specified credit card fees under §§ 1. 451-3(j)(2) and 1. 1275(l)) (Alternative AFS Revenue Method) (but see paragraph (8) of this section);

(C) except as provided in section 16. 08(2)(a)(i)(E) of this section, a change to apply the AFS cost offset method in § 1. 451-3(c) to determine the amount of an item of gross income from the sale of inventory that is required to be included in gross income under the AFS income inclusion rule in § 1. 451-3(b);

(D) a change from applying a cost offset method, including the AFS cost offset method in § 1. 451-3(c), to not applying a cost offset method to determine the amount of an item of gross income from the sale of inventory that is required to be included in gross income under the AFS income inclusion rule in § 1. 451-3(b);

(E) a change to comply with § 1. 4513(c)(5)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16. 08(2)(a)(i)(E) applies if the taxpayer presently uses a cost offset method, including the AFS cost offset method under § 1. 451-3(c). This section 16. 08(2) (a)(i)(E) does not apply if the taxpayer is proposing to make, for the same year of change, a change to begin using the AFS cost offset method pursuant to section 16. 08(2)(a)(i)(C) of this revenue procedure;

(F) a change to comply with the transaction price allocation rules in § 1. 4513(d); or (G) a change to a method of accounting described in § 1. 451-3(h)(4) when a taxpayer’s AFS covers mismatched reportable periods; or

(ii) wants to make one of the following changes in method of accounting for advance payments under § 1. 451-8:

(A) a change to the full inclusion method provided in § 1. 451-8(b);

(B) a change to the deferral method provided in § 1. 451-8(c);

(C) a change to the specified goods § 451(c) method described in § 1. 4518(f) to treat payments that otherwise qualify for the specified good exception, as defined in § 1.451-8(a)(1)(ii)(H), as advance payments and account for such payments either under the full inclusion method provided in § 1. 451-8(b) or under the deferral method provided in § 1. 4518(c); (D) except as provided in section 16. 08(2)(a)(ii)(F) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e) to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1. 451-8(b) or the deferral method in § 1. 451-8(c), as applicable;

(E) a change from applying a cost offset method, including the advance payment cost offset method in § 1.451-8(e), to not

applying a cost offset method to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1. 451-8(b) or the deferral method in § 1. 451-8(c), as applicable;

(F) a change to comply with § 1. 4518(e)(8)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer presently determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16. 08(2)(a)(ii)(F) applies if the taxpayer presently uses a cost offset method, including the advance payment cost offset method under § 1.451-8(e). This section 16. 08(2)(a)(ii)(F) does not apply if the taxpayer is proposing to make, for the same year of change, a change to begin using the advance payment cost offset method pursuant to section 16. 08(2)(a) (ii)(D) of this revenue procedure;

(G) a change to a method of accounting described in § 1. 451-8(c)(7), which refers to the methods described in § 1. 451-3(h) (4), when a taxpayer’s AFS covers mismatched reporting periods; or

(H) a change to comply with the payment allocation rules in § 1. 451-8(c)(8).

(b) Taxpayer without an AFS . This change applies to a taxpayer that does not have an AFS that wants to make one of the following changes in method of accounting for advance payments under § 1. 4518: (i) a change to the full inclusion method provided in § 1. 451-8(b);

(ii) a change to the deferral method provided in § 1. 451-8(d)(3);

(iii) except as provided in section 16. 08(2)(b)(v) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e) to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1. 451-8(b) or the deferral method in § 1. 451-8(d)(3), as applicable;

(iv) a change from applying a cost offset method, including the advance payment cost offset method in § 1.451-8(e), to not

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applying a cost offset method to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1. 451-8(b) or the deferral method in § 1. 451-8(d)(3), as applicable;

(v) a change to comply with § 1. 4518(e)(8)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16. 08(2)(b)(v) applies if the taxpayer presently uses a cost offset method, including the advance payment cost offset method under § 1. 451-8(e). This section 16. 08(2)(b)(v) does not apply if the taxpayer is proposing to make, for the same year of change, a change to begin using the advance payment cost offset method pursuant to section 16. 08(2)(b)(iii) of this revenue procedure; or

(vi) a change to a payment allocation method described in § 1. 451-8(d)(4)(ii).

(3) Inapplicability . Section 16. 08(2) of this revenue procedure does not apply to:

(a) a change to comply with the all events test in § 1. 451-1(a);

(b) a change in method of accounting to use a special method of accounting, as defined in § 1.451-3(a)(13);

(c) a change in method of allocating transaction price between an item of gross income that is accounted for under § 1. 451-3 and an item of gross income that is accounted for under a special method of accounting, as defined in § 1.451-3(a) (14), including a change to comply with § 1. 451-3(d)(5);

(d) a change described in section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)(ii) (F) or section 16. 08(2)(b)(v) of this revenue procedure, as applicable, if, immediately after such change is made, the taxpayer’s method of accounting for cost offsets does not otherwise comply with the AFS cost offset method under § 1.4513(c) and/or the advance payment cost offset method under § 1. 451-8(e), as applicable;

(e) a change described in section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)

(ii)(F) or section 16. 08(2)(b)(v) of this revenue procedure, including a change to comply with § 1. 451-3(c)(5)(ii) or § 1. 451-8(e)(8)(ii) because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/ or allocated under its present method of accounting for inventory, unless the taxpayer makes, for the same year of change, the cost-offset related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13;

(f) a change to use the AFS cost offset method if the taxpayer receives advance payments from the sale of inventory and does not also make a change to apply the advance payment cost offset method, or a change to use the advance payment cost offset method if the taxpayer is required to include gross income from the sale of inventory under § 1. 451-3 and does not also make a change to apply the AFS cost offset method;

(g) a change to use the deferral method in § 1. 451-8(c) for allocable payments described in § 1. 451-8(c)(8)(iii)(A) (other than allocable payments described in § 1. 451-8(c)(8)(iii)(B));

(h) a taxpayer that presently uses the deferral method in § 1. 451-8(c) for allocable payments described in § 1. 451-8(c)(8) (iii)(A) that wants to change its payment allocation method to an allocation method that is not described in § 1. 451-8(c)(8)(iii) (B);

(i) a change to use the deferral method in § 1. 451-8(d)(3) for allocable payments described in § 1. 451-8(d)(4)(i) other than either allocable payments described in § 1. 451-8(d)(4)(ii) or allocable payments that are wholly attributable to two or more items described in § 1. 451-8(a)(1) (i)(C);

(j) a taxpayer that presently uses the deferral method in § 1. 451-8(d)(3) for allocable payments described in § 1. 4518(d)(4)(i) that wants to change its payment allocation method to an allocation method that is not described in § 1. 451-8(d)(4)(ii);

(k) a taxpayer without an AFS that wants to change its method of accounting for advance payments to the deferral method under § 1. 451-8(d)(3) under which the taxpayer determines the extent to which an advance payment is earned by using the following: (i) a statistical basis

if adequate data are available to the taxpayer; or (ii) the use of any other basis that in the opinion of the Commissioner results in a clear reflection of income;

(l) a change in method of accounting for specified fees, as defined in § 1.4513(j)(2), other than specified credit card fees;

(m) a change in method of accounting that qualifies under another automatic change provided in this revenue procedure including, for example, a change described in section 16. 07 of this revenue procedure;

(n) a change in method of accounting for a liability, as defined in § 1.446-1(c) (1)(ii)(B);

(o) a change in a taxpayer’s mismatched reporting periods method described in § 1. 451-3(h)(4) if the taxpayer uses the deferral method for advance payments under § 1. 451-8(c) and does not also change to the same mismatched reporting periods method for purposes of accounting for advance payments pursuant to § 1. 451-8(c)(7) for the same year of change; or, if applicable, a change in a taxpayer’s mismatched reporting periods method pursuant to § 1. 451-8(c)(7) if the taxpayer uses the deferral method for advance payments under § 1. 451-8(c) and does not also change to the same mismatched reporting periods method for purposes of § 1. 451-3(h)(4) for the same year of change; and

(p) a change in method of accounting for payments within the scope of the specified good exception, as defined in § 1. 451-8(a)(1)(ii), if the proposed method of accounting is to include such payments in gross income under § 1. 451-3 in one or more taxable years following the taxable year of receipt.

(4) Manner of making change . (a) Special rules relating to § 481(a) adjustment

(i) Section 481(a) adjustment gener- ally

(A) Members of a consolidated group . Changes under this section 16. 08 with regard to taxpayers who are members of consolidated groups generally are governed by this section 16. 08, rather than by § 1. 1502-17(b)(2) (applicable to changes in the application of the timing rules of § 1. 1502-13 in accounting for intercompany transactions (within the meaning of

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in section 16. 08(4)(a)(iii)(D) of this revenue procedure.

(D) Special § 481(a) adjustment period . For purposes of sections 7. 02 and 7. 03 of Rev. Proc. 2015-13, the § 481(a) adjustment period for a cost offset change described in section 16. 08(2) (a)(i)(E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure, whether the § 481(a) adjustment is positive or negative, is the same as the § 481(a) adjustment period for the corresponding cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13, as modified by section 4. 02 of Rev. Proc. 2021-34. The rules of section 7. 02 and 7. 03 of Rev. Proc. 2015-13, including the short period rule and the accelerated adjustment period rules, apply to determine the § 481(a) adjustment period for the § 481(a) adjustment for the cost-offset related inventory method change, which is used to determine the § 481(a) adjustment period for a positive or negative § 481(a) adjustment for the corresponding cost offset change described in section 16. 08(2)(a) (i)(E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure. If the taxpayer must net the § 481(a) adjustments for cost offset changes under section 16. 08(4)(a)(iii)(A), (B), or (C) of this revenue procedure, as applicable, the § 481(a) adjustment period for any such net § 481(a) adjustment is the same as the § 481(a) adjustment period for the corresponding cost-offset related inventory method changes, determined by netting the § 481(a) adjustments from such corresponding cost-offset related inventory method changes. The requirement that the taxpayer net the § 481(a) adjustments for such corresponding cost-offset related inventory method changes is solely for purposes of determining the § 481(a) adjustment period for the net § 481(a) adjustment determined under section 16. 08(4)(a)(iii)(A), (B), or (C), as applicable. This section 16. 08(4)(a)(iii)(D) does not apply if, after applying the netting rules in section 16. 08(4)(a)(iii)(A), (B), or (C), as applicable, the § 481(a) adjustment for the corresponding cost offset change(s) is zero. For example, if the taxpayer makes a cost-offset related inventory method change that is implemented on a cut-off basis and the § 481(a) adjust

§ 1. 1502-13(b)(1)(i)). See § 1. 1502-17(a) and (b)(1).

(B) Computing § 481(a) adjustments when the year of change is a year in which the taxpayer implements a change in accounting principle with a retained earnings adjustment . If the year of change is a year in which the taxpayer implements a change in accounting principle for AFS purposes, including a change in the method of applying an accounting principle for AFS purposes, and the change in accounting principle is implemented with a retained earnings adjustment that is taken into account during the year of change, the taxpayer is required to treat such adjustment as being taken into account in the taxable year prior to the year of change for purposes of computing the § 481(a) adjustment.

(ii) Netting of the § 481(a) adjustment (A) Required netting for changes made under § 1.451-3 related to inventory sales . A taxpayer that makes a change described in section 16. 08(2)(a)(i)(C) or (D) of this revenue procedure and one or more changes described in section 16. 08(2)(a) (i)(A), (B), and/or (G) of this revenue procedure for gross income from inventory sales for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section 7. 03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(B) Required netting for changes made under § 1.451-8 related to inventory sales for taxpayers with an AFS . A taxpayer that makes a change described in section 16. 08(2)(a)(ii)(D) or (E) of this revenue procedure and one or more changes described in section 16. 08(2)(a)(ii)(A), (B), (C), and/or (G) of this revenue procedure for advance payments from the sale of inventory for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section 7. 03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(C) Required netting for changes made under § 1.451-8 related to inventory sales for taxpayers without an AFS . A taxpayer that makes a change described in section 16. 08(2)(b)(iii) or (iv) of this revenue procedure and one or more changes in method of accounting described in section

16. 08(2)(b)(i) or (ii) of this revenue procedure for advance payments from the sale of inventory for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section
17. 03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(D) Required netting for non-auto- matic method changes under § 1.451-3 and/or § 1.451-8 related to inventory sales . The rules in section 16. 08(4)(a)(iii) of this revenue procedure generally will apply to a non-automatic change under § 1. 451-3 and/or § 1. 451-8 for which the netting rules of section 16. 08(4)(a)(iii) of this revenue procedure would otherwise apply if the taxpayer were eligible to make the change under section 16. 08 of this revenue procedure.

(iii) Special § 481(a) adjustment rules for cost offset method change(s) under § 1.451-3 and/or § 1.451-8 made with corresponding cost-offset related inven- tory method change(s)

(A) Required netting rule for changes described in section 16.08(2)(a)(i)(E) . A taxpayer that makes more than one method change under section 16. 08(2)(a)(i)(E) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules in section 16. 08(4)(a) (iii)(D) of this revenue procedure.

(B) Required netting rule for changes described in section 16.08(2)(a)(ii)(F) . A taxpayer that makes more than one method change under section 16. 08(2)(a)(ii)(F) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules in section 16. 08(4)(a) (iii)(D) of this revenue procedure.

(C) Required netting rule for changes described in section 16.08(2)(b)(v) of this revenue procedure . A taxpayer that makes more than one method change under section 16. 08(2)(b)(v) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules

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ment for the taxpayer’s corresponding change described in section 16. 08(2)(a)(i) (E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure is zero as a result, this section 16. 08(4)(a) (iii)(D) does not apply.

(iv) Examples . For each of the following examples, the taxpayer uses an accrual method of accounting, is on a fiscal year ending October 31, and has an AFS, as defined in § 1.451-3(a)(5).

(A) Example 1 . Netting rules . A is engaged in a single trade or business of selling and servicing computers. A is not under examination within the meaning of section 3. 18 of Rev. Proc. 2015-13. A does not receive advance payments. For its 2024 taxable year, A makes multiple changes in method of accounting to apply § 1.451-3. Specifically, A changes its method of accounting for gross income from the sale of computers to apply the AFS income inclusion rule pursuant to section 16. 08(2)(a)(i)(A) of this revenue procedure and to apply the AFS cost offset method pursuant to section 16. 08(2)(a)(i)(C) of this revenue procedure. A also changes its method of accounting for gross income from computer services to apply the AFS income inclusion rule pursuant to section 16. 08(2)(a)(i)(A) of this revenue procedure. Since A made a change described in section 16. 08(2)(a)(i)(C) of this revenue procedure and a change described in section 16. 08(2)(a)(i)(A) of this revenue procedure for gross income from computer sales for the same year of change, A must net the § 481(a) adjustments resulting from these changes in the manner required by section 16. 08(4)(a)(ii)(A) of this revenue procedure. The § 481(a) adjustment resulting from A ’s change in method of accounting for income from computer services under section 16. 08(2)(a)(i)(A) of this revenue procedure is not netted with the § 481(a) adjustments resulting from the computer sales method changes.

(B) Example 2 . Special § 481(a) adjustment period under section 16.08(4)(a)(iii) of this revenue procedure . The facts are the same as in Example 1 . For its 2024 taxable year, A changes its inventory method under section 12. 01 of this revenue procedure and, as a result, also changes its cost offset method to comply with § 1. 451-3(c)(5)(ii) pursuant to section 16. 08(2)(a)(i)(E) of this revenue procedure. The cost-offset related inventory method change under section 12. 01 of this revenue procedure results in a positive § 481(a) adjustment that is spread over four taxable years under section 7. 01 and 7.03 of Rev. Proc. 2015-13. The cost offset method change under section 16. 08(2)(a)(i)(E) of this revenue procedure results in a negative § 481(a) adjustment. Section 16. 08(4)(a)(iii)(D) of this revenue procedure requires A to spread the negative § 481(a) adjustment over four taxable years consistent with the § 481(a) adjustment period for the concurrent cost-offset related inventory method change under section 12. 01 of this revenue procedure.

(b) Certain cost offset changes made on an amended return .

(i) In general . Notwithstanding section 6. 03(1)(a) of Rev. Proc. 2015-13, a

taxpayer making a change described in section 16. 08(2)(a)(i)(E), section 16. 08(2) (a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure, as applicable, which corresponds to a cost-offset related inventory method change filed under the non-automatic change procedures of Rev. Proc. 2015-13 for the same year of change may make the corresponding cost offset change described in section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2) (b)(v) on an amended federal income tax return for the cost offset year of change (as defined in section 16.08(4)(b)(ii) of this revenue procedure) provided:

(A) the taxpayer received consent for the cost-offset related inventory method change filed under the non-automatic change procedures for the year of change after the time the taxpayer was required to file the original Form 3115 for the corresponding cost offset change under section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)(ii) (F), or section 16. 08(2)(b)(v) of this revenue procedure, as applicable, in accordance with section 6. 03(1)(a)(i)(A) of Rev. Proc. 2015-13 for the cost offset year of change;

(B) the taxpayer timely signs and returns the Consent Agreement for the non-automatic corresponding cost-offset related inventory method change in accordance with section 11. 03(2)(c)(i) of Rev. Proc. 2015-13, and timely implements such non-automatic change in accordance with section 11. 03(2)(c)(ii)(A) or (B) of Rev. Proc. 2015-13;

(C) the taxpayer implements the corresponding cost offset method change described in section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure, as applicable, on the same amended federal income tax return that the taxpayer implements the cost-offset related inventory method change described in section 16. 08(4)(b)(i)(A) of this revenue procedure; and

(D) the taxpayer’s amended federal income tax return for the year of change includes any adjustments to taxable income or tax liability resulting from the change(s) in method of accounting for the cost-offset related inventory method change(s) specified in the letter ruling and the corresponding cost offset method change(s).

(ii) Cost offset year of change . For purposes of this section 16. 08(4)(b), a taxpayer’s cost offset year of change is the same year of change that the taxpayer received consent under the non-automatic change procedures for the cost-offset inventory related change.

(iii) Filing requirements . Notwithstanding section 6. 03(1)(a) of Rev. Proc. 2015-13, a taxpayer making a change under section 16. 08(2)(a)(i)(E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b) (v) of this revenue procedure in accordance with section 16. 08(4)(b) of this revenue procedure must attach the original Form 3115 to the taxpayer’s timely filed amended federal income tax return for the cost offset year of change and must file the duplicate copy (with signature) of the Form 3115 with the IRS in Ogden, UT, no later than the date the taxpayer timely files the amended federal income tax return that implements the cost-offset related inventory method described in section 16. 08(4)(b)(i)(A) of this revenue procedure, as provided in section 11. 03(2)(c)(ii) (A) or (B) of Rev. Proc. 2015-13.

(5) Eligibility rules inapplicable . (a) Certain cost offset method changes . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13 does not apply to a change under section 16. 08(2)(a)(i) (E), section 16. 08(2)(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure. (b) Example . Application of section 5.01(1)(f) of Rev. Proc. 2015-13 . B, a calendar year taxpayer, is engaged in a single trade or business of selling computers. B is not under examination within the meaning of section 3. 18 of Rev. Proc. 2015-13. B does not receive advance payments. B presently recognizes gross income from the sale of computers in the taxable year it begins manufacturing the computer without regard to whether there is a contract with a customer, and does not apply a cost offset method. For 2021, B makes a change in method of accounting for gross income from the sale of computers under section 16. 10(2)(a)(iii)(A) of Rev. Proc. 2022-14 to apply the AFS income inclusion rule under § 1. 451-3(b). Unless a waiver of eligibility applies, section 5. 01(1)(f) of Rev. Proc. 2015-13 applies to prevent B from automatically changing its method of accounting for gross income from the sale of computers under section

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16. 08(2)(a)(i)(C) of this revenue procedure to apply the AFS cost offset method under § 1. 451-3(c) for any of the four taxable years succeeding the 2021 year of change (taxable year 2022 through 2025) because the 2021 change was for the same item.

(6) No audit protection for taxpayers under examination for certain cost off- set changes . For a taxpayer under examination that makes a change in method of accounting under section 16. 08(2)(a) (i)(E), section 16. 08(a)(ii)(F), or section 16. 08(2)(b)(v) of this revenue procedure, the taxpayer does not receive audit protection under section 8. 01 of Rev. Proc. 2015-13 for such change if, at the time of filing, the taxpayer’s method of accounting for the item being changed by the corresponding cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13, as modified by section 4. 02 of Rev. Proc. 2021-34 (or successor), is an issue under consideration for the taxable year under examination. However, if the taxpayer ultimately receives audit protection for the corresponding cost-offset related inventory method change under section 8. 02(1)(f) of Rev. Proc. 2015-13, then the preceding sentence does not apply and the normal audit protection rules in section 8 of Rev. Proc. 2015-13 apply.

(7) Concurrent automatic changes . (a) Changes under this section 16.08 and change to overall accrual method . A taxpayer that wants to make one or more concurrent changes in method of accounting under this section 16. 08 and a change in overall method of accounting to an accrual method under section 15. 01 of this revenue procedure for the same year of change may file a single Form 3115 that includes all of the changes. Except as otherwise required by section 16. 08(4)(a) (ii) of this revenue procedure, the taxpayer may not net the § 481(a) adjustment from one change with the § 481(a) adjustment from another change, and must separately state the § 481(a) adjustment for each change. If a taxpayer makes a concurrent change in method of accounting to allo

cate transaction price and/or payments under section 16. 08(2)(a)(i), (ii), or section 16. 08(2)(b) of this revenue procedure, the taxpayer is required to make the allocation change before any other change described in section 16. 08(2)(a)(i), (ii), or section 16. 08(2)(b) of this revenue procedure, as applicable.

(b) Concurrent cost-offset related inventory method change and change to apply a cost offset method . A taxpayer that implements a cost-offset related inventory method change(s) (as defined in section 5.06 of Rev. Proc. 2015-13, as modified by section 4. 02 of Rev. Proc. 2021-34) in the same year of change it implements a change(s) to apply a cost offset method under section 16. 08(2)(a)(i)(C), section 16. 08(2)(a)(ii)(D), or section 16. 08(2)(b) (iii) of this revenue procedure, is required to implement the cost-offset related inventory method change(s) before it implements the change to apply a cost offset method under section 16. 08(2)(a)(i)(C), section 16. 08(2)(a)(ii)(D), or section 16. 08(2)(b)(iii)) of this revenue procedure, as applicable.

(c) Concurrent cost-offset related inventory method change and corre- sponding change to cost offset method . See section 6. 03(1)(b) of Rev. Proc. 2015-13 for a taxpayer that makes one or more change(s) under section 16. 08(2) (a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure and one or more cost-offset related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13, under this revenue procedure in the same year of change. The taxpayer may file a single Form 3115 that includes both the cost-offset related inventory method change and the corresponding cost offset change. Additionally, such taxpayer is required to implement the cost-offset related inventory method change(s) under this revenue procedure before it implements the corresponding cost offset change(s) under section 16. 08(2)(a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure, as applicable.

(d) Examples . For each of the following examples, the taxpayer is on a cal

endar year, uses an accrual method of accounting, and has an AFS, as defined in § 1. 451-3(a)(5).

(i) Example 1 . Ordering Rule: Cost-Offset Related Inventory Method Change Before Change to Cost Offset Method . A is engaged in a single trade or business of manufacturing and selling computers. A is not under examination within the meaning of section 3. 18 of Rev. Proc. 2015-13. A uses the AFS income inclusion rule to account for gross income from the sale of computers and uses the deferral method to account for advance payments received from the sale of computers. A makes multiple changes in method of accounting in 2023. Specifically, A changes its method of accounting to apply the AFS cost offset method and the advance payment cost offset method pursuant to sections 16.08(2)(a)(i) (C) and 16. 08(2)(a)(ii)(D) of this revenue procedure. A also changes its UNICAP method under section 12. 02 of this revenue procedure. Pursuant to section 16. 08(7)(b) of this revenue procedure, A is required to implement the UNICAP method change under section 12. 02 before it implements the changes to the AFS cost offset method and advance payment cost offset method under sections 16.08(2)(a)(i)(C) and 16. 08(2)(a)(ii)(D). (ii) Example 2 . Ordering Rule: Cost-Offset Related Inventory Method Change Before Corre- sponding Change to Cost Offset Method . The facts are the same as in Example 1. A makes multiple changes in method of accounting in 2024. A changes its UNICAP method under section 12. 02 of this revenue procedure. A also makes a corresponding change to the AFS cost offset method under section 16.08(2) (a)(i)(E) and a corresponding change to the advance payment cost offset method section 16.08(2)(a)(ii) (F) of this revenue procedure. Pursuant to section 16. 08(7)(c) of this revenue procedure, A is required to implement the UNICAP method change under section 12. 02 before it implements the corresponding change to the AFS cost offset method under section 16. 08(2)(a)(i)(E) and the corresponding change to the advance payment cost offset method under section 16. 08(2)(a)(ii)(F).

(8) Limited applicability . Notwithstanding the inapplicability rules in section 16. 08(3) of this revenue procedure, the changes described in section 16. 08(2) (a)(i)(A) and (B) of this revenue procedure are applicable only for a taxpayer’s first, second, or third taxable year beginning after December 31, 2020.

(9) Designated automatic accounting method change number . See the following table for the designated automatic method change number (DCN) for the changes in method of accounting under this section 16. 08.

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(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 17 .01 is “131 .” (4) Contact information . For further information regarding a change under this section, contact Steven Harrison at (202) 317-6842 (not a toll-free number) .

SECTION 18 . PREPAID SUBSCRIPTION INCOME (§ 455)

.01 Prepaid subscription income . (1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for prepaid subscription income to the method described in § 455 and the regulations thereunder, including an eligible taxpayer that wants to make the “within 12 months” election under § 1 .455-2 .

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

(a) Cut-off basis . This change is made on a cut-off basis and applies only to prepaid subscription income received on or after the beginning of the year of change . The taxpayer must continue to account for prepaid subscription income received prior to the year of change under the taxpayer’s present method of accounting . Accordingly, a § 481(a) adjustment is neither permitted nor required .

(b) Short Form 3115 in lieu of a stan- dard Form 3115 . In accordance with § 1 .446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is waived and, pursuant to section

(10) Contact information . For further information regarding a change under this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number) . For further information regarding a change under this section for OID and specified fees (including specified credit card fees), contact Chris Lieu at (202) 317-6945 (not a toll-free number) .

SECTION 17 . OBLIGATIONS ISSUED AT DISCOUNT (§ 454)

.01 Series E, EE or I U.S. savings bonds .

(1) Description of change . This change applies to a taxpayer that uses the overall cash receipts and disbursements (cash) method of accounting and that wants to change its method of accounting for interest income on Series E, EE, or I U .S . savings bonds . However, this change only applies to a taxpayer that previously made an election under § 454 to report as interest income the increase in redemption price on a bond occurring in a taxable year, and that now wants to report this income in the taxable year in which the bond is redeemed, disposed of, or finally matures, whichever is earliest .

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

(a) This change is made on a cut-off basis and is effective for any increase in redemption price occurring after the beginning of the year of change for all Series E, EE and I U .S . savings bonds held by the taxpayer on or after the beginning of the year of change . Accordingly, a § 481(a) adjustment is neither permitted nor required .

(b) In accordance with § 1 .446-1(e) (3)(ii), the requirement of § 1 .446-1(e) (3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for this change . Notwithstanding the definition of Form 3115 in section 3.07 of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, the statement in lieu of a Form 3115 that is permitted under this section 17 .01 is considered a Form 3115 for purposes of the automatic change procedures of Rev . Proc . 2015-13 . However, the requirement to file the duplicate copy, under section 6 .03(1)(a) of Rev . Proc . 2015-13, is waived . The statement must include the following information:

(i) the designated automatic accounting method change number for this change, which is “131”;

(ii) the taxpayer’s name and employer identification number or social security number, as applicable;

(iii) the year of change (both the beginning and ending dates);

(iv) the Series E, EE or I U .S . savings bonds for which this change in accounting method is requested;

(v) a statement that the taxpayer will report all interest on any U .S . savings bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and

(vi) a statement that the taxpayer will report all interest on the U .S . savings bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of any interest income previously reported in prior taxable years .

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6 .02(2) of Rev . Proc . 2015-13, a short Form 3115 is authorized for a change described in section 18 .01(a) of this revenue procedure . The requirement in § 1.455-6 to file a statement requesting consent is satisfied by filing such short Form 3115 . 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) the information described in § 1 .455-6(a); and

(v) if the taxpayer wants to make a “within 12 months” election under § 1 .455-6(c), the information described in section § 1 .455-6(c)(2) .

(c) Section 455 election made with consent . The consent granted in section 9 of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, satisfies the consent required under § 455(c)(3) and § 1 .455-6(b) .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 18 .01 is “132 .” (4) Contact information . For further information regarding a change under this section, contact Minho Seo at (202) 3175100 (not a toll-free number) .

SECTION 19 . SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

.01 Small business taxpayer exceptions from requirement to account for certain long-term contracts under § 460 or to capitalize costs under § 263A for certain home construction contracts .

(1) Description of change . This change applies to a taxpayer that (a) wants to change its method of accounting for exempt long-term construction contracts described in § 460(e)(1)(B) from the percentage-of-completion method of accounting described in § 1 .460-4(b) to an exempt contract method of accounting described in § 1 .460-4(c); or (b) chooses to stop capitalizing costs under § 263A for home construction contracts described in § 460(e)(1)(A) and meets the requirements of § 460(e)(1)(B)(i) and (ii) .

(2) Inapplicability . A taxpayer can use a method of accounting for its exempt long-term contracts that is different from the method used for contracts that are not exempt . Thus, a taxpayer must use the percentage-of-completion method of accounting for nonresidential long-term construction contracts that do not meet the requirements of § 460(e)(1)(B) or § 1.460-3(b)(1)(ii) in the first taxable year it enters into such a contract, but must continue to use its exempt contract method of accounting for its existing exempt longterm construction contracts . Similarly, in the first taxable year that a taxpayer enters into a nonresidential long-term construction contract that meets the requirements of § 460(e)(1)(B) or § 1 .460-3(b)(1) (ii) the taxpayer can use a permissible exempt contract method of accounting for such a contract . Rev . Rul . 92-28, 1992-1 C .B . 153 . Accordingly, only a taxpayer who previously adopted the percentage-of-completion method of accounting for exempt long-term construction contracts and wants to change to another permissible exempt contract method of accounting is required to request consent to change under this section 19 .01 . Similarly, a taxpayer that enters into a home construction contract described in § 460(e) (1)(A) and that meets the requirements of § 460(e)(1)(B)(i) and (ii) requires consent to change its method of accounting to not capitalize costs under § 263A only if the taxpayer has previously applied § 263A to home construction contracts exempt from the capitalization requirement under § 460(e)(1) .

(3) Manner of making change . This change is made on a cut-off basis and applies only to long-term construction contracts entered into on or after the first day of the year of change . Accordingly, a § 481(a) adjustment is neither permitted nor required .

(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; (e) Part IV, line 25; and

i t u §

nder § 174(b) prior to its amendment by 13206(a) of the TCJA .

(f) Schedule D, Part I . (5) Designated automatic accounting ethod change number . The designated utomatic accounting method change

m a n 1

number for a change under this section 19 .01 is “236 .”

(6) Contact information . For further

information regarding changes under this

i s (

section, contact Christina Glendening at (202) 317-7006 (not a toll-free number) .

.02 Change to rely on the interim guid-

ance provided in section 8 of Notice 2023- 63, 2023-39 I.R.B. 919 .

(1) Description of change . This

change applies to a taxpayer that wants to change its method of accounting

a 6

c t u a 2 c a a r d t c t d t a t i d t e i S

m

e d p r c b y n S S

nder § 460 to rely on the interim guidnce provided in section 8 of Notice

023-63, 2023-39 I .R .B . 919, so that the osts allocable to a long-term contract ccounted for using the PCM include mortization deductions for specified esearch or experimental (SRE) expen

ditures, as defined in §174(b) and section 4 .02(2) of Notice 2023-63, as applicable, under §174(a)(2)(B), rather than the capitalized amount of such expenditures, and the amortization deductions for such expenditures are treated as incurred for purposes of determining the percentage of contract completion in the taxable year the amortization is deducted . For purposes of determining the percentage of contract completion, estimated total allocable contract costs include either (1) all amortization of

RE expenditures that directly benefit r are incurred by reason of the perfor ance of the long-term contract, or (2) nly that portion of such amortization xpected to be incurred and deducted

uring the term of the contract . A taxayer using the first alternative is equired to report any portion of the

ontract price not previously reported

y the taxable year following the taxable ear in which the contract is completed, otwithstanding that some portion of the

RE expenditures remain unamortized . ee § 460(b)(1) .

(2) Inapplicability . This change does ot apply to:

n

(a) A change in method of account ing under § 460 with respect to expenditures capitalized under § 59(e)(2)(B), or

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(b) A change in method of accounting for independent research and development expenditures, as defined § 460(c)(5), which are not allocable contract costs .

(c) Any contract not accounted for under the PCM, as described in § 460(b) (1) and § 1 .460-4(b)(2), as of the beginning of the year of change .

(3) Manner of making change . (a) Modified § 481(a) adjustment or cut-off basis . Except as provided in section 19 .02(3)(b) of this revenue procedure, a change under section 19 .02(1) of this revenue procedure is made with a modified § 481(a) adjustment that takes into account the § 460 treatment of SRE expenditures paid or incurred in taxable years beginning after December 31, 2021 . Such change applies to all longterm contracts for which an SRE expenditure is an allocable contract cost, including long-term contracts entered into before the beginning of the year of change .

(b) Exception for negative modified § 481(a) adjustment . If a change described in section 19 .02(3)(a) of this revenue procedure results in a modified § 481(a) adjustment that is negative, the taxpayer may instead choose to implement the change on a cut-off basis.

(4) Certain eligibility rules inapplica- ble . The eligibility rules in section 5 .01(1) (d) and (f) of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, do not apply to a change described in section 19 .02(1) of this revenue procedure for the taxpayer’s first or second taxable year beginning after December 31, 2021 .

(5) Limited audit protection . A taxpayer does not receive audit protection under section 8 .01 of Rev . Proc . 2015-13 for a change under section 19 .02(1) of this revenue procedure with respect to the § 460 treatment of expenditures paid or incurred in taxable years beginning on or before December 31, 2021 .

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 19 .02 of this revenue procedure is “271 .”

(7) Contact information . For further information regarding a change under section 19 .02 of this revenue procedure, contact Kyle Griffin at (202) 317-7006 (not a toll-free number) .

SECTION 20 . TAXABLE YEAR INCURRED (§ 461)

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

.01 Timing of incurring liabilities for employee compensation .

(1) Self-insured employee medical ben- efits .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13 for information on making concurrent changes.

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

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

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

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

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

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

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

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

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

(2) Description of change . (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to:

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

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

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

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

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

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

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

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

(1) Description of change (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for self-insured liabilities (including any amounts not covered by insurance, such as a “deductible” amount under an insurance policy) arising under any workers’ compensation act or out of any tort, breach of contract, or violation of law, to treating the liability for the workers’ compensation, tort, breach of contract, or violation of law as being

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

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

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

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

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

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

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

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

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

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

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

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

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

(4) Designated automatic account- ing method change number . The designated automatic accounting method change number for a change under section

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

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

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

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that is currently treating the mere execution of a contract for services or insurance as establishing the fact of the liability under § 461 and wants to change from that method of accounting for liabilities for services or insurance to comply with Rev. Rul. 2007-3, 2007-1 C. B. 350, that is, all the events needed to establish the fact of the liability occur when (a) the event fixing the liability, whether that be the required performance or other event occurs or (b) payment is due, whichever happens earliest.

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

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number for a change under this section 20 .06 is “106 .” (3) Contact information . For further information regarding a change under this section, contact Minho Seo at (202) 3175100 (not a toll-free number) . .07 Rebates and allowances . (1) Description of change . (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for treating its liability for rebates and allowances to the recurring item exception method under § 461(h)(3) and § 1 .461-5 .

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

(i) liabilities to pay a refund; and (ii) liabilities arising from reward programs .

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

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

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

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

(b) Short Form 3115 in lieu of a stan- dard Form 3115 . In accordance with § 1 .446-1(e)(3)(ii), the requirement in § 1 .461-1(e)(3)(i) to file a standard Form 3115 is waived and, pursuant to section 6 .02(2) of Rev . Proc . 2015-13, a short Form 3115 is authorized with respect to a taxpayer making a change under this section 20 .08 . The taxpayer’s short Form 3115 (Rev . December 2022) must include all of the following information:

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

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

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

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

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

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20 .09 is “154 .” (3) Contact information . For further information regarding a change under this

section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).. 10 Gift cards issued as a refund for returned goods

(1) Description of change (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that sells goods at retail and that wants to change its method of accounting for gift cards (as defined by section 4. 02 of Rev. Proc. 2011-17, 2011-5 I. R. B. 441) issued as a refund for returned goods to treat the transaction as (1) the payment of a cash refund in the amount of the gift card, and (2) the sale of a gift card in the amount of the gift card.

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

(2) Concurrent automatic change . A taxpayer making both this change and an automatic change to the deferral method under section 16. 08 of this revenue procedure for the same taxable year of change may file a single Form 3115 for both changes and enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, for information on making concurrent changes.

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

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

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ing” requirements, and distinguishes contracts for the provision of services from insurance and warranty contracts.

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

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

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

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

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

(b) that, on the first day of the first taxable year beginning after December 31, 2022, in the same trade or business, uses the 92-29 alternative cost method for

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

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

(3) Inapplicability . (a) This change does not apply to a taxpayer that is using the Alternative Cost Method described in Rev. Proc. 2023-9 that wants to change its method of allocating the estimated cost of common improvements among the benefitted units in the qualifying project (and in case of a taxpayer using the completed contract method described in § 1. 460-4(d) (CCM), a taxpayer that wants to change its method of allocating the estimated cost of common improvements among all the CCM contracts, as defined in section 4.03 of Rev. Proc. 2023-9, in the qualifying project).

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

(c) This change does not apply to a taxpayer that is presently using an impermissible method for incurring common improvement costs under § 461 and that wants to change its method of account

ing for common improvement costs to the Alternative Cost Method described in Rev. Proc. 2023-9. The inapplicability rule described in this section 20. 13(3)(c) is effective for any taxable year following the first taxable year that begins after December 31, 2022.

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

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

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

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

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

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

(5) Section 481(a) adjustment . The taxpayer is required to compute a single § 481(a) adjustment for each trade or busi

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ness for which a change described in section 20. 13(2)(a)-(c) is made.

(6) Eligibility rule temporarily inap- plicable . 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 changes described in this section 20. 13 for the taxpayer’s first taxable year beginning after December 31, 2022.

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

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

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

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

(8) Designated automatic accounting method change number

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

(b) Legacy rule . The designated automatic accounting method change number for a taxpayer that wants to apply the legacy rule described in section 20. 13(2)(b)

for the taxpayer’s first taxable year beginning after December 31, 2022, is “267. ”

(c) Change to an accrual method . The designated automatic accounting method change number for a change to an accrual method in accordance with section 20.13(2)(c) for the taxpayer’s first taxable year beginning after December 31, 2022, is “268. ”

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