Section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted to be taken into account when the taxpayer’s taxable income is computed under a method of accounting different from the method used to compute taxable income for the preceding taxable year. When there is a change in method of accounting to which § 481(a) is applied, income for the taxable year preceding the year of change must be determined under the method of accounting that was then employed, and income for the year of change and the following taxable years must be determined under the new method of accounting as if the new method had always been used. The § 481(a) adjustment is computed notwithstanding that the period of limitations on assessment and collection of tax may have closed on the years (closed years) in which the events giving rise to the need for an adjustment occurred. See Superior Coach of Fla., Inc. v. Commissioner, 80 T.C. 895, 912 (1983).

Example. A taxpayer that is not required to use inventories uses the overall cash receipts and disbursements method and changes to an overall accrual method. The taxpayer has $120,000 of income earned but not yet received (accounts receivable) and $100,000 of expenses incurred but not yet paid (accounts payable) as of the end of the taxable year preceding the year of change. A positive § 481(a) adjustment of $20,000 ($120,000 accounts receivable less $100,000 accounts payable) is required as a result of the change.

Section 481(c) and §§ 1.446-1(e)(3)(ii) and 1.481-4 provide that the adjustment required by § 481(a) may be taken into account in determining taxable income in the manner and subject to the conditions agreed to by the Commissioner and the taxpayer. Generally, in the absence of such an agreement, the § 481(a) adjustment is taken into account completely in the year of change, subject to § 481(b), which limits the amount of tax where the § 481(a) adjustment is substantial. However, under the Commissioner’s authority in § 1.446-1(e)(3)(ii) to prescribe terms and conditions for changes in methods of accounting, this revenue procedure provides specific adjustment periods that are intended to achieve an appropriate balance between the goals of mitigating distortions of income that result from accounting method changes and providing appropriate incentives for voluntary compliance.

The term “taxpayer” has the same meaning as the term “person” defined in § 7701(a)(1) (rather than the meaning of the term “taxpayer” defined in § 7701(a)(14)).

For purposes of (a) sections 3.08(1), 3.09(1), and 4.02(1) of this revenue procedure (taxpayer under examination), (b) section 3.09(2) of this revenue procedure (taxpayer before an appeals office), or (c) section 3.09(3) of this revenue procedure (taxpayer before a federal court), the term “taxpayer” includes a consolidated group.

(a) Except as provided in sections 3.08(2) and (3) of this revenue procedure, an examination of a taxpayer with respect to a federal income tax return begins on the date the taxpayer is contacted in any manner by a representative of the Internal Revenue Service (Service) for the purpose of scheduling any type of examination of the return. An examination ends:

(i) in a case in which the Service accepts the return as filed, on the date the “no change” letter is sent to the taxpayer;

(ii) in a fully agreed case, on the earliest of the date the taxpayer executes a waiver of restrictions on assessment or acceptance of overassessment (for example, Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, Form 4549, Income Tax Examination Changes, or Form 4605, Examination Changes — Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations), the date the taxpayer makes a payment of tax that equals or exceeds the proposed deficiency, or the date of the “closing” letter (for example, Letter 987 — Agreed Income Tax Change) sent to the taxpayer; or

(iii) in an unagreed or a partially agreed case, on the earliest of the date the taxpayer (or its representative) is notified by Appeals that the case has been referred by the examining agent(s) to Appeals, the date the taxpayer files a petition in the Tax Court, the date on which the period for filing a petition with the Tax Court expires, or the date of the notice of claim disallowance.

(b) An examination does not end as a result of the early referral of an issue to Appeals under the provisions of Rev. Proc. 99-28, 1999-2 C.B. 109.

(c) An examination resumes on the date the taxpayer (or its representative) is notified by Appeals (or otherwise) that the case has been referred to the examining agent(s) for reconsideration.

For an entity (including a limited liability company) treated as a partnership for federal income tax purposes that is subject to the TEFRA unified audit and litigation provisions for partnerships, an examination begins on the date of the notice of the beginning of an administrative proceeding sent to the Tax Matters Partner (TMP). An examination ends:

(a) in a case in which the Service accepts the partnership return as filed, on the date of the “no adjustments” letter or the “no change” notice of final administrative adjustment sent to the TMP;

(b) in a fully agreed case, when all the partners or members execute a Form 870-P, Agreement to Assessment and Collection of Deficiency in Tax for Partnership Adjustments, 870-L, Agreement to Assessment and Collection of Deficiencies in Tax for Partnership Adjustments, Additions to Tax, and Affected Items; or

(c) in an unagreed or a partially agreed case, on the earliest of the date the TMP (or its representative) is notified by Appeals that the case has been referred by the examining agent(s) to Appeals, the date the TMP (or a partner or member) requests judicial review, or the date on which the period for requesting judicial review expires. But see section 4.02(3) of this revenue procedure for certain rules that preclude an entity from requesting a change in accounting method.

The rules of section 3.08(2) of this revenue procedure apply to an S corporation that is subject to the TEFRA unified audit and litigation provisions for S corporations for any taxable year ending on or before December 31, 1996, except in section 3.08(2)(b) of this revenue procedure, a fully agreed case is when all shareholders execute a Form 870-S, Agreement to Assessment and Collection of Deficiency in Tax for S Corporation Adjustments.

A taxpayer’s method of accounting for an item is an issue under consideration for the taxable years under examination if the taxpayer receives written notification (for example, by examination plan, information document request (IDR), or notification of proposed adjustments or income tax examination changes) from the examining agent(s) specifically citing the treatment of the item as an issue under consideration. For example, a taxpayer’s method of pooling under the dollar-value, last-in, first-out (LIFO) inventory method is an issue under consideration as a result of an examination plan that identifies LIFO pooling as a matter to be examined, but it is not an issue under consideration as a result of an examination plan that merely identifies LIFO inventories as a matter to be examined. Similarly, a taxpayer’s method of determining inventoriable costs under § 263A is an issue under consideration as a result of an IDR that requests documentation supporting the costs included in inventoriable costs, but it is not an issue under consideration as a result of an IDR that requests documentation supporting the amount of costs of goods sold reported on the return. The question of whether a method of accounting is an issue under consideration may be referred to the national office as a request for technical advice under the provisions of Rev. Proc. 2008-2, 2008-1 I.R.B. 90 (or any successor).

A taxpayer’s method of accounting for an item is an issue under consideration for the taxable years before an appeals office if the treatment of the item is included as an item of adjustment in the examination report referred to Appeals or is specifically identified in writing to the taxpayer by Appeals.

A taxpayer’s method of accounting for an item is an issue under consideration for the taxable years before a federal court if the treatment of the item is included in the statutory notice of deficiency, the notice of claim disallowance, the notice of final administrative adjustment, the pleadings (for example, the petition, complaint, or answer) or amendments thereto, or is specifically identified in writing to the taxpayer by the counsel for the government.

If, on the date the taxpayer would otherwise file a copy of the application with the national office, the taxpayer is under examination (as provided in section 3.08 of this revenue procedure), except as provided in sections 6.03(2) (90-day window), 6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), and 6.03(6) (issue pending) of this revenue procedure;

A corporation that is (or was formerly) a member of a consolidated group is under examination (for purposes of section 4.02(1) of this revenue procedure) if the consolidated group is under examination for a taxable year(s) that the corporation was a member of the group;

For an entity (including a limited liability company) treated as a partnership or an S corporation for federal income tax purposes, if, on the date the entity would otherwise file a copy of the application with the national office, the entity’s accounting method to be changed is an issue under consideration in an examination of a partner, member, or shareholder’s federal income tax return;

Except as otherwise provided in this section 4.02(4), if the taxpayer engages in a transaction to which § 381(a) applies within the proposed taxable year of change (determined without regard to any potential closing of the year under § 381(b)(1)):

An acquiring corporation may change its method of accounting pursuant to this revenue procedure if the acquiring corporation would be permitted to continue to use its prior method of accounting under the rules of §§ 1.381(c)(4)-1(b)(1) and (3)(i) (taking into account the third sentence of § 1.381(c)(4)-1(b)(4) relating to no prior method established by a party to the transaction) or §§ 1.381(c)(5)-1(b)(1) and (3)(i) (taking into account the second sentence of § 1.381(c)(5)-1(b)(4)(i) relating to no prior inventory method established by a party to the transaction) because all of the parties to the transaction used the same method of accounting on the date of distribution or transfer. The change pursuant to this revenue procedure is ignored for purposes of determining whether on the date of distribution or transfer the parties to the transaction used the same methods of accounting under § 1.381(c)(4)-1(b) or § 1.381(c)(5)-1(b), and thus §§ 1.381(c)(4)-1(b)(3)(ii) and (c) and §§ 1.381(c)(5)-1(b)(3)(ii) and (c) will not apply.

An acquiring corporation may change pursuant to this revenue procedure a method of accounting used by a trade or business operated by such corporation if the trade or business would be permitted to continue to use its prior method of accounting under the rules of § 1.381(c)(4)-1(b)(2) or § 1.381(c)(5)-1(b)(2). The change pursuant to this revenue procedure is ignored for purposes of determining whether on the date of distribution or transfer the parties to the transaction used the same methods of accounting under § 1.381(c)(4)-1(b) or § 1.381(c)(5)-1(b), and thus §§ 1.381(c)(4)-1(b)(3) and (c) and §§ 1.381(c)(5)-1(b)(3) and (c) will not apply.

If, in the year of change, a taxpayer requesting a change in method of accounting ceases to engage in the trade or business to which the change in accounting method relates or terminates its existence, as described in section 5.04(3)(c) of this revenue procedure. For purposes of this section 4.02(5), a taxpayer is treated as ceasing to engage in the trade or business or terminating its existence without regard to whether the taxpayer’s change in method of accounting request would result in either a positive or negative § 481(a) adjustment or be made on a cut-off basis.

Except as provided in the APPENDIX of this revenue procedure, if a taxpayer changed its overall method of accounting, or applied for consent to change its overall method of accounting, regardless of whether it implemented that change, during any of the five taxable years ending with the year of change, the taxpayer may not obtain automatic consent to change its overall method of accounting under this revenue procedure. However, a taxpayer that changed its overall method of accounting during the five taxable years ending with the year of change may obtain automatic consent to change a method of accounting for an item when that change may otherwise be implemented under the provisions of this revenue procedure. For purposes of this section 4.02(6), a change in overall method of accounting does not include the use of an overall method of accounting when computing taxable income for the taxable year that the taxpayer first files a federal income tax return (“adopts an overall method of accounting”) or a change in method of accounting imposed by the Service pursuant to Rev. Proc. 2002-18 (or any successor). The five-year change prohibition in this section 4.02(6) applies regardless of whether the taxpayer’s current or prior method is a permissible method or clearly reflects the taxpayer’s income and regardless of the administrative guidance used to request consent or to change the prior method of accounting.

Example. A, an attorney, began business in 2000 and adopted the overall cash method of accounting. In 2005, A changed to an overall accrual method of accounting using the then appropriate administrative guidance. A may not use the provisions of this revenue procedure for 2007 to change to the overall cash method because of the five-year change prohibition contained in this section 4.02(6). However, A may still be able to use the provisions of this revenue procedure to change the method of accounting the taxpayer will use to treat advances made on behalf of clients in 2007. See section 3.01 of the APPENDIX of this revenue procedure.

Except as provided in section 4.02(7)(b) or the APPENDIX of this revenue procedure, if a taxpayer changed its method of accounting for a specific item, or applied for consent to change a method of accounting for a specific item regardless of whether it implemented that change, during any of the five taxable years ending with the year of change, the taxpayer may not obtain automatic consent to change its method of accounting for that same item. For purposes of this section 4.02(7)(a), a change in method of accounting for an item does not include the use of a method of accounting for the first taxable year that the taxpayer accounts for the item (for example, include in income, deduct, or capitalize) to which the method of accounting relates, or a change in method of accounting imposed by the Service pursuant to Rev. Proc. 2002-18 (or any successor). The five-year change prohibition in this section 4.02(7) applies regardless of whether the taxpayer’s current or prior method is a permissible method or clearly reflects the taxpayer’s income and regardless of the administrative guidance used to request consent or to change the prior method of accounting.

Nothwithstanding section 4.02(7)(a) of this revenue procedure, a taxpayer may obtain automatic consent to change its method of accounting for an item when that change is required as part of another change in method of accounting that the taxpayer may otherwise implement under the provisions of this revenue procedure. In addition, a taxpayer is not prohibited from changing a last-in, first-out (LIFO) inventory sub-method (for example, the method of determining current-year cost or the method of computing a dollar-value pool index) within five years of adopting or changing to the LIFO inventory method or another LIFO inventory sub-method. However, a taxpayer that changes a LIFO inventory sub-method within five years of adopting or changing to the LIFO inventory method does not receive audit protection under section 7 of this revenue procedure.

Example 1. A uses the LIFO inventory method. In 2004, A changed a LIFO inventory sub-method. Specifically, A changed from the average-cost method of determining the current-year cost of inventories to the earliest-acquisitions cost method. In 2007, A seeks to change to the IPIC method of computing the index and value of its dollar-value pools, a method that A has never used. As part of this change, A seeks to change its method of determining the current-year cost of inventories from the earliest-acquisitions cost method to the most-recent acquisitions cost method. A is eligible to change its method of computing the index and value of its dollar-value pools to the IPIC method under this revenue procedure. However, A is not eligible to change its method of determining the current-year costs of inventories under this revenue procedure because A changed this LIFO inventory sub-method within the proscribed five-year period.

Example 2. B uses the dollar-value LIFO inventory method and maintains separate dollar-value pools for its inventory of (1) new cars; (2) new trucks; (3) used cars; and (4) used trucks. In 2004, B terminated its use of the LIFO inventory method for its used cars and used trucks under Rev. Proc. 2002-9. In 2007, B seeks to terminate its use of the LIFO inventory method for its new cars and new trucks. B is eligible to change its method of accounting for new cars and new trucks under this revenue procedure because it has not changed the inventory-identification method for those pools within the proscribed five-year period.

Example 3. C, a driving instruction school, uses an overall accrual method of accounting. C obtains payment in full from its students at the beginning of each session of classes. In 2006, C properly elected the deferral method for advance payments as described in Rev. Proc. 2004-34, 2004-1 C.B. 991. In 2007, C seeks to change its overall method of accounting to the cash method as described in Rev. Proc. 2001-10, 2001-1 C.B. 272, which it qualifies to use. C is eligible to change its method of accounting for advance payments even though it made a prior change in its method of accounting for advance payments within the previous 5 taxable years ending with 2007 because C is required to change its treatment of advance payments as part of its change to the overall cash method of accounting.

Except as otherwise provided in section 5.04(3), the APPENDIX of this revenue procedure, or in other guidance published in the IRB, the § 481(a) adjustment period is four taxable years for a net positive § 481(a) adjustment for an accounting method change, and one taxable year for a net negative § 481(a) adjustment for an accounting method change.

If the year of change or any other taxable year during the § 481(a) adjustment period is a short taxable year, the § 481(a) adjustment must be included in income as if that short taxable year were a full 12-month taxable year. See Rev. Rul. 78-165, 1978-1 C.B. 276.

Example 1. A calendar year taxpayer changed its method of accounting under this revenue procedure beginning with the 2007 calendar year. The net § 481(a) adjustment for this method change is a positive adjustment of $30,000 and the adjustment period is four taxable years. The taxpayer subsequently receives permission to change its annual accounting period to September 30, effective for the taxable year ending September 30, 2008. The taxpayer must include $7,500 of the § 481(a) adjustment in gross income for the short period from January 1, 2008, through September 30, 2008.

Example 2. Corporation X, a calendar year taxpayer, changed its method of accounting under this revenue procedure beginning with the 2007 calendar year. The net § 481(a) adjustment for this method change is a positive adjustment of $30,000 and the adjustment period is four taxable years. On July 1, 2009, Corporation Z acquires Corporation X in a transaction to which § 381(a) applies. Corporation Z is a calendar year taxpayer that uses the same method of accounting to which Corporation X changed in 2007. Corporation X must include $7,500 of the § 481(a) adjustment in gross income for its short period income tax return for January 1, 2009, through June 30, 2009. In addition, Corporation Z must include $7,500 of the § 481(a) adjustment in gross income in its income tax return for calendar year 2009.

The § 481(a) adjustment period provided in section 5.04(1) or the APPENDIX of this revenue procedure will be shortened or accelerated in the following situations.

A taxpayer may elect to use a one-year § 481(a) adjustment period in lieu of the § 481(a) adjustment period otherwise provided by this revenue procedure for a positive § 481(a) adjustment if the net § 481(a) adjustment for the change is less than $25,000. The taxpayer must complete the appropriate line on Form 3115 to elect this de minimis rule.

A cooperative within the meaning of § 1381(a) generally must take the entire amount of a § 481(a) adjustment into account in computing taxable income for the year of change. See Rev. Rul. 79-45, 1979-1 C.B. 284.

A taxpayer that ceases to engage in a trade or business or terminates its existence must take the remaining balance of any § 481(a) adjustment relating to the trade or business into account in computing taxable income in the taxable year of the cessation or termination. Except as provided in sections 5.04(3)(c)(iv) and (v) of this revenue procedure, a taxpayer is treated as ceasing to engage in a trade or business if the operations of the trade or business cease or substantially all the assets of the trade or business are transferred to another taxpayer. For this purpose, “substantially all” has the same meaning as in section 3.01 of Rev. Proc. 77-37, 1977-2 C.B. 568.

The following is a nonexclusive list of transactions that are treated as the cessation of a trade or business for purposes of accelerating the § 481(a) adjustment under section 5.04(3)(c) of this revenue procedure:

(A) the trade or business to which the § 481(a) adjustment relates is incorporated;

(B) the trade or business to which the § 481(a) adjustment relates is purchased by another taxpayer in a transaction to which § 1060 applies;

(C) the trade or business to which the § 481(a) adjustment relates is terminated or transferred pursuant to a taxable liquidation;

(D) a division of a corporation ceases to operate the trade or business to which the § 481(a) adjustment relates; or

(E) the assets of a trade or business to which the § 481(a) adjustment relates are contributed to a partnership.

Except as provided in section 22.01 of the APPENDIX of this revenue procedure, no acceleration of a § 481(a) adjustment is required under section 5.04(3)(c) of this revenue procedure when a C corporation elects to be treated as an S corporation or an S corporation terminates its S election and is then treated as a C corporation.

No acceleration of the § 481(a) adjustment is required under section 5.04(3)(c) of this revenue procedure when a taxpayer transfers substantially all the assets of the trade or business that gave rise to the § 481(a) adjustment to another taxpayer in a transfer to which § 381(a) applies and the accounting method (the change to which gave rise to the § 481(a) adjustment) is a tax attribute that is carried over and used by the acquiring corporation immediately after the transfer pursuant to § 381(c). The acquiring corporation is subject to any terms and conditions imposed on the transferor (or any predecessor of the transferor) as a result of its change in method of accounting.

No acceleration of the § 481(a) adjustment is required under section 5.04(3)(c) of this revenue procedure when one member of an affiliated group filing a consolidated return transfers substantially all the assets of the trade or business that gave rise to the § 481(a) adjustment to another member of the same consolidated group in an exchange qualifying under § 351 and the transferee member adopts and uses the same method of accounting (the change to which gave rise to the § 481(a) adjustment) used by the transferor member. The transferor member must continue to take the § 481(a) adjustment into account pursuant to the terms and conditions set forth in this revenue procedure. The transferor member must take into account activities of the transferee member (or any successor) in determining whether acceleration of the § 481(a) adjustment is required. For example, except as provided in the following sentence, the transferor member must take any remaining § 481(a) adjustment into account in computing taxable income in the taxable year in which the transferee member ceases to engage in the trade or business to which the § 481(a) adjustment relates. The § 481(a) adjustment is not accelerated when the transferee member engages in a transaction described in section 5.04(3)(c)(iv) or this section 5.04(3)(c)(v)(A).

The provisions of section 5.04(3)(c)(v)(A) of this revenue procedure cease to apply and the transferor member must take any remaining balance of the § 481(a) adjustment into account in the taxable year immediately preceding any of the following: (1) the taxable year the transferor member ceases to be a member of the group; (2) the taxable year any transferee member owning substantially all the assets of the trade or business that gave rise to the § 481(a) adjustment ceases to be a member of the group; or (3) a separate return year of the common parent of the group. In applying the preceding sentence, the rules of §§ 1.1502-13(j)(2), (j)(5) and (j)(6) apply, but only if the method of accounting to which the transferor member changed and to which the § 481(a) adjustment relates is adopted, carried over, or used by any transferee member acquiring the assets of the trade or business that gave rise to the § 481(a) adjustment immediately after acquisition of such assets. For example, the transferor member is not required to accelerate the § 481(a) adjustment if a transferee member ceases to be a member of a consolidated group by reason of an acquisition to which § 381(a) applies and the acquiring corporation (1) is a member of the same group as the transferor member, and (2) continues, under §381(c)(4) and the regulations thereunder, to use the same method of accounting as that used by the transferor member with respect to the assets of the trade or business to which the § 481(a) adjustment relates.

Ordinarily, a taxpayer applies for consent to change a method of accounting pursuant to this revenue procedure or other guidance published in the IRB by completing and filing a current Form 3115. In some cases, however, the provisions of this revenue procedure applicable to a particular change may require or allow a taxpayer to file a statement in lieu of a Form 3115 as an application for consent to make such change. See, for example, section 14.10 of the APPENDIX of this revenue procedure.

Ordinarily, a taxpayer must submit a separate application for each change in method of accounting. In some cases, however, the provisions of this revenue procedure applicable to particular changes may require or allow a taxpayer to file a single application with respect to two or more changes. See, for example, section 14.03 of the APPENDIX of this revenue procedure.

The taxpayer must submit an application that is accurate and complete as to all information required by this revenue procedure. Further, unless this revenue procedure provides that a Form 3115 is not required for the requested change in method of accounting, the taxpayer must submit a current Form 3115 that contains all information required by the applicable portions of the Form 3115 and its instructions.

For example, an application must identify the taxpayer making the change; the year of change (both the beginning and ending dates); the designated automatic accounting method change number(s) for the requested change(s) in method of accounting; and the amount of the adjustment under § 481(a), unless the change is required to be made using a cut-off basis. Also, the application must fully describe the item(s) being changed; the present method(s) of accounting from which the taxpayer is changing and the proposed method(s) of accounting to which the taxpayer is changing. Further, unless a Form 3115 is not required for the requested change in method of accounting, the taxpayer must provide all other information required by Parts I, II, and IV, and any applicable schedule(s) on the Form 3115.

The requirement under § 1.446-1(e)(3)(i) to file a Form 3115 within the taxable year for which the change is requested is waived for any application for a change in method of accounting filed pursuant to this revenue procedure. See § 1.446-1(e)(3)(ii).

A taxpayer changing a method of accounting pursuant to this revenue procedure must complete and file an application in duplicate. The original must be attached to the taxpayer’s timely filed (including any extension) original federal income tax return for the year of change, and a copy (with signature) of the application must be filed with the national office (see section 6.02(7) of this revenue procedure for the address) no earlier than the first day of the year of change and no later than when the original is filed with the federal income tax return for the year of change. For the national office copy of Form 3115, the taxpayer need only include the pages containing Parts I through IV, any applicable schedule(s), and required attachments.

In the case of a controlled foreign corporation as defined in section 953(c)(1)(B) or 957(a) (“CFC”) or a noncontrolled section 902 corporation as defined in section 904(d)(2)(E) that is not required to file a federal income tax return, the controlling domestic shareholders (as defined in § 1.964-1T(c)(5)) that want to change the foreign corporation’s method of accounting pursuant to the provisions of this revenue procedure must satisfy the requirements set forth in § 1.964-1T(c)(3). The designated shareholder who retains the jointly executed consent described in § 1.964-1T(c)(3)(ii) must complete and file an application in duplicate on behalf of the foreign corporation. An original application must be attached to the designated shareholder’s (or its common parent’s) timely filed (including any extension) original federal income tax return for its taxable year with or within which ends the year of change of the foreign corporation, and a copy (with signature) of the application must be filed with the national office (see section 6.02(7) of this revenue procedure for the address) no earlier than the first day of the year of change and no later than when the original is filed with the designated shareholder’s (or its common parent’s) federal income tax return for its taxable year with or within which ends the year of change of the foreign corporation. Each other controlling domestic shareholder (or its common parent) must also attach a copy of the application to its federal income tax return filed for its taxable year with or within which ends such year of change.

An automatic extension of 6 months from the due date of the return for the year of change (excluding any extension) is granted to file an application, provided the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) (A) timely filed (including any extension) its federal income tax return for the year of change, (B) files an amended return within the 6-month extension period in a manner that is consistent with the new method of accounting, (C) attaches the original application to the amended return, (D) files a copy of the application with the national office no later than when the original is filed with the amended return, and (E) attaches a statement to the application that the application is being filed pursuant to § 301.9100-2 of the Procedure and Administration Regulations.

A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) that fails to file the application for the year of change as provided in section 6.02(3)(a), (b), or (c)(i) of this revenue procedure will not be granted an extension of time to file under § 301.9100, except in unusual and compelling circumstances. See § 301.9100-3(c)(2) and Rev. Proc. 2008-1 (or successor).

The taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) must type or clearly print the designated automatic accounting method change number for the requested change in method of accounting on the application. When the requested change in method of accounting is made using Form 3115, the taxpayer must enter the designated automatic accounting method change number for the requested change on the appropriate line on the Form 3115. For example, a taxpayer requesting the change in method of accounting identified in section 1.01 of the APPENDIX of this revenue procedure for the year ending December 31, 2008, must enter the number “91” on Line 1(a) of Form 3115. When the requested change in method of accounting is made using a statement in lieu of Form 3115 the taxpayer must enter the designated automatic accounting method change number for the requested change in method of accounting at the top of the first page of the statement, directly above the taxpayer’s name and employer identification number (or social security number in the case of an individual). For example, enter the number “125” for the change in method of accounting identified in section 14.10 of the APPENDIX of this revenue procedure at the top of the first page of the statement, directly above the taxpayer’s name and employer identification number (or social security number in the case of an individual).

In general, a taxpayer may enter only one designated automatic accounting method change number on an application. However, where this revenue procedure or other guidance published in the IRB specifically permits two or more particular changes in method of accounting to be made on a single application, a taxpayer must enter the designated automatic change number for each such particular change being requested on the application.

The designated automatic accounting method change numbers are provided in the APPENDIX of this revenue procedure and in other guidance published in the IRB. See also Instructions for Form 3115.

The copy of the application filed with the national office must be signed by, or on behalf of, the taxpayer requesting the change by an individual with authority to bind the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) in such matters. For example, an officer must sign on behalf of a corporation, a general partner on behalf of a state law partnership, a member-manager on behalf of a limited liability company, a trustee on behalf of a trust, or an individual taxpayer on behalf of a sole proprietorship. If the taxpayer (or the designated shareholder) is a member of a consolidated group, an application submitted on behalf of the taxpayer must be signed by a duly authorized officer of the common parent. See the signature requirements set forth in the current Instructions for Form 3115 regarding those who are to sign.

If an agent is authorized to represent the taxpayer before the Service, receive a copy of the correspondence concerning the application, or perform any other act(s) regarding the application filed on behalf of the taxpayer, a power of attorney reflecting such authorization(s) must be attached to the copy of the application. It is preferred that Form 2848, Power of Attorney and Declaration of Representative, be used to provide the representative’s authority and qualification. A taxpayer’s representative without a power of attorney to represent the taxpayer as required in this section 6.01(6) will not be given any information regarding the application.

(a) For a taxpayer other than an exempt organization, the copy of the application must be addressed to the Internal Revenue Service, Attn: CC:ITA — Automatic Rulings Branch, P.O. Box 7604, Benjamin Franklin Station, Washington, D.C. 20044 (or, in the case of a designated private delivery service: Internal Revenue Service, Attn: CC:ITA — Automatic Rulings Branch, 1111 Constitution Avenue, NW, Room 5336, Washington, D.C. 20224).

(b) For an exempt organization, the copy of the application must be addressed to the Internal Revenue Service, Tax Exempt & Government Entities, Attn: TEGE:EO, P.O. Box 27720, McPherson Station, Washington, D.C. 20038 (or, in the case of a designated private delivery service: Internal Revenue Service, Tax Exempt & Government Entities, Attn: TEGE:EO, 1750 Pennsylvania Ave., NW, Washington, D.C. 20038).

(c) For a taxpayer other than an exempt organization, the copy of the application may also be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. to the courier’s desk at the loading dock (located behind the 12^th Street security station) of 1111 Constitution Avenue, NW, Washington, D.C. A receipt will be given at the courier’s desk. The copy of the application must be addressed to the Courier’s Desk, Internal Revenue Service, Attn: CC:PA:LPD:DRU, Room 5336, 1111 Constitution Avenue, NW, Washington, D.C. 20224.

Except as provided in section 6.02(7)(c) of this revenue procedure, the Service does not send an acknowledgement of the receipt of an application (original or copy) filed under this revenue procedure.

A user fee is not required for an application filed under this revenue procedure.

Certain taxpayers (or if section 6.02(3)(b) of this revenue procedure applies, certain designated shareholders) may file a single application to change an identical method of accounting on behalf of two or more of its separate and distinct trades or businesses, two or more members of a consolidated group, or two or more controlled foreign corporations (CFCs). See sections 9.02 and 15.07(4) of Rev. Proc. 2008-1 (or any successor).

If (i) one or more of the scope limitation provisions of section 4.02 of this revenue procedure would otherwise preclude a taxpayer from making a change under this revenue procedure, but (ii) the scope limitation provisions of section 4.02 of this revenue procedure do not apply to the change sought by the taxpayer (see, for example section 2.01 of the APPENDIX of this revenue procedure), and (iii) the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) is under examination (as provided in section 3.08 of this revenue procedure) on the date it files the copy of its application with the national office, then the taxpayer (or designated shareholder) must provide a copy of the application to the examining agent(s) at the same time that it files a copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

If a taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) that is otherwise within the scope of this revenue procedure is before an appeals office or a federal court and the present method to be changed is not an issue under consideration by the appeals office or the federal court on the date the taxpayer files the copy of its application with the national office, then the taxpayer (or designated shareholder) must provide a copy of the application to the appeals officer(s) or counsel(s) for the government, as applicable, at the same time that it files a copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the appeals officer(s) or counsel(s) for the government, as applicable.

Except as otherwise provided in the APPENDIX of this revenue procedure (see, for example, section 2.01 of the APPENDIX of this revenue procedure), a taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) that is under examination may file an application to change a method of accounting under section 6 of this revenue procedure only if the taxpayer is within the provisions of section 6.03(2) (90-day window), 6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), or 6.03(6) (issue pending) of this revenue procedure. A taxpayer (or designated shareholder) that files an application beyond the time periods provided in the 90-day and 120-day windows is not eligible for the automatic extension of time and will not be granted an extension of time to file under § 301.9100, except in unusual and compelling circumstances.

(a) A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) may file a copy of the application with the national office to change a method of accounting under this revenue procedure during the first 90-days of any taxable year (the 90-day window) if the taxpayer has been under examination for at least 12 consecutive months as of the first day of the taxable year. This 90-day window is not available if the method of accounting the taxpayer is changing is an issue under consideration at the time the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) would otherwise file the copy of the application or an issue the examining agent(s) has placed in suspense at the time the taxpayer would otherwise file the copy of the application.

(b) A taxpayer changing a method of accounting under this 90-day window must provide a copy of the application to the examining agent(s) at the same time it (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

(a) A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) may file a copy of the application with the national office to change a method of accounting under this revenue procedure during the 120-day period following the date an examination ends (the 120-day window), regardless of whether a subsequent examination has commenced. This 120-day window is not available if the method of accounting the taxpayer is changing is an issue under consideration at the time the taxpayer would otherwise file a copy of the application or an issue the examining agent(s) has placed in suspense at the time the taxpayer would otherwise file a copy of the application.

(b) A taxpayer changing a method of accounting under this 120-day window must provide a copy of the application to the examining agent(s) for any examination that is in process at the same time it (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

(a) A taxpayer under examination may change its method of accounting under this revenue procedure if the director consents to the filing of the application. The director will consent to the filing of the application unless, in the opinion of the director, the method of accounting to be changed would ordinarily be included as an item of adjustment in the year(s) for which the taxpayer is under examination. For example, the director will consent to the filing of an application to change from a clearly permissible method of accounting, or from an impermissible method of accounting where the impermissible method was adopted subsequent to the years under examination. The director’s consent is limited to the director’s consent to file the application and does not constitute the director’s agreement to, or approval of, the requested change in method of accounting. The question of whether the method of accounting from which the taxpayer is changing is permissible or was adopted subsequent to the years under examination may be referred to the national office as a request for technical advice under the provisions of Rev. Proc. 2008-2 (or any successor).

(b) A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) changing a method of accounting under this revenue procedure with the consent of the director must attach to the copy of the application filed with the national office a statement from the director consenting to the filing of the application. In addition, the taxpayer (or designated shareholder) must attach to its original application attached to its timely filed original federal income tax return a statement certifying that it has obtained the written consent of the director to the filing of the application and that the taxpayer will maintain a copy of such consent available for inspection. The taxpayer (or designated shareholder) must provide a copy of the application to the director at the same time it files a copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

(a) A taxpayer under examination may change its method of accounting under this revenue procedure if the description of the change in the APPENDIX of this revenue procedure provides that the change is not subject to the audit protection provisions of section 7 of this revenue procedure.

(b) A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) changing a method of accounting under this section 6.03(5) must provide a copy of the application to the examining agent(s) for any examination that is in process at the same time it files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

(a) A taxpayer that is under examination with respect to any income tax issue may request to change a method of accounting if the method of accounting to be changed is an issue pending for any taxable year under examination. However, the audit protection provisions of section 7 of this revenue procedure do not apply to a taxpayer changing its method of accounting under this section 6.03(6). For purposes of this section 6.03(6), an issue is pending for a taxable year under examination if the Service has given the taxpayer written notification indicating an adjustment is being made or will be proposed with respect to the taxpayer’s method of accounting. This notification normally will occur after the Service has gathered information sufficient to determine that an adjustment is appropriate and justified, although the exact amount of the adjustment may not yet be determined.

(b) A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) that requests to change a method of accounting under this section 6.03(6) must provide a copy of the application to the examining agent(s) at the same time it files a copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s).

The Service may change a taxpayer’s method of accounting for prior taxable years if (a) the taxpayer fails to implement the change, (b) the taxpayer implements the change but does not comply with all the applicable provisions of this revenue procedure, or (c) the method of accounting is changed or modified because there has been a misstatement or omission of material facts (see section 8.02 of this revenue procedure).

The Service may change a taxpayer’s method of accounting for prior taxable years if the taxpayer is changing a sub-method of accounting within the method. For example, an examining agent may propose to terminate the taxpayer’s use of the LIFO inventory method during a prior taxable year even though the taxpayer changes its method of valuing increments in the current year.

The Service may make adjustments to the taxpayer’s returns for the same item for taxable years prior to the requested year of change to reflect a prior year Service-initiated change reported as an issue pending or in a Revenue Agent’s Report.

The Service may change a taxpayer’s method of accounting for the same item for taxable years prior to the year of change if there is any pending or future criminal investigation or proceeding concerning (a) directly or indirectly, any issue relating to the taxpayer’s federal tax liability for any taxable year prior to the year of change, or (b) the possibility of false or fraudulent statements made by the taxpayer with respect to any issue relating to its federal tax liability for any taxable year prior to the year of change.

If the national office reviews an application and determines that the application is not properly completed (see section 6.02(1)(c) of this revenue procedure), or if supplemental information is needed, the national office will notify the taxpayer. The notification will specify the information that the taxpayer needs to provide and permit the taxpayer 30 days from the date of the notification to furnish the information. The national office reserves the right to impose shorter reply periods if subsequent requests for additional information are made. An extension of the 30-day period to furnish information, not to exceed 30 days, may be granted to a taxpayer. A request for an extension of the 30-day period must be made in writing and submitted within the initial 30-day period. If the extension request is denied, there is no right of appeal.

Ordinarily, if the taxpayer fails to provide the additional information on a timely basis, the application does not qualify for the automatic consent procedures of this revenue procedure. If the national office determines that the application does not qualify for the automatic consent procedures of this revenue procedure because the taxpayer has failed to provide the additional information on a timely basis, the national office will notify the taxpayer that consent to make the change in method of accounting is not granted.

If the national office tentatively determines that the taxpayer has changed its method of accounting without complying with all the applicable provisions of this revenue procedure (for example, the taxpayer changed to a method of accounting that varies from the applicable accounting method described in this revenue procedure or the taxpayer is outside the scope of this revenue procedure), the national office will notify the taxpayer of its tentative adverse determination and will offer the taxpayer a conference of right, if the taxpayer has requested a conference. For conference procedures for taxpayers other than exempt organizations, see section 10 of Rev. Proc. 2008-1 (or any successor). For conference procedures for exempt organizations, see section 12 of Rev. Proc. 2008-4, 2008-1 I.R.B. 121 (or any successor).

Except as provided in section 10.03(3) of this revenue procedure, if the national office determines that a taxpayer has changed its method of accounting without complying with all the applicable provisions of this revenue procedure, the national office will notify the taxpayer that consent to make the change in method of accounting is not granted. In no event will an application under this revenue procedure be treated as an application under Rev. Proc. 97-27 (or any successor).

If the national office determines that a taxpayer has changed its method of accounting without complying with all the applicable provisions of this revenue procedure, the national office, in its discretion, may allow the taxpayer to (a) make appropriate adjustments to conform its change in method of accounting to the applicable provisions of this revenue procedure, and (b) make conforming amendments to any federal income tax returns filed for the year of change and subsequent taxable years. Any application changed under this section 10.03(3) is subject to review by the director as provided in section 9 of this revenue procedure.

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

The designated automatic accounting method change number for a change under section 1.01 of this APPENDIX is “91.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact David Silber at 202-622-3930 (not a toll-free call).

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

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

This change is made on a cut-off basis and applies only to loans received from the Commodity Credit Corporation on or after the beginning of the year of change. See section 2.06 of this revenue procedure for more information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

The designated automatic accounting method change number for a change under section 2.01 of this APPENDIX is “1.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact William Ruane at 202-622-4920 (not a toll-free call).

This change applies to a lawyer handling cases on a contingent fee basis that advances money to pay for costs of litigation or for other expenses on behalf of clients and that wants to change the method of accounting for such advances from treating them as deductible business expenses to treating them as loans. See Boccardo v. United States, 12 Cl. Ct. 184 (1987); Canelo v. Commissioner, 53 T.C. 217 (1969), aff’d per curiam, 447 F.2d 484 (9th Cir. 1971).

The designated automatic accounting method change number for a change under section 3.01 of this APPENDIX is “2.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Martin Osborne at 202-622-7900 (not a toll-free call).

This change applies to a taxpayer that wants to change its method of accounting for costs incurred to obtain, maintain and renew ISO 9000 certification to conform with Rev. Rul. 2000-4, 2000-1 C.B. 331.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

The designated automatic accounting method change number for a change under section 3.02 of this APPENDIX is “3.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Martin Osborne at 202-622-7900 (not a toll-free call).

This change applies to a taxpayer engaged in the trade or business of operating a restaurant or tavern (within the meaning of section 4.01 of Rev. Proc. 2002-12, 2002-1 C.B. 374) that wants to change its method of accounting for the costs of smallwares to the smallwares method described in Rev. Proc. 2002-12.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

A taxpayer changing its method of accounting for restaurant smallwares under this section 3.03 of the APPENDIX must take the entire § 481(a) adjustment into account in computing taxable income in the year of change.

The designated automatic accounting method change number for a change under section 3.03 of this APPENDIX is “4.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Martin Osborne at 202-622-7900 (not a toll-free call).

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

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

The designated automatic accounting method change number for a change under section 3.04 of this APPENDIX is “86.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Martin Osborne at 202-622-7900 (not a toll-free call).

This change applies to a taxpayer (other than a bank as defined in § 585(a)(2)) that wants to change its method of accounting for bad debts from a reserve method (or other improper method) to a specific charge-off method that complies with § 166. For procedures applicable to banks, see § 585(c) and the regulations thereunder and section 24 of this APPENDIX.

The designated automatic accounting method change number for a change under section 4.01 of this APPENDIX is “5.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Sean Dwyer at 202-622-5020 (not a toll-free call).

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.

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.

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. See section 2.06 of this revenue procedure for more information regarding a cut-off basis. 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.

The designated automatic accounting method change number for a change under section 5.01 of this APPENDIX is “16.” See section 6.02(4) of this revenue procedure.

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.

A taxpayer receives audit protection under section 7 of this revenue procedure in connection with this change. However, the audit protection applicable to this change 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.

For further information regarding a change under this section, contact William E. Blanchard at 202-622-3950 (not a toll-free call).

This change applies to a taxpayer that wants to change from an impermissible to a permissible method of accounting for depreciation or amortization (depreciation) for any item of depreciable or amortizable property:

(i) for which the taxpayer used the impermissible method of accounting in at least two taxable years immediately preceding the year of change (but see section 6.01(1)(b) of this APPENDIX for property placed in service in the taxable year immediately preceding the year of change);

(ii) for which the taxpayer is making a change in method of accounting under § 1.446-1(e)(2)(ii)(d);

(iii) for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A), § 167, §168, §197, §1400I, or §1400L(c), under § 168 prior to its amendment in 1986 (former § 168), or under any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)); and

(iv) that is owned by the taxpayer at the beginning of the year of change (but see section 6.17 of this APPENDIX for property disposed of before the year of change).

If a taxpayer does not satisfy section 6.01(1)(a)(i) of this APPENDIX for an item of depreciable or amortizable property because this item of property is placed in service by the taxpayer in the taxable year immediately preceding the year of change (“1-year depreciable property”), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year depreciable property by filing a Form 3115 for this change, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment that is attributable to all property (including the 1-year depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for a 1-year depreciable property by filing an amended federal tax return for the property’s placed-in-service year prior to the date the taxpayer files its federal tax return for the taxable year succeeding the placed-in-service year.

This change does not apply to:

(i) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;

(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 6.01 of the APPENDIX 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 11.01 or 11.02 of this APPENDIX (as applicable);

(iii) any property for which a taxpayer is making a change in depreciation under § 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);

(iv) any property subject to § 167(g) regarding property depreciated under the income forecast method;

(v) any § 1250 property that a taxpayer is reclassifying to an asset class of Rev. Proc. 87-56, 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 1988-1 C.B. 785), or Rev. Proc. 83-35, 1983-1 C.B. 745, as appropriate, that does not explicitly include § 1250 property (for example, asset class 57.0, Distributive Trades and Services);

(vi) any property for which a taxpayer is revoking a timely valid election, or making a late election, under § 167, § 168, § 179, §1400I, § 1400L(c), former § 168, § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993 Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles), or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)). A taxpayer may request consent to revoke or make the election by submitting a request for a letter ruling under Rev. Proc. 2008-1, 2008-1 I.R.B. 1 (or any successor). However, if a taxpayer is revoking or making an election under § 179, see § 179(c) and § 1.179-5. See § 1.446-1(e)(2)(ii)(d)(3)(iii);

(vii) any property for which depreciation is determined under § 56(g)(4)(A) or § 167 (other than under § 168, § 1400I, § 1400L(c), former § 168, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d))) and a taxpayer is changing the useful life of the property. A change in the useful life of property is corrected by adjustments in the applicable taxable year provided under § 1.446-1(e)(2)(ii)(d)(5)(iv). However, this section 6.01(1)(c)(vii) of the APPENDIX does not apply if the taxpayer is changing to or from a useful life, recovery period, or amortization period that is specifically assigned by the Code (for example, § 167(f)(1), § 168(c)), the regulations thereunder, or other guidance published in the IRB and, therefore, this change is a change in method of accounting (unless section 6.01(1)(c)(xv) of this APPENDIX applies). See § 1.446-1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable property for which the use changes in the hands of the same taxpayer. See § 1.446-1(e)(2)(ii)(d)(3)(ii);

(ix) any property for which depreciation is determined in accordance with § 1.167(a)-11 (regarding the Class Life Asset Depreciation Range System (ADR));

(x) any change in method of accounting involving a change from deducting the cost or other basis of any property as an expense to capitalizing and depreciating the cost or other basis, or vice versa;

(xi) any change in method of accounting involving a change from one permissible method of accounting for the property to another permissible method of accounting for the property. For example:

(A) a change from the straight-line method of depreciation to the income forecast method of depreciating for videocassettes. See Rev. Rul. 89-62, 1989-1 C.B. 78; or

(B) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with salvage proceeds to deducting costs of removal as an expense (provided the costs of removal are not required to be capitalized under any provision of the Code, such as § 263(a)) and including salvage proceeds in taxable income (see section 6.02 of this APPENDIX for making this change for property for which depreciation is determined under § 167);

(xii) any change in method of accounting involving both a change from treating the cost or other basis of the property as nondepreciable or nonamortizable property to treating the cost or other basis of the property as depreciable or amortizable property and the adoption of a method of accounting for depreciation requiring an election under § 167, § 168, §1400I, § 1400L(c), former § 168, § 13261(g)(2) or (3) of the 1993 Act, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)) (for example, a change in the treatment of the space consumed in landfills placed in service in 2006 from nondepreciable to depreciable property (assuming section 6.01(1)(c)(xiii) of the APPENDIX does not apply) and the making of an election under §168(f)(1) to depreciate this property under the unit of production method of depreciation under § 167);

(xiii) any change in method of accounting for any item of income or deduction other than depreciation, even if the change results in a change in computing depreciation under § 1.446-1(e)(2)(ii)(d)(2)(i), (ii), (iii), (iv), (v), (vi), (vii), or (viii). For example, a change in method of accounting involving:

(A) a change in inventory costs (for example, when property is reclassified from inventory property to depreciable property, or vice versa) (but see section 10.02 of this APPENDIX for making a change in method of accounting from inventory property to depreciable property for unrecoverable line pack gas or unrecoverable cushion gas, and section 10.06 of this APPENDIX for making a change in method of accounting from inventory property to depreciable property for rotable spare parts); or

(B) a change in the character of a transaction from sale to lease, or vice versa (but see section 6.03 of this APPENDIX for making this change);

(xiv) a change from determining depreciation under § 168 to determining depreciation under former § 168 for any property subject to the transition rules in § 203(b) or § 204(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1, 60-80;

(xv) any change in the placed-in-service date of a depreciable or amortizable property. This change is corrected by adjustments in the applicable taxable year provided under § 1.446-1(e)(2)(ii)(d)(5)(v); or

(xvi) any property for which the rehabilitation credit under § 47 was claimed and that a taxpayer is reclassifying to 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, or water utility property (other than real property with a class life of more than 12.5 years).

The scope limitations in sections 4.02(4) and 4.02(5) of this revenue procedure are not applicable to this change.

A taxpayer also must comply with the following:

A taxpayer must change to a permissible method of accounting for depreciation for the item of depreciable or amortizable property. The permissible method of accounting is the same method that determines the depreciation allowable for the item of property (as provided in section 6.01(6) of this APPENDIX.

A taxpayer must provide the following statements, if applicable, and attach them to the completed application:

(i) a detailed description of the former and new methods of accounting. A general description of these methods of accounting is unacceptable (for example, MACRS to MACRS, erroneous method to proper method, claiming less than the depreciation allowable to claiming the depreciation allowable);

(ii) to the extent not provided elsewhere on the application, a statement describing the taxpayer’s business or income-producing activities. Also, if the taxpayer has more than one business or income-producing activity, a statement describing the taxpayer’s business or income-producing activity in which the item of property at issue is primarily used by the taxpayer;

(iii) to the extent not provided elsewhere on the application, a statement of the facts and law supporting the new method of accounting, new classification of the item of property, and new asset class in, as appropriate, Rev. Proc. 87-56 or Rev. Proc. 83-35. If the taxpayer is the owner and lessor of the item of property at issue, the statement of the facts and law supporting the new asset class also must describe the business or income-producing activity in which that item of property is primarily used by the lessee;

(iv) to the extent not provided elsewhere on the application, a statement identifying the year in which the item of property was placed in service by the taxpayer;

(v) if any item of property is public utility property within the meaning of § 168(i)(10) or former § 167(I)(3)(A), as applicable, a statement providing that the taxpayer agrees to the following additional terms and conditions:

(A) a normalization method of accounting (within the meaning of former § 167(I)(3)(G), former § 168(e)(3)(B), or § 168(i)(9), as applicable) will be used for the public utility property subject to the application;

(B) as of the beginning of the year of change, the taxpayer will adjust its deferred tax reserve account or similar reserve account in the taxpayer’s regulatory books of account by the amount of the deferral of federal income tax liability associated with the § 481(a) adjustment applicable to the public utility property subject to the application; and

(C) within 30 calendar days of filing the federal income tax return for the year of change, the taxpayer will provide a copy of the completed application to any regulatory body having jurisdiction over the public utility property subject to the application;

(vi) if the taxpayer is changing the classification of an item of § 1250 property placed in service after August 19, 1996, to a retail motor fuels outlet under § 168(e)(3)(E)(iii), a statement containing the following representation: “For purposes of § 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents that (A) 50 percent or more of the gross revenue generated from the item of § 1250 property is from the sale of petroleum products (not including gross revenue from related services, such as the labor cost of oil changes and gross revenue from the sale of nonpetroleum products such as tires and oil filters), (B) 50 percent or more of the floor space in the item of property is devoted to the sale of petroleum products (not including floor space devoted to related services, such as oil changes and floor space devoted to nonpetroleum products such as tires and oil filters), or (C) the item of § 1250 property is 1,400 square feet or less.”; and

(vii) if the taxpayer is changing the classification of an item of property from § 1250 property to § 1245 property under § 168 or former § 168, a statement of the facts and law supporting the new § 1245 property classification, and a statement containing the following representation: “Each item of depreciable property that is the subject of the application filed under section 6.01 of the APPENDIX of Rev. Proc. 2008-52 for the year of change beginning [Insert the date], and that is reclassified from [Insert, as appropriate: nonresidential real property, residential rental property, qualified leasehold improvement property, qualified restaurant property, 19-year real property, 18-year real property, or 15-year real property] to an asset class of [Insert, as appropriate, either: Rev. Proc. 87-56, 1987-2 C.B. 674, or Rev, Proc, 83-35, 1983-1 C.B. 745] that does not explicitly include § 1250 property, is § 1245 property for depreciation purposes.”

Because the adjusted basis of the property is changed as a result of a method change made under section 6.01 of the APPENDIX (see section 6.01(5) of this APPENDIX), items are duplicated or omitted. Accordingly, this change is made with a § 481(a) adjustment. This adjustment may result in either a negative § 481(a) adjustment (a decrease in taxable income) or a positive § 481(a) adjustment (an increase in taxable income) and may be a different amount for regular tax, alternative minimum tax, and adjusted current earnings purposes. This § 481(a) adjustment equals the difference between the total amount of depreciation taken into account in computing taxable income for the property under the taxpayer’s former method of accounting (including the amount attributable to any property described in section 6.01(1)(b) of this APPENDIX that is included in the taxpayer’s Form 3115), and the total amount of depreciation allowable for the property under the taxpayer’s new method of accounting (as determined under section 6.01(6) of this APPENDIX, and including the amount attributable to any property described in section 6.01(1)(b) of this APPENDIX that is included in the taxpayer’s Form 3115), for open and closed years prior to the year of change. However, the amount of the § 481(a) adjustment must be adjusted to account for the proper amount of the depreciation allowable that is required to be capitalized under any provision of the Code (for example, § 263A) at the beginning of the year of change.

As of the beginning of the year of change, the basis of depreciable property to which section 6.01 of this APPENDIX applies must reflect the reductions required by § 1016(a)(2) for the depreciation allowable for the property (as determined under section 6.01(6) of this APPENDIX).

Section 6.01(6) of this APPENDIX provides the amount of the depreciation allowable determined under § 56(a)(1), § 56(g)(4)(A), § 167, § 168, § 197, §1400I, or § 1400L(c), or former § 168. This amount, however, may be limited by other provisions of the Code (for example, § 280F).

The depreciation allowable for any taxable year for property for which depreciation is determined under § 56(a)(1) is determined by using the depreciation method, recovery period, and convention provided for under § 56(a)(1) that applies for the property’s placed-in-service date.

The depreciation allowable for any taxable year for property for which depreciation is determined under § 56(g)(4)(A) is determined by using the depreciation method, recovery period or useful life, as applicable, and convention provided for under § 56(g)(4)(A) that applies for the property’s placed-in-service date.

Generally, for any taxable year, the depreciation allowable for property for which depreciation is determined under § 167, is determined either:

(i) under the depreciation method adopted by the taxpayer for the property; or

(ii) if that depreciation method does not result in a reasonable allowance for depreciation or the taxpayer has not adopted a depreciation method for the property, under the straight-line depreciation method.

For determining the estimated useful life and salvage value of the property, see § 1.167(a)-1(b) and (c) respectively.

The depreciation allowable for any taxable year for property subject to § 167(f) (regarding certain property excluded from § 197) is determined by using the depreciation method and useful life prescribed in § 167(f). If computer software is depreciated under § 167(f)(1) and is qualified property (as defined in § 168(k)(2) and § 1.168(k)-1), 50-percent bonus depreciation property (as defined in § 168(k)(4) and § 1.168(k)-1), qualified New York Liberty Zone (Liberty Zone) property (as defined in § 1400L(b)(2) and § 1.1400L(b)-1), qualified Gulf Opportunity Zone (GO Zone) property (as defined in § 1400N(d)(2) and sections 2.02 and 2.03 of Notice 2006-77, 2006-2 C.B. 590, as clarified, modified, and amplified by Notice 2007-36, 2007-17 I.R.B. 1000), or specified Gulf Opportunity Zone extension property (GO Zone extension property) (as defined in § 1400N(d)(6) and section 4 of Notice 2007-36), the depreciation allowable for that computer software under § 167(f)(1) is also determined by taking into account the additional first year depreciation deduction provided by § 168(k), § 1400L(b), or § 1400N(d), as applicable, unless the taxpayer made a timely valid election not to deduct any additional first year depreciation for the computer software.

The depreciation allowable for any taxable year for property for which depreciation is determined under § 168, is determined as follows:

(i) by using either:

(A) the general depreciation system in § 168(a); or

(B) the alternative depreciation system in § 168(g) if the property is required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) or other provisions of the Code (for example, property described in § 263A(e)(2)(A) or § 280F(b)(1)). Property required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) includes property in a class (as set out in § 168(e)) for which the taxpayer made a timely valid election under § 168(g)(7);

(ii) if the property is qualified property, 50-percent bonus depreciation property, Liberty Zone property, GO Zone property, or GO Zone extension property, by also taking into account the additional first year depreciation deduction provided by § 168(k), § 1400L(b), or § 1400N(d), as applicable, unless the taxpayer made a timely valid election not to deduct the additional first year depreciation (or made a deemed election not to deduct the additional first year depreciation; for further guidance, see Rev. Proc. 2002-33, 2002-1 C.B. 963, Rev. Proc. 2003-50, 2003-2 C.B. 119, or Notice 2006-77) for the class of property (as defined in § 1.168(k)-1(e)(2), § 1.1400L(b)-1(e)(2), or section 4.02 of Notice 2006-77, as applicable) in which that property is included; and

(iii) if the property is qualified cellulosic biomass ethanol property (as defined in § 168(l)(2)), by also taking into account the additional first year depreciation deduction provided by § 168(l)(1), unless the taxpayer made a timely valid election not to deduct the additional first year depreciation for the property.

The depreciation allowable for any taxable year for an amortizable § 197 intangible (including any property for which a timely election under § 13261(g)(2) of the 1993 Act was made) is determined in accordance with § 1.197-2(f).

The depreciation allowable for any taxable year for property subject to former § 168 is determined by using either:

(i) the accelerated method of cost recovery applicable to the property (for example, for 5-year property, the recovery method under former § 168(b)(1)); or

(ii) the straight-line method applicable to the property if the property is required to be depreciated under the straight-line method (for example, property described in former § 168(f)(2) or former § 280F(b)(2)) or if the taxpayer elected to determine the depreciation allowance under the optional straight-line percentage (for example, the straight-line method in former § 168(b)(3)).

The depreciation allowable for any taxable year for any qualified revitalization building (as defined in § 1400I(b)(1)) for which the taxpayer has made a timely valid election under § 1400I(a) is determined as follows:

(i) if the taxpayer elected to deduct one-half of any qualified revitalization expenditures (as defined in § 1400I(b)(2) and as limited by § 1400I(c)) chargeable to a capital account with respect to the qualified revitalization building for the taxable year in which the building is placed in service by the taxpayer, the depreciation allowable for the qualified revitalization building’s placed-in-service year is equal to one-half of the qualified revitalization expenditures for the building and the depreciation allowable for the remaining depreciable basis of the qualified revitalization building for its placed-in-service year and subsequent taxable years is determined using the general depreciation system of § 168(a) or the alternative depreciation system of § 168(g), as applicable; or

(ii) if the taxpayer elected to amortize all of the qualified revitalization expenditures chargeable to a capital account with respect to the qualified revitalization building ratably over the 120-month period beginning with the month in which the building is placed in service, the depreciation allowable for the qualified revitalization expenditures is determined in accordance with this election and the depreciation allowable for the remaining depreciable basis of the qualified revitalization building is determined using the general depreciation system of § 168(a) or the alternative depreciation system of § 168(g), as applicable.

(i) Qualified New York Liberty Zone leasehold improvement property. The depreciation allowable for any taxable year for qualified New York Liberty Zone leasehold improvement property (as defined in § 1400L(c)(2)) is determined by using the depreciation method and recovery period prescribed in § 1400L(c) unless the taxpayer made a timely valid election under § 1400L(c)(5) not to use that recovery period.

A taxpayer that wants to make both this change and a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year of change should 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.

The designated automatic accounting method change number for a change under section 6.01 of this APPENDIX is “7.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change from a permissible method of accounting for depreciation under § 56(g)(4)(A)(iv) or § 167 to another permissible method of accounting for depreciation under § 56(g)(4)(A)(iv) or § 167. Pursuant to § 1.167(a)-7(a) and (c), a taxpayer may account for depreciable property either by treating each individual asset as an account or by combining two or more assets in a single account and, for each account, depreciation allowances are computed separately.

This change applies to any taxpayer wanting to make a change in method of accounting for depreciation specified in section 6.02(4) of this APPENDIX for the property in an account:

(i) for which the present and proposed methods of accounting for depreciation specified in section 6.02(4) of this APPENDIX are permissible methods for the property under § 56(g)(4)(A)(iv) or § 167; and

(ii) that is owned by the taxpayer at the beginning of the year of change.

This change does not apply to:

(i) 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 6.02 of the APPENDIX 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 11.01 or 11.02 of this APPENDIX (as applicable);

(ii) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;

(iii) any property described in § 167(f) (regarding certain property excluded from § 197);

(iv) any property subject to § 167(g) (regarding property depreciated under the income forecast method);

(v) any property for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A)(i), (ii), (iii), or (v), § 168, § 1400I, § 1400L(c), § 168 prior to its amendment in 1986 (former § 168), or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d));

(vi) any property that the taxpayer elected under § 168(f)(1) or former § 168(e)(2) to exclude from the application of, respectively, § 168 or former § 168;

(vii) any property for which depreciation is determined in accordance with § 1.167(a)-11 (ADR);

(viii) any depreciable property for which the taxpayer is changing the depreciation method pursuant to § 1.167(e)-1(b) (change from declining-balance method to straight-line method), § 1.167(e)-1(c) (certain changes for § 1245 property), or § 1.167(e)-1(d) (certain changes for § 1250 property). These changes must be made prospectively and are not permitted under the cited regulations for property for which the depreciation is determined under § 168, § 1400I, § 1400L(c), former § 168, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)); or

(ix) any distributor commissions (as defined by section 2 of Rev. Proc. 2000-38, 2000-2 C.B. 310, as modified by Rev. Proc. 2007-16, 2007-4 I.R.B. 358) for which the taxpayer is changing the useful life under the distribution fee period method or the useful life method (both described in Rev. Proc. 2000-38). A change in this useful life is corrected by adjustments in the applicable taxable year provided under § 1.446-1(e)(2)(ii)(d)(5)(iv).

The scope limitations in sections 4.02(4) and 4.02(5) of this revenue procedure are not applicable to this change.

Section 6.02 of this APPENDIX only applies to the following changes in methods of accounting for depreciation:

(a) a change from the straight-line method to the sum-of-the-year-digits method, the sinking fund method, the unit-of-production method, or the declining-balance method using any proper percentage of the straight-line rate;

(b) a change from the declining-balance method using any percentage of the straight-line rate to the sum-of-the-years-digits method, the sinking fund method, or the declining-balance method using a different proper percentage of the straight-line rate;

(c) a change from the sum-of-the-years-digits method to the sinking fund method, the declining-balance method using any proper percentage of the straight-line rate, or the straight-line method;

(d) a change from the unit-of-production method to the straight-line method;

(e) a change from the sinking fund method to the straight-line method, the unit-of-production method, the sum-of-the-years-digits method, or the declining-balance method using any proper percentage of the straight-line rate;

(f) a change in the interest factor used in connection with a compound interest method or sinking fund method;

(g) a change in averaging convention as set forth in § 1.167(a)-10(b). However, as specifically provided in § 1.167(a)-10(b), in any taxable year in which an averaging convention substantially distorts the depreciation allowance for the taxable year, it may not be used (see Rev. Rul. 73-202, 1973-1 C.B. 81);

(h) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with salvage proceeds to deducting costs of removal as an expense and including salvage proceeds in taxable income as set forth in § 1.167(a)-8(e)(2). See Rev. Rul. 74-455, 1974-2 C.B. 63. This change, however, may be made under this revenue procedure only if:

(i) the change is applied to all items in the account for which the change is being made; and

(ii) the removal costs are not required to be capitalized under any provision of the Code (for example, § 263(a), 263A, or 280B);

(i) a change from crediting the depreciation reserve with the salvage proceeds realized on normal retirement sales to computing and recognizing gains and losses on the sales (see Rev. Rul. 70-165, 1970-1 C.B. 43);

(j) a change from crediting ordinary income (including the combination method of crediting the lesser of estimated salvage value or actual salvage proceeds to the depreciation reserve, with any excess of salvage proceeds over estimated salvage value credited to ordinary income) with the salvage proceeds realized on normal retirement sales, to computing and recognizing gains and losses on the sales (see Rev. Rul. 70-166, 1970-1 C.B. 44);

(k) a change from item accounting for specific assets to multiple asset accounting (pooling) for the same assets, or vice versa;

(l) a change from one type of multiple asset accounting (pooling) for specific assets to a different type of multiple asset accounting (pooling) for the same assets;

(m) a change from one method described in Rev. Proc. 2000-38 for amortizing distributor commissions (as defined by section 2 of Rev. Proc. 2000-38) to another method described in Rev. Proc. 2000-38 for amortizing distributor commissions; or

(n) a change from pooling to a single asset, or vice versa, for distributor commissions (as defined by section 2 of Rev. Proc. 2000-38) for which the taxpayer is using the distribution fee period method or the useful life method (both described in Rev. Proc. 2000-38).

A taxpayer also must comply with the following:

At the beginning of the year of change, the basis for depreciation of property to which this change applies is the adjusted basis of the property as provided in § 1011 at the end of the taxable year immediately preceding the year of change (determined under taxpayer’s present method of accounting for depreciation). If applicable under the taxpayer’s proposed method of accounting for depreciation, this adjusted basis is reduced by the estimated salvage value of the property (for example, a change to the straight-line method).

The rate of depreciation for property changed to:

(i) the straight-line or the sum-of-the-year-digits method of depreciation must be based on the remaining useful life of the property as of the beginning of the year of change; or

(ii) the declining-balance method of depreciation must be based on the useful life of the property measured from the placed-in-service date, and not the expected remaining life from the date the change becomes effective.

For changes in method of depreciation to the sum-of-the-year-digits or declining-balance method, the property must meet the requirements of §1.167(b)-0 or 1.167(c)-1, as appropriate.

If any item of property is public utility property within the meaning of former § 167(l)(3)(A), the taxpayer must attach to the application a statement providing that the taxpayer agrees to the following additional terms and conditions:

(i) a normalization method of accounting within the meaning of former § 167(l)(3)(G) will be used for the public utility property subject to the application; and

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

Because the adjusted basis of the property is not changed as a result of a method change made under section 6.02 of this APPENDIX, no items are being duplicated or omitted. Accordingly, a § 481(a) adjustment is neither required nor necessary.

A taxpayer that wants to make both this change and a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year of change should 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.

The designated automatic accounting method change number for a change under section 6.02 of this APPENDIX is “8.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change its method of accounting from:

(i) improperly treating property as sold by the taxpayer to properly treating property as leased or financed by the taxpayer;

(ii) improperly treating property as leased by the taxpayer to properly treating property as sold or financed by the taxpayer;

(iii) improperly treating property as financed by the taxpayer to properly treating property as sold or leased by the taxpayer;

(iv) improperly treating property as purchased by the taxpayer to properly treating property as leased by the taxpayer; and

(v) improperly treating property as leased by the taxpayer to properly treating property as purchased by the taxpayer.

This change does not apply to:

(i) a rent-to-own dealer that wants to change its method of accounting for rent-to-own contracts described in section 3 of Rev. Proc. 95-38, 1995-2 C.B. 397; or

(ii) a taxpayer that holds assets for sale or lease, if any asset so held is not the subject of a sale or lease transaction as of the beginning of the year of change.

(a) The change in method of accounting under section 6.03 of this APPENDIX is made using a cut-off method and applies to transactions entered into on or after the beginning of the year of change. See section 2.06 of this revenue procedure.

(b) If a taxpayer wants to change its method of accounting for existing sale, lease or financing transactions, the taxpayer must file an application with the Commissioner in accordance with the requirements of § 1.446-1(e)(3)(i) and Rev. Proc. 97-27. A change involving existing sale, lease, or financing transactions will require a § 481(a) adjustment. Consent to change a method of accounting for an existing sale, lease, or financing transaction is granted only in unusual and compelling circumstances.

A taxpayer does not receive audit protection under section 7 of this revenue procedure in connection with this change.

The designated automatic accounting method change number for a change under section 6.03 of this APPENDIX is “10.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Edward Schwartz at 202-622-4960 (not a toll-free call).

This change applies to a taxpayer that wants to change its method of accounting for the cost of modern golf course greens owned by the taxpayer at the beginning of the year of change to conform with the holding in Rev. Rul. 2001-60, 2001-2 C.B. 587. Rev. Rul. 2001-60 holds that the costs of land preparation undertaken by a taxpayer in the original construction or reconstruction of modern greens (as described in Rev. Rul. 2001-60) that is so closely associated with depreciable assets, such as a network of underground drainage tiles or pipes, that the land preparation will be retired, abandoned, or replaced contemporaneously with those depreciable assets are to be capitalized and depreciated over the recovery period of the depreciable assets with which the land preparation is associated. However, the general earthmoving, grading, and initial shaping of the area surrounding and underneath the modern green that occur before the construction are inextricably associated with the land and, therefore, the costs attributable to this land preparation are added to the taxpayer’s cost basis in the land and are not depreciable.

A taxpayer that changes its method of accounting for the cost of modern golf course greens under section 6.04 of this APPENDIX must change to a permissible method of accounting for depreciation of modern greens. For purposes of § 168, the modern green is includible in asset class 00.3, Land Improvements, of Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 1988-1 C.B. 785.

The designated automatic accounting method change number for a change under section 6.04 of this APPENDIX is “11.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for the cost of original and replacement tires for all of the taxpayer’s qualifying vehicles in which the taxpayer has a depreciable interest at the beginning of the year of change to the original tire capitalization method provided by section 5 of Rev. Proc. 2002-27, 2002-1 C.B. 802. The terms “qualifying vehicle,” “original tires,” and “replacement tires” are defined in section 3 of Rev. Proc. 2002-27. For further details, see Rev. Proc. 2002-27.

The designated automatic accounting method change number for a change under section 6.05 of this APPENDIX is “12.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for the cost of stand-alone gasoline pump canopies or their supporting concrete footings owned by the taxpayer at the beginning of the year of change to conform with the holding in Rev. Rul. 2003-54, 2003-1 C.B. 982. Rev. Rul. 2003-54 holds that the stand-alone gasoline pump canopies (as described in Rev. Rul. 2003-54) are not inherently permanent structures and are classified as tangible personal property for depreciation purposes, while the supporting concrete footings (as described in Rev. Rul. 2003-54) are inherently permanent structures classified as land improvements for depreciation purposes.

A taxpayer that changes its method of accounting for the cost of stand-alone gasoline pump canopies or their supporting concrete footings under section 6.06 of this APPENDIX must change to a permissible method of accounting for depreciation of the cost of the gasoline pump canopies or the supporting concrete footings. For purposes of § 168, the stand-alone gasoline pump canopies are includible in asset class 57.0, Distributive Trades and Services, of Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 1988-1 C.B. 785, and their supporting concrete footings are includible in asset class 57.1, Distributive Trades and Services-Billboard, Service Station Buildings and Petroleum Marketing Land Improvements, of Rev. Proc. 87-56.

The designated automatic accounting method change number for a change under section 6.06 of this APPENDIX is “13.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for depreciable assets that are owned by a utility at the beginning of the year of change and used in the general business operations of the utility to conform with Rev. Rul. 2003-81, 2003-2 C.B. 126.

The designated automatic accounting method change number for a change under section 6.07 of this APPENDIX is “14.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for depreciation of fiber optic node and trunk line consisting of fiber optic cable used in a cable television distribution system owned by the taxpayer at the beginning of the year of change to the safe harbor method of accounting provided by section 4 of Rev. Proc. 2003-63, 2003-2 C.B. 304. The taxpayer must operate a cable television distribution system designed to provide one-way and two-way communication services to subscribers (as described in section 3.02 of Rev. Proc. 2003-63). The safe harbor method of accounting provided by section 4 of Rev. Proc. 2003-63 determines the unit of property for calculating depreciation under §§ 167 and 168, and the primary use and placed-in-service date of that unit of property.

The designated automatic accounting method change number for a change under section 6.08 of this APPENDIX is “15.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for general asset account treatment of MACRS property (as defined in § 1.168(b)-1(a)(2)) to the method of accounting provided in §§ 1.168(i)-1(c)(2)(ii)(E) and 1.168(i)-1(h)(2), which applies when there is a change in the use of MACRS property pursuant to § 1.168(i)-4(d). See § 1.168(i)-1(l)(2)(ii).

The change is made on a modified cut-off basis (as defined in § 1.446-1(e)(2)(ii)(d)(5)(iii)) and, thus, the adjusted depreciable basis of the MACRS property as of the beginning of the year of change is recovered using the new method of accounting for general asset account treatment. Accordingly, a § 481(a) adjustment is neither permitted nor required. See § 1.168(i)-1(h)(2)(ii) and (iii) for more information regarding how to establish the general asset account when a change in the use of MACRS property occurs pursuant to § 1.168(i)-4(d).

The designated automatic accounting method change number for a change under section 6.09 of this APPENDIX is “87.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to (a) change the method of accounting for depreciation of MACRS property (as defined in § 1.168(b)-1(a)(2)) to the method of accounting for depreciation provided in § 1.168(i)-4, which applies when there is a change in the use of MACRS property, or (b) revoke the election provided in § 1.168(i)-4(d)(3)(ii) to disregard a change in the use of MACRS property. See § 1.168(i)-4(g)(2).

The designated automatic accounting method change number for a change under section 6.10 of this APPENDIX is “88.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change the method of accounting for depreciation for certain vehicles in accordance with § 1.280F-6(f)(2)(iv). Section 1.280F-6(f)(2)(iv) applies to a truck or van that is a qualified nonpersonal use vehicle as defined under § 1.274-5T(k), was placed in service by the taxpayer before July 7, 2003, and was treated by the taxpayer as a passenger automobile under § 1.280F-6T as in effect prior to July 7, 2003. If the taxpayer files Form 3115, in accordance with § 1.280F-6(f)(2)(iv), the treatment of the truck or van will be changed from property to which § 280F(a) applies to property to which § 280F(a) does not apply.

The designated automatic accounting method change number for a change under section 6.11 of this APPENDIX is “89.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Bernard Harvey at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to elect the commercial revitalization deduction under § 1400I(a) for a qualified revitalization building (as defined in § 1400I(b)(1)) that is placed in service by the taxpayer after December 31, 2001, in the area of a renewal community that was expanded by the U.S. Department of Housing and Urban Development and for which the taxpayer receives a retroactive commercial revitalization expenditure allocation made in accordance with section 3 of Rev. Proc. 2006-16, 2006-1 C.B. 539. This change applies only if the taxpayer filed the federal tax return for the placed-in-service year of that building on or before the date the taxpayer received the retroactive commercial revitalization expenditure allocation. For further details, see Rev. Proc. 2006-16.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

The change in method of accounting under section 6.12 of this APPENDIX must be timely filed with the taxpayer’s federal tax return for the taxable year that includes the date on which the commercial revitalization agency makes the retroactive commercial revitalization expenditure allocation, or with the taxpayer’s federal tax return for the first taxable year succeeding the taxable year that included the date on which the commercial revitalization agency made the retroactive commercial revitalization expenditure allocation.

The designated automatic accounting method change number for a change under section 6.12 of this APPENDIX is “97.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that chooses, on a transaction-by-transaction basis, to change their treatment of certain insurance contracts acquired in an assumption reinsurance transaction under § 1.197-2(g)(5) for the first taxable year ending after April 10, 2006.

This change does not apply when the taxpayer’s treatment of its property is an issue under consideration for a taxable year under examination, before an Appeals office, or before a federal court. See section 3.09 of this revenue procedure for the definition of these terms.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

The change in accounting method results in items being omitted or duplicated and thus, an adjustment under § 481(a) must be computed.

The designated automatic accounting method change number for a change under section 6.13 of this APPENDIX is “98.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Mark Weiss at 202-622-7750 (not a toll-free call).

This change applies to a taxpayer that under § 167(g)(7) wants to either:

(a) include participations and residuals expected to be paid before the end of the tenth taxable year following the taxable year in which the property is placed in service in the adjusted basis of property for which the income forecast method of depreciation is used; or

(b) exclude participations and residuals from the adjusted basis of property for which the income forecast method of depreciation is used and deduct the participations and residuals in the taxable year that the participations and residuals are paid.

This change in accounting method applies to a taxpayer that, before June 15, 2006, filed its federal tax return for a taxable year ending after October 22, 2004, and that wants to make a § 167(g)(7) election for income forecast property placed in service during that taxable year.

This change does not apply to:

(i) Property placed in service on or before October 22, 2004; or

(ii) A taxpayer that made the § 167(g)(7) election for income forecast property placed in service during a taxable year ending after October 22, 2004, by filing an amended federal tax return for the taxable year in which the income forecast property was placed in service, and all subsequent affected taxable year(s), on or before November 15, 2006.

The change in method of accounting under section 6.14 of this APPENDIX must be made for the taxpayer’s first or second taxable year ending on or after December 31, 2005.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

(a) This change in accounting method results in items being omitted or duplicated and, thus, an adjustment under § 481(a) must be computed.

(b) The statement required under Interim Rules in section B.1. of Notice 2006-47, 2006-1 C.B. 892, 894, must be attached to the Form 3115.

(c) The method elected under section 6.14(1) of this APPENDIX for a given property must be applied consistently.

The designated automatic accounting method change number for a change under section 6.14 of this APPENDIX is “99.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Bernard Harvey at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to make the change in method of accounting for depreciation for qualified GO Zone property placed in service by the taxpayer on or after August 28, 2005, during the taxable year beginning in 2004 or 2005 (2004 or 2005 taxable year), to claim the GO Zone additional first year depreciation deduction for a class of property for which the taxpayer did not claim the GO Zone additional first year depreciation deduction on the taxpayer’s 2004 or 2005 federal tax return. This change applies only if the taxpayer filed its 2004 or 2005 federal tax return before September 13, 2006, and if the taxpayer did not make the election not to deduct the GO Zone additional first year depreciation for the class of property within the time prescribed in section 4.03(1) of Notice 2006-77, 2006-2 C.B. 590, and in the manner prescribed in instructions for Form 4562, Depreciation and Amortization. For further details, see section 4.03(2) of Notice 2006-77.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

The change in method of accounting under section 6.15 of this APPENDIX must be timely filed with the taxpayer’s federal tax return for the first taxable year succeeding the 2004 or 2005 taxable year, as applicable.

The designated automatic accounting method change number for a change under section 6.15 of this APPENDIX is “104.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to make a change in method of accounting for depreciation under § 168(k) or § 1400L(b) to comply with § 1.168(k)-1 or § 1.1400L(b)-1 (the “final regulations”) because of revisions made to § 1.168(k)-1T or § 1.1400L(b)-1T by the final regulations. See section 3 of Rev. Proc. 2006-43, 2006-2 C.B. 849, 850, for the applicability and inapplicability of this change.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change for the taxpayer’s first taxable year ending on or after October 18, 2006, or, if applicable, for the taxpayer’s last taxable year ending before October 1, 2006, if the taxpayer timely files (including extensions) its federal income tax return after October 18, 2006, for that last taxable year.

The change in method of accounting under section 6.16 of this APPENDIX must be made for either: (i) the taxpayer’s last taxable year ending before October 1, 2006, if the taxpayer timely files (including extensions) its federal income tax return after October 18, 2006, for that last taxable year; or (ii) the taxpayer’s first taxable year ending on or after October 18, 2006.

The designated automatic accounting method change number for a change under section 6.16 of this APPENDIX is “105.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to make the change in method of accounting for depreciation or amortization (depreciation) provided under section 3 of Rev. Proc. 2007-16, 2007-4 I.R.B. 358, for an item of depreciable or amortizable property that has been disposed of by the taxpayer. Section 3 of Rev. Proc. 2007-16 allows a taxpayer to make a change in method of accounting for depreciation for the disposed property if the taxpayer used an impermissible method of accounting for depreciation for the property under which the taxpayer did not take into account any depreciation allowance, or did take into account some depreciation but less than the depreciation allowable, in the year of change (as defined in section 6.17(4) of this APPENDIX) or any prior taxable year.

Except as provided in section 6.17(2)(b) of this APPENDIX, section 6.17 of this APPENDIX applies to a taxpayer that is changing from an impermissible method of accounting for depreciation to a permissible method of accounting for depreciation for any item of depreciable or amortizable property subject to §§ 167, 168, 197, 1400I, or 1400L(c), to former § 168, or to any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)):

(i) that has been disposed of by the taxpayer during the year of change (as defined in section 6.17(4) of this APPENDIX); and

(ii) for which the taxpayer did not take into account any depreciation allowance, or did take into account some depreciation but less than the depreciation allowable (hereinafter, both are referred to as “claimed less than the depreciation allowable”), in the year of change (as defined in section 6.17(4) of this APPENDIX) or any prior taxable year.

Section 6.17 of this APPENDIX does not apply to:

(i) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;

(ii) any property for which a taxpayer is revoking a timely valid depreciation election, or making a late depreciation election, under the Code or regulations thereunder, or under other guidance published in the IRB (including under § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993 Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles));

(iii) any property for which the taxpayer deducted the cost or other basis of the property as an expense; or

(iv) any property disposed of by the taxpayer in a transaction to which a nonrecognition section of the Code applies (for example, § 1031, transactions subject to § 168(i)(7)(B)). However, this section 6.17(2)(b)(iv) of the APPENDIX does not apply to property disposed of by the taxpayer in a § 1031 or § 1033 transaction if the taxpayer elects under § 1.168(i)-6(i) and (j) to treat the entire basis (that is, both the exchanged and excess basis (as defined in § 1.168(i)-6(b)(7) and (8), respectively) of the replacement MACRS property (as defined in § 1.168(i)-6(b)(1)) as property placed in service by the taxpayer at the time of replacement and treat the adjusted depreciable basis of the relinquished MACRS property (as defined in § 1.168(i)-6(b)(2)) as being disposed of by the taxpayer at the time of disposition.

This change may be made on a taxpayer’s timely filed (including extensions) original federal tax return for the year of change (as defined in section 6.17(4) of this APPENDIX), provided the taxpayer files the original Form 3115 in accordance with section 6.02(3) of this revenue procedure.

This change may also be made on an amended federal tax return for the year of change (as defined in section 6.17(4) of this APPENDIX), provided:

(i) the taxpayer files the original Form 3115 with the taxpayer’s amended federal tax return for the year of change (as defined in section 6.17(4) of this APPENDIX) prior to the expiration of the period of limitation for assessment under § 6501(a) for the taxable year in which the item of depreciable or amortizable property was disposed of by the taxpayer; and

(ii) the taxpayer’s amended federal tax return for the year of change (as defined in section 6.17(4) of this APPENDIX) includes the adjustments to taxable income and any collateral adjustments to taxable income or tax liability (for example, adjustments to the amount or character of the gain or loss of the disposed depreciable or amortizable property) resulting from the change in method of accounting for depreciation made by the taxpayer under section 6.17 of this APPENDIX.

The year of change for this change is the taxable year in which the item of depreciable or amortizable property was disposed of by the taxpayer.

The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

Notwithstanding section 6.02(3)(a) of this revenue procedure, a taxpayer making this change in accordance with section 6.17(3)(b) of this APPENDIX must attach the original Form 3115 to the taxpayer’s timely filed amended federal tax return for the year of change and must file the required copy (with signature) of the Form 3115 with the national office no later than when the original Form 3115 is filed with the amended federal tax return for the year of change. If a taxpayer is making this change in accordance with section 6.17(3)(a) of this APPENDIX, the filing requirements in section 6.02(3)(a) of this revenue procedure apply.

A taxpayer must take the § 481(a) adjustment into account in the year of change.

The designated automatic accounting method change number for a change under section 6.17 of this APPENDIX is “107.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to make a change in method of accounting for depreciation under § 168 to either:

(a) Apply the provisions of § 1.168(i)-6, or rely on prior guidance by the Service for determining the depreciation deductions of replacement MACRS property and relinquished MACRS property, for a like-kind exchange or an involuntary conversion of MACRS property for which the time of disposition, the time of replacement, or both occur on or before February 27, 2004; or

(b) Apply § 1.168(i)-6(i)(2) to the relinquished property and the replacement property for which the time of disposition, the time of replacement, or both occur on or before February 26, 2007, if the replacement property replaces relinquished property for which the taxpayer made a valid election under § 168(f)(1) to exclude it from the application of § 168.

The change in section 6.18(1)(a) of this APPENDIX applies only if the taxpayer’s applicable federal tax return has been filed on or before February 27, 2004. The change in section 6.18(1)(b) of this APPENDIX applies only if the taxpayer wants to apply § 1.168(i)-6(i)(2) and the taxpayer’s applicable federal tax return has been filed on or before February 26, 2007. For further details, see § 1.168(i)-6(k)(2) and (3).

The designated automatic accounting method change number for a change under section 6.18 of this APPENDIX is “116.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a lessor that continued to depreciate under § 168 an improvement described in § 168(i)(8)(B)(i) and (ii) after the improvement was irrevocably disposed of or abandoned by the lessor at the termination of the applicable lease by the lessee and now wants to comply with § 168(i)(8)(B) by recognizing gain or loss upon the disposition or abandonment of the improvement. To qualify for recognizing gain or loss under § 168(i)(8)(B), the intent of the lessor must be irrevocably to discard the improvement so that it will neither be used again by the lessor nor retrieved by the lessor for resale, exchange, or other disposition. See § 1.167(a)-8(a)(4).

This change does not apply to:

(i) improvements disposed of or abandoned before June 13, 1996;

(ii) the extent § 280B applies to the demolition of a structure, a portion of which may include leasehold improvements; or

(iii) improvements disposed of or abandoned before the termination of the applicable lease.

The designated automatic accounting method change number for a change under section 6.19 of this APPENDIX is “117.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change from item accounting to multiple asset accounting (pooling) for its repairable and reusable spare parts in accordance with section 6.20(2) of this APPENDIX or that wants to change its method of identifying disposed repairable and reusable spare parts to a method described in section 6.20(3) of this APPENDIX. These changes apply to repairable and reusable spare parts that: are owned by the taxpayer at the beginning of the year of change; are used to repair equipment owned by the taxpayer; are acquired by the taxpayer for a specific type of equipment at the time that the related equipment is acquired; usually have the same useful life as the related equipment; and have been placed in service by the taxpayer after 1986.

This change does not apply to:

(i) a taxpayer that is currently capitalizing and depreciating the cost of its repairable and reusable spare parts and that elected to establish general asset accounts for the repairable and reusable spare parts;

(ii) a taxpayer that is not currently capitalizing and depreciating the cost of its repairable and reusable spare parts under § 168 in accordance with the holdings in Rev. Rul. 69-200, 1969-1 C.B. 60, and Rev. Rul. 69-201, 1969-1 C.B. 60, unless the taxpayer concurrently changes its method to properly capitalize and depreciate these costs in conjunction with a change under section 10.07 of this APPENDIX. Rev. Rul. 69-200 and Rev. Rul. 69-201 hold that repairable and reusable spare parts are tangible property for which depreciation is allowable at the time that the related equipment is placed in service by the taxpayer and the method of computing depreciation for the repairable and reusable spare parts is the same method of computing depreciation for the related equipment;

(iii) 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 6.20 of the APPENDIX 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 11.01 or 11.02 of this APPENDIX (as applicable); or

(iv) a taxpayer that is using an impermissible method of accounting for depreciation for repairable and reusable spare parts or for the related equipment for which the repairable and reusable spare parts are acquired, unless the taxpayer concurrently changes its method to use a permissible method of accounting for depreciation under section 6.01 of this APPENDIX.

A taxpayer may change from item accounting to pooling for repairable and reusable spare parts by establishing one or more pools for repairable and reusable spare parts beginning in the year of change. Each pool must include only the repairable and reusable spare parts that are placed in service by the taxpayer in the same taxable year and have the same: (a) asset class under Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 1988-1 C.B. 785, (b) applicable depreciation method, (c) applicable recovery period, and (d) applicable convention. Additionally, repairable and reusable spare parts subject to the mid-quarter convention may only be grouped into a pool with repairable and reusable spare parts that are placed in service in the same quarter of the taxable year.

Further, each pool for repairable and reusable spare parts placed in service by the taxpayer after 1986 and before the year of change must include a beginning balance for both the unadjusted depreciable basis and the depreciation reserve. The beginning balance for the unadjusted depreciable basis of each pool is equal to the sum of the unadjusted depreciable bases as of the beginning of the year of change for all repairable and reusable spare parts included in that pool. The beginning balance of the depreciation reserve of each pool is equal to the sum of the greater of the depreciation allowed or allowable as of the beginning of the year of change for all repairable and reusable spare parts included in that pool.

Beginning in the year of change, a taxpayer may change to one of the following methods of accounting to identify its disposed repairable and reusable spare parts:

(a) Specific identification of each disposed repairable and reusable spare part; or

(b) A first-in, first-out method of accounting if: (i) the taxpayer establishes pools for repairable and reusable spare parts in accordance with section 6.20(2) of this APPENDIX, (ii) the repairable and reusable spare parts are mass assets, and (iii) the total repairable and reusable spare parts dispositions during a particular taxable year are readily determined from the taxpayer’s records but it is impracticable for the taxpayer to maintain records from which the taxpayer can determine the particular taxable year in which the disposed repairable and reusable spare parts were placed in service by the taxpayer. A taxpayer using the first-in, first-out method of accounting under this section 6.20(3) must identify the repairable and reusable spare parts disposed of in a taxable year from the pool with the earliest placed in-service year existing at the beginning of the taxable year of the disposition. For purposes of this section 6.20(3), mass assets are a mass or group of individual items of depreciable property:

(i) that are not necessarily homogeneous;

(ii) each of which is minor in value relative to the total value of the mass or group;

(iii) numerous in quantity;

(iv) usually accounted for only on a total dollar or quantity basis;

(v) with respect to which separate identification is impracticable; and

(vi) are placed in service by the taxpayer in the same taxable year.

Because the adjusted basis of the property is not changed as a result of changing from item accounting to pooling under section 6.20(2) of this APPENDIX, no items are being duplicated or omitted. Accordingly, a § 481(a) adjustment is neither required nor necessary.

The change to a method described in section 6.20(3) of this APPENDIX for identifying disposed repairable and reusable spare parts is made on a cut-off basis and applies only to repairable and reusable spare parts disposed of by the taxpayer beginning in the year of change. See section 2.06 of this revenue procedure for more information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(a) A taxpayer that wants to make both this change and a change to a capitalization and depreciation method under section 10.07 of this APPENDIX for the same year of change should 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.

(b) A taxpayer that wants to make both this change and a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year of change should 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.

(c) A taxpayer that wants to make both this change and a change to a permissible method of accounting for depreciation for repairable and reusable spare parts, or for the related equipment for which the repairable and reusable spare parts are acquired, under section 6.01 of this APPENDIX for the same year of change should 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.

The designated automatic accounting method change number for a change under section 6.20 of this APPENDIX is “118.” See section 6.02(4) of this revenue procedure.

For further information regarding a change under this section, contact Douglas Kim at 202-622-4930 (not a toll-free call).

This change applies to a taxpayer that wants to change from depreciating land to not depreciating land or wants to change from depreciating a nondepreciable land improvement to not depreciating a nondepreciable land improvement. This change applies to any land or nondepreciable land improvement that is owned by the taxpayer at the beginning of the year of change.