SECTION 5. INTEREST EXPENSE

(§163) AND AMORTIZABLE BOND PREMIUM (§ 171).

01 Revocation of § 171(c) election (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for amortizable bond premium by revoking its § 171(c) election. Under § 171(c), a taxpayer that holds certain taxable bonds may elect to amortize any bond premium on the bonds in accordance with regulations prescribed by the Secretary. Sections 1. 171-1 through

1. 171-5 provide rules relating to the amortization of bond premium by a taxpayer. Section 1. 171-4 provides the procedures to make a § 171(c) election to amortize bond premium.

(2) Revocation of election . The revocation of a § 171(c) election applies to all taxable bonds that are held by the taxpayer on the first day of the first taxable year for which the revocation is effective (year of change), and to all taxable bonds that are subsequently acquired by the taxpayer.

(3) Manner of making change . This change is made using a cut-off basis and applies only to taxable bonds held on or after the beginning of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

Under the cut-off basis, for taxable bonds held at the beginning of the year

of change, the taxpayer may not amortize any remaining bond premium on the bonds. Because the cut-off basis is prescribed for this change, the basis of any bond, adjusted for amounts previously amortized during the period of the election, is not affected by the revocation.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 5. 01 is “16. ” (5) Additional requirements . On a statement attached to the Form 3115, the taxpayer must provide:

(a) the reason(s) for revoking the election; and

(b) a description of the method by which, and the date on which, the taxpayer made the § 171(c) election that is proposed to be revoked.

(6) Audit protection . Any audit protection applicable to this change under section 8 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not preclude the Commissioner from examining the method used by the taxpayer to determine the amount of amortizable bond premium under § 171(b) for a taxable year prior to the year of change.

(7) Contact information . For further information regarding a change under this section, contact Steven Harrison at (202) 317-6842 (not a toll-free number).. 02 Change to comply with § 163(e)(3) (1) Description of change . This change applies to a taxpayer that wants to change its method or methods of accounting to comply with the requirements of § 163(e)(3), which defers certain deductions attributable to original issue discount debt instruments held by related foreign persons. Any portion of the original issue discount will not be allowable as a deduction to the U. S. person issuer until paid.

(2) Accelerated § 481(a) adjustment period in certain situations . In addition to the circumstances set forth in section 7. 03(4) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, the § 481 adjustment period provided in section 7. 03 of Rev. Proc. 2015-13 will be accelerated for a U. S. person with a remaining balance of a § 481(a) adjustment that arose by reason of a change in method of accounting described in this section 5. 02 if a debt instrument

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subject to the change is paid off, retired, or significantly modified within the meaning of § 1. 1001-3 prior to the end of the § 481(a) adjustment period. The portion of the remaining § 481(a) adjustment attributable to the debt instrument must be taken into account in the taxable year the debt instrument is paid off, retired, or significantly modified within the meaning of § 1. 1001-3.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 5. 02 is “212. ” (4) Contact information . For further information regarding a change under this section, contact Dylan Steiner at (202) 317-6934 (not a toll-free number).