Revenue Procedure 2008-52

participated in its development. For further information regarding this revenue
procedure as it relates to §§ 105, 106,
220 and 223, contact Mireille Khoury
at (202) 622–6080 (not a toll-free call).

For further information regarding this
revenue procedure as it relates to § 132,
contact Neil Shepherd at (202) 622–6040
(not a toll-free call). For further information regarding this revenue procedure

as it relates to §§ 152 and 213, contact
Victoria Driscoll at (202) 622–4920 (not a
toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 56, 61, 1.61–4, 77, 162, 1.162–12, 166, 167, 168, 171, 174, 179B, 181, 194, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461,
467, 471, 472, 475, 481, 585, 832, 846, 861, 985, 1012, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61–1, 1.61–4, 1.61–8, 1.77–1, 1.77–2, 1.471–4,
1.162–1, 1.162–3, 1.162–4, 1.162–11, 1.162–12, 1.166–1, 1.166–4, 1.167(a)–2, 1.167(a)–3(b), 1.167(a)–7, 1.167(a)–8, 1.167(a)–11, 1.167(a)–14, 1.167(e)–1,
1.168(d)–1, 1.168(i)–1, 1.168(i)–4, 1.168(i)–6, 1.168(k)–1, 1.171–4, 1.174–1, 1.174–3, 1.174–4, 1.179–5, 1.181–1T, 1.181–2T, 1.181–3T, 1.194–1, 1.197–2,
1.263(a)–1, 1.263(a)–2, 1.263(a)–4, 1.263(a)–5, 1.263A–1, 1.263A–2, 1.263A–3, 1.263A–4, 1.263A–7, 1.267(a)–1, 1.280F–6, 1.404(b)–1T, 1.446–1, 1.446–1T,
1.446–2, 1.446–6, 447, 1.448–2, 1.467–1, 1.471–4, 1.471–5, 1.471–8, 1.448–1T, 1.451–1, 1.454–1, 1.455–6, 1.460–1, 1.460–4, 1.461–1, 1.461–4, 1.461–5, 1.471–1,
1.471–2, 1.471–3, 1.472–1, 1.472–2, 1.472–6, 1.472–8, 1.481–1, 1.481–4, 1.832–4, 1.860A–6, 1.861–18, 1.985–5, 1.985–8, 1.1012–1, 1.1016–3, 1.1245–3, 1.1272–1,
1.1273–1, 1.1273–2, 1.1363–2, 1.1374–4, 1.1400L(b)–1.)

Rev. Proc. 2008–52
TABLE OF CONTENTS
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606
SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606

.01 Change in method of accounting defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Securing permission to make a method change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Terms and conditions of a method change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 No retroactive method change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Method change with a § 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Need for adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Method change using a cut-off basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Consistency and clear reflection of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Separate trades or businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Change made as part of an examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

606
607
607
607
607
607
607
607
607
607
608
608

SECTION 3. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608

.01 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Applicable provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Taxpayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Consolidated group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Timely mailing as timely filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Timely performance of acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Year of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Section 481(a) adjustment period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Under examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Partnerships subject to TEFRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) S corporations subject to TEFRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Issue under consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Under examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Before an appeals office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Before a federal court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Change within the LIFO inventory method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.11 Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

608
608
608
608
608
608
608
608
608
608
608
609
609
609
609
609
609
609
609

SECTION 4. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609

.01 Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
.02 Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609

2008–36 I.R.B.

587

September 8, 2008

(1) Under examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Consolidated group member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Partnerships and S corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Section 381(a) transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) No differences in methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Separate trades or businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Final year of trade or business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Prior five-year overall method change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Prior five-year item change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Nonautomatic changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

609
609
609
610
610
610
610
610
610
610
610
611
611

SECTION 5. TERMS AND CONDITIONS OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Year of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Section 481(a) adjustment period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Short period as a separate taxable year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Shortened or accelerated § 481(a) adjustment periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) De minimis rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Ceasing to engage in the trade or business or terminating existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Examples of transactions that are treated as the cessation of a trade or business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) Conversion to or from S corporation status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iv) Certain transfers to which § 381(a) applies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(v) Certain transfers pursuant to § 351 within a consolidated group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(A) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(B) Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 NOL carryback limitation for taxpayer subject to criminal investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Certain foreign corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Change treated as initiated by the taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

611
611
611
611
611
611
611
611
611
611
611
611
612
612
612
612
612
612
612
613

SECTION 6. GENERAL APPLICATION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613

.01 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Filing requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Separate applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Waiver of taxable year filing requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Timely duplicate filing requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Certain foreign corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Limited relief for late application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Automatic extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Other extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Signature requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Authorized representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Where to file copy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) No acknowledgement of receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) No user fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10) Single application for certain taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11) Additional copies required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

588

613
613
613
613
613
613
613
613
613
614
614
614
614
614
614
614
615
615
615
615
615

2008–36 I.R.B.

(a) Scope restrictions waived for taxpayer under examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Taxpayer before an appeals office or a federal court and issue not under consideration . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Taxpayer under examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) 90-day window period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) 120-day window period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Consent of director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Changes lacking audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Issue Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Taxpayer before an appeals office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Taxpayer before a federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Compliance with provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

615
615
615
615
615
615
616
616
616
616
616
616

SECTION 7. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Change not made or made improperly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Change in sub-method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Prior year Service-initiated change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Criminal investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

617
617
617
617
617
617

SECTION 8. EFFECT OF CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
.02 Retroactive change or modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
SECTION 9. REVIEW BY DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
.02 Changes not made in compliance with all applicable provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
.03 National office consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
SECTION 10. REVIEW BY NATIONAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Incomplete application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) 30-day rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Failure to provide additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 National office determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Conference in the national office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Consent not granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Application changed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

618
618
618
618
618
618
618
618

SECTION 11. APPLICABILITY OF REV. PROCS. 2008–1 AND 2008–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
SECTION 12. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618

.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
.02 Transition rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
SECTION 13. EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
SECTION 14. PAPERWORK REDUCTION ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
SECTION 15. SIGNIFICANT CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621
SECTION 1. GROSS INCOME (§ 61) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621

.01 Up-front Payments for Network Upgrades received by Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

589

621
621
622
622

September 8, 2008

.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622
SECTION 2. COMMODITY CREDIT LOANS (§ 77) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622

.01 Treating amounts received as loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

622
622
622
622
622
622
622

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622

.01 Advances made by a lawyer on behalf of clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 ISO 9000 costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Restaurant or tavern smallwares packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Timber grower fertilization costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

622
622
622
622
622
622
622
622
622
622
622
622
622
622
622
622
622
622
622
622

SECTION 4. BAD DEBTS (§ 166) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623

.01 Change from reserve method to specific charge-off method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

623
623
623
623
623

SECTION 5. AMORTIZABLE BOND PREMIUM (§ 171) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623

.01 Revocation of § 171(c) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Revocation of election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

623
623
623
623
623
623
623
623
623

SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 56(g)(4)(A), 167, 168, 197, 280F(a), 1400I,
1400L, or 1400N(d), OR FORMER § 168) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623

.01 Impermissible to permissible method of accounting for depreciation or amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Taxpayer has not adopted a method of accounting for the item of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Inapplicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain scope limitations inapplicable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

590

623
623
623
623
623
625

2008–36 I.R.B.

(3) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Permissible method of accounting for depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Statements required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Basis adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Meaning of depreciation allowable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Section 56(a)(1) property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Section 56(g)(4)(A) property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Section 167 property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Section 168 property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) Section 197 property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(g) Former § 168 property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(h) Qualified revitalization building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Permissible to permissible method of accounting for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Certain scope limitations inapplicable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Changes covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Basis for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Rate of depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Regulatory requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Public utility property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Sale, lease, or financing transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change and scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) No audit protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Modern golf course greens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Original and replacement tire costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Depreciation of gas pump canopies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Depreciation of utility assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

591

625
625
625
625
626
626
626
626
626
626
626
626
626
626
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September 8, 2008

(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Depreciation of cable TV fiber optics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Change in general asset account treatment due to a change in the use of MACRS property. . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Change in method of accounting for depreciation due to a change in the use of MACRS property. . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.11 Depreciation of qualified non-personal use vans and light trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.12 Depreciation of qualified revitalization building in the expanded area of a renewal community . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.13 Loss disallowance rule upon a disposition of an insurance contract acquired in an assumption
re-insurance transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.14 Income forecast method of depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.15 GO Zone additional first year depreciation deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.16 Additional first year depreciation deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.17 Impermissible to permissible method of accounting for depreciation or amortization for disposed
depreciable or amortizable property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

592

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2008–36 I.R.B.

(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making the change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Change made on an original return for the year of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Change made on an amended return for the year of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Year of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Filing requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.18 Depreciation of MACRS property acquired in a like-kind exchange or as a result of an involuntary
conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.19 Lessor improvements abandoned at termination of lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.20 Repairable and reusable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Establishment of pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Permissible methods of identifying disposed repairable and reusable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Manner of making change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Establishment of pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Identifying disposed repairable and reusable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Concurrent automatic change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.21 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.22 Kansas additional first year depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636

.01 Changes to a different method or different amortization period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations clarified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Manner of making change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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593

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September 8, 2008

(6) No audit protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 8. ELECTIVE EXPENSING PROVISIONS (§§ 179B(a), 181, and 194(b)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637

.01 Treatment of qualified film and television productions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Expensing of certain reforestation expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur
regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Time for making the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638

.01 Computer software expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Statement required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Year 2000 costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

638
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SECTION 10. CAPITAL EXPENDITURES (§ 263). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638

.01 Package design costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

594

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2008–36 I.R.B.

.02 Line pack gas or cushion gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Removal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Distributor commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Prior unauthorized change in method of accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Rotable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Change from safe harbor method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Repairable and reusable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641

.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers. . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Self-constructed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Historic absorption ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Multiple changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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September 8, 2008

(2) Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Multiple changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Change to no longer capitalize research and experimental expenditures under § 263A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) No audit protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Impact fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Change to capitalizing environmental remediation costs under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Concurrent automatic changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Change in allocating environmental remediation costs under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Concurrent automatic changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 12. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645

.01 Change to comply with § 267 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 13. DEFERRED COMPENSATION (§ 404) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645

.01 Change to comply with § 404(a)(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) No audit protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(A) Bonuses not subject to capitalization under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(B) Bonuses that are subject to capitalization under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Vacation pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(A) Vacation pay not subject to capitalization under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(B) Vacation pay that is subject to capitalization under § 263A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Grace period contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

645
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SECTION 14. METHODS OF ACCOUNTING (§ 446) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647

September 8, 2008

596

2008–36 I.R.B.

.01 Change in overall method from the cash method to an accrual method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Concurrent change to a special method of accounting not permitted to be made under this
revenue procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Adoption of recurring item exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Coordination with section 33.01 of this APPENDIX for short-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Concurrent automatic change to the deferral method for advance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Multi-year insurance policies for multi-year service warranty contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Description of method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Taxpayers changing to overall cash method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent automatic change to treat inventoriable items as nonincidental materials and supplies
under Rev. Proc. 2001–10 or Rev. Proc. 2002–28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Banks changing to overall cash/hybrid method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Nonaccrual-experience method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making the change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent change to overall accrual method and a NAE method of accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) First § 448 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Concurrent automatic change to overall accrual method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Interest accruals on short-term consumer loans–Rule of 78’s method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Film producer’s treatment of certain creative property costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Deduction of incentive payments to health care providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Change by bank for uncollected interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

597

647
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September 8, 2008

(2) Recovery percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Change from the cash method to an accrual method for specific items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Multi-year service warranty contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change and designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Additional requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.11 Overall cash method for specified transportation industry taxpayers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Specified transportation industry taxpayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Average annual gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Aggregation of gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) Treatment of short taxable year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(g) Treatment of predecessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(h) Cash method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.12 Change to overall cash/hybrid method for certain banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Overall cash/hybrid method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Cash method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Special methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Additional condition of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Additional filing requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Computation of average annual gross receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Average annual gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Aggregation of gross receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Treatment of short taxable year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Treatment of predecessors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.13 Change to overall cash method for farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

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2008–36 I.R.B.

(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.14 Nonshareholder contributions to capital under § 118 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655

.01 Accrual of interest on nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Advance rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 State or local income or franchise tax refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Capital cost reduction payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Credit card annual fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Credit card late fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Advance payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Concurrent automatic change to an overall accrual method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Credit card cash advance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Other requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Sales or dispositions to implement Federal Energy Regulatory Commission or state electric
restructuring policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

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September 8, 2008

(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Retainages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657

.01 Series E, EE or I U.S. savings bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change and designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657

.01 Prepaid subscription income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change and designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658

.01 Change from exempt-contract method to percentage-of-completion method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 19. TAXABLE YEAR OF DEDUCTION (§ 461) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658

.01 Timing of incurring liabilities for employee compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Self-insured employee medical benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Description of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Inapplicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Amounts taken into account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Concurrent automatic change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Designated automatic accounting method change number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Description of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Inapplicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Designated automatic accounting method change number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Vacation pay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Description of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Inapplicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Designated automatic accounting method change number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes,
and state franchise taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Amounts taken into account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

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(4) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or
violation of law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Amounts taken into account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Timing of incurring certain liabilities for payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Recurring item exception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Amounts taken into account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Cooperative advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Timing of incurring certain liabilities for services or insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Rebates and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

660
660
660
660
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SECTION 20. RENT (§ 467) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661

.01 Change from a ratable inclusion of rental income or expense to inclusion in accordance with the rent
allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

661
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661
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661
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662
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662

SECTION 21. INVENTORIES (§ 471). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662

.01 Cash discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Computation of § 481(a) adjustment for changes to net invoice method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Computation of § 481(a) adjustment for changes to gross invoice method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Estimating inventory “shrinkage”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

601

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662

September 8, 2008

(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Future change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Small taxpayer exception from requirement to account for inventories under § 471 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent automatic change to the overall cash method under Rev. Proc. 2001–10 or Rev. Proc.
2002–28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Qualifying volume-related trade discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Impermissible methods of identification and valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Core Alternative Valuation Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Replacement cost for automobile dealers’ parts inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Replacement cost for heavy equipment dealers’ parts inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making the change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent automatic change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Rotable spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Advance Trade Discount Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.11 Permissible methods of identification and valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Permissible method defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 8, 2008

602

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664
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664
664
664
664
664
664
664
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664
664
664
664
665
665
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665
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665
665

2008–36 I.R.B.

(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.12 Change in the official used vehicle guide utilized in valuing used vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.13 Invoiced advertising association costs for new vehicle retail dealerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.14 Rolling-average method of accounting for inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain scope limitation inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666

.01 Change from the LIFO inventory method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) In general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Method to be used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Determining the permitted method to be used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ii) Permitted method defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) Determining permitted method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain scope limitation inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Limitation on LIFO election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Effect of subchapter S election by corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) S election effective for year of LIFO discontinuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) S election effective for a year after LIFO discontinuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Determining current-year cost under the LIFO inventory method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain scope limitation inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent change to a rolling-average method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Alternative LIFO inventory method for retail automobile dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Cut-off basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Concurrent change from IPIC method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Additional requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Concurrent change to the Vehicle-Pool Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Used vehicle alternative LIFO method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Cut-off basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

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September 8, 2008

(b) Bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) New base year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent change from IPIC method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Concurrent change to the Vehicle-Pool Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 Determining the cost of used vehicles purchased or taken as a trade-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change and scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Change to the inventory price index computation (IPIC) method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Bargain purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent automatic changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Changes within the inventory price index computation (IPIC) method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Changes to the Vehicle-Pool Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Concurrent change to the Alternative LIFO Method or the Used Vehicle Alternative LIFO
Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Changes within the used vehicle alternative LIFO method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 Changes to dollar-value pools of manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

668
668
668
668
668
668
668
668
668
668
668
668
668
668
669
669
669
669
669
669
669
669
669
670
670
670
670
670
670
670
670
670
670
670
670
670
670
670
670
670
670
670
671

SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES (§ 475) . . . . . . . . . . . . . . . . . . . . . 671

.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market
method of accounting under § 475(e) or (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Election under Rev. Proc. 99–17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

671
671
671
671
671
671
671
671

SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671

.01 Changing from the § 585 reserve method to the § 166 specific charge-off method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671

September 8, 2008

604

2008–36 I.R.B.

(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain scope limitations inapplicable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Change from § 585 required when electing S corporation status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

671
671
671
671
671
671
672
672
672

SECTION 25. INSURANCE COMPANY PREMIUM ACQUISITION EXPENSES (§ 832) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672

.01 Safe harbor method of accounting for premium acquisition expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

672
672
672
672
673
673

SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

.01 Composite method for discounting unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

673
673
673
673
673

SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A–860G) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

.01 REMIC inducement fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

673
673
673
673
673
673

SECTION 28. INCOME FROM SOURCES WITHIN THE UNITED STATES (§ 861) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

.01 Transactions involving computer programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

673
673
673
673
673

SECTION 29. FUNCTIONAL CURRENCY (§ 985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

.01 Change in functional currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

673
673
673
673
673
673

SECTION 30. BASIS OF CERTAIN SECURITIES SOLD OR TRANSFERRED (§ 1012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673

.01 Change to comply with § 1.1012–1(c)(1) – (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Manner of making change and designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) Section 481(a) adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Cut-off basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Designated automatic accounting method change number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) Contact information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008–36 I.R.B.

605

673
673
673
674
674
674
674
674
674
674

September 8, 2008

SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674

.01 De minimis original issue discount (OID). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) No audit protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

674
674
674
674
674
674
674
674
674
674

SECTION 32. MARKET DISCOUNT BONDS (§ 1278) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674

.01 Revocation of § 1278(b) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Revocation of election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Manner of making change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Additional requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

674
674
674
675
675
675
675
675
675

SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675

.01 Interest income on short obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Stated interest on short-term loans of cash method banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Description of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Scope limitations inapplicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Designated automatic accounting method change number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Contact information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

675
675
675
675
675
675
675
675
675
675
675

APPENDIX CONTACT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675

SECTION 1. PURPOSE
This revenue procedure provides the
procedures by which a taxpayer may obtain automatic consent for a change in
method of accounting described in the
APPENDIX of this revenue procedure.
This revenue procedure clarifies, modifies, amplifies, and supersedes Rev. Proc.
2002–9, 2002–1 C.B. 327, as modified
and clarified by Announcement 2002–17,
2002–1 C.B. 561, modified and amplified
by Rev. Proc. 2002–19, 2002–1 C.B. 696,
and amplified, clarified and modified by
Rev. Proc. 2002–54, 2002–2 C.B. 432. It
also consolidates automatic consent procedures for changes in several methods
of accounting that were published subsequent to the publication of Rev. Proc.
2002–9. Lastly, this revenue procedure
provides additional changes in methods

September 8, 2008

of accounting for which a taxpayer may
obtain automatic consent. See section 15
of this revenue procedure for a list of significant changes.
A taxpayer complying with all the applicable provisions of this revenue procedure obtains the consent of the Commissioner to change its method of accounting under § 446(e) of the Internal Revenue Code and the Income Tax Regulations thereunder.
SECTION 2. BACKGROUND
.01 Change in method of accounting
defined.
(1) Section 1.446–1(e)(2)(ii)(a) provides that a change in method of accounting includes a change in the overall plan
of accounting for gross income or deductions, or a change in the treatment of any

606

material item. A material item is any item
that involves the proper time for the inclusion of the item in income or the taking
of the item as a deduction. In determining
whether a taxpayer’s accounting practice
for an item involves timing, generally the
relevant question is whether the practice
permanently changes the amount of the
taxpayer’s lifetime income. If the practice
does not permanently affect the taxpayer’s
lifetime income, but does or could change
the taxable year in which income is reported, it involves timing and is therefore
a method of accounting. See Rev. Proc.
91–31, 1991–1 C.B. 566.
(2) Although a method of accounting
may exist under this definition without a
pattern of consistent treatment of an item,
a method of accounting is not adopted in
most instances without consistent treatment. The treatment of a material item

2008–36 I.R.B.

in the same way in determining the gross
income or deductions in two or more consecutively filed federal income tax returns
(without regard to any change in status of
the method as permissible or impermissible) represents consistent treatment of that
item for purposes of § 1.446–1(e)(2)(ii)(a).
If a taxpayer treats an item properly in the
first return that reflects the item, however,
it is not necessary for the taxpayer to treat
the item consistently in two or more consecutive returns to have adopted a method
of accounting. If a taxpayer has adopted
a method of accounting under these rules,
the taxpayer may not change the method
by amending its prior income tax return(s).
See Rev. Rul. 90–38, 1990–1 C.B. 57.
(3) A change in method of accounting
does not include correction of mathematical or posting errors, or errors in
the computation of tax liability (such
as errors in computation of the foreign
tax credit, net operating loss, percentage depletion, or investment credit). See
§ 1.446–1(e)(2)(ii)(b).
.02 Securing permission to make a
method change.
Section 446(e) and
§ 1.446–1(e)(2)(i) state that, except as
otherwise provided, a taxpayer must secure the consent of the Commissioner
before changing a method of accounting
for federal income tax purposes. Section
1.446–1(e)(3)(i) requires that, in general,
in order to obtain the Commissioner’s consent to a method change, a taxpayer must
file a Form 3115, Application for Change
in Accounting Method, during the taxable
year in which the taxpayer wants to make
the proposed change.
.03 Terms and conditions of a method
change. Section 1.446–1(e)(3)(ii) provides that the Commissioner may prescribe administrative procedures setting
forth the limitations, terms, and conditions
deemed necessary to permit a taxpayer to
obtain consent to change a method of accounting in accordance with § 446(e). The
terms and conditions the Commissioner
may prescribe include the year of change,
whether the change is to be made with a
§ 481(a) adjustment or on a cut-off basis,
and the § 481(a) adjustment period.
.04 No retroactive method change. Unless specifically authorized by the Commissioner, a taxpayer may not request,
or otherwise make, a retroactive change
in method of accounting, regardless of

2008–36 I.R.B.

whether the change is from a permissible
or an impermissible method. See generally Rev. Rul. 90–38. But see section
6.02(3)(c)(i) of this revenue procedure.
.05 Method change with a § 481(a)
adjustment.
(1) Need for adjustment. 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.

(2) Adjustment period. 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

607

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.
.06 Method change using a cut-off basis. The Commissioner may determine
that certain changes in methods of accounting will be made without a § 481(a)
adjustment, using a cut-off basis. When a
change in method of accounting is made
on a cut-off basis, in general, only the
items arising on or after the beginning of
the year of change (or other operative date)
are accounted for under the new method of
accounting. Any items arising before the
year of change (or other operative date)
continue to be accounted for under the
taxpayer’s former method of accounting.
See, for example, sections 2.01, 10.04 and
22.02 of the APPENDIX of this revenue
procedure. Because no amounts are duplicated or omitted when a change in method
of accounting is made on a cut-off basis,
no § 481(a) adjustment is necessary.
.07 Consistency and clear reflection of
income. Methods of accounting should
clearly reflect income on a continuing basis, and the Commissioner exercises discretion under §§ 446(e) and 481(c) in a
manner that generally minimizes distortions of income across taxable years and
on an annual basis.
.08 Separate trades or businesses.
(1) Sections 1.446–1(d)(1) and (2) provide that when a taxpayer has two or more
separate and distinct trades or businesses,
a different method of accounting may be
used for each trade or business provided
the method of accounting used for each
trade or business clearly reflects the overall income of the taxpayer as well as that of
each particular trade or business. No trade
or business is separate and distinct unless
a complete and separable set of books and
records is kept for that trade or business.
(2) Section 1.446–1(d)(3) provides that
if, by reason of maintaining different methods of accounting, there is a creation or
shifting of profits or losses between the
trades or businesses of the taxpayer (for
example, through inventory adjustments,
sales, purchases, or expenses) so that income of the taxpayer is not clearly reflected, the trades or businesses of the taxpayer are not separate and distinct.

September 8, 2008

.09 Penalties. Any otherwise applicable penalty, addition to the tax, or additional amount for the failure of a taxpayer
to change its method of accounting (for example, the accuracy-related penalty under
§ 6662 or the fraud penalty under § 6663)
may be imposed if the taxpayer does not
timely file a request to change a method of
accounting. See § 446(f). Additionally, the
taxpayer’s return preparer may also be subject to the preparer penalty under § 6694.
However, penalties, additions to the tax,
or additional amounts will not be imposed
when a taxpayer changes from an impermissible method of accounting to a permissible one by complying with all applicable
provisions of this revenue procedure.
.10 Change made as part of an
examination.
Section 446(b) and
§ 1.446–1(b)(1) provide that if a taxpayer
does not regularly employ a method of
accounting that clearly reflects its income,
the computation of taxable income must
be made in a manner that, in the opinion
of the Commissioner, does clearly reflect
income. If a taxpayer under examination
is not eligible to change a method of accounting under this revenue procedure,
the change may be made by the director.
A change resulting in a positive § 481(a)
adjustment will ordinarily be made in the
earliest taxable year under examination
with a one-year § 481(a) adjustment period. See Rev. Proc. 2002–18, 2002–1
C.B. 678.
SECTION 3. DEFINITIONS
.01 Application. The term “application” includes a Form 3115 or any statement that is authorized in the APPENDIX
of this revenue procedure to be filed in lieu
of a Form 3115, and any attachments.
.02 Applicable provisions. The term
“applicable provisions” means all provisions of this revenue procedure pertinent
to the taxpayer or its requested change, including but not limited to:
(1) the scope requirements and limitations in section 4 of this revenue procedure;
(2) the terms and conditions of change
in section 5 of this revenue procedure;
(3) the requirements regarding the form
and content of an application in section 6
of this revenue procedure;
(4) the filing requirements in section 6
of this revenue procedure, including (but

September 8, 2008

not limited to) the timely duplicate filing
requirement of section 6.02(3)(a); and
(5) the APPENDIX of this revenue procedure, including:
(a) the available changes in method of
accounting;
(b) any restrictions on the availability of
a requested change that is applicable to the
taxpayer (including provisions that render
the change inapplicable to the taxpayer);
and
(c) any special terms and conditions applicable to a change, such as the use of a
cut-off basis or a § 481(a) adjustment, the
spread period for any § 481(a) adjustment,
and the year of change.
.03 Taxpayer.
(1) In general. 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)).
(2) Consolidated group.
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.
.04 Timely mailing as timely filing.
Under the provisions of § 7502, any application, statement, or other document
required to be filed under this revenue
procedure is considered timely filed if it
is timely postmarked and mailed, postage
prepaid, to the proper address (or an
address similar enough to complete delivery). If these requirements are met,
the date of filing is the date of the U.S.
postmark or the applicable date recorded
or marked by a designated private delivery service. See Notice 2004–83, 2004–2
C.B. 1030. If the requirements of § 7502
are not met, the application, statement, or
other document is considered filed on the
date it is delivered to the Service.
.05 Timely performance of acts. The
rules of § 7503 apply when the last day
for the taxpayer’s timely performance of
any act (for example, filing an application
or submitting additional information) falls
on a Saturday, Sunday, or legal holiday.
The performance of any act is timely if the
act is performed on the next succeeding

608

day that is not a Saturday, Sunday, or legal
holiday.
.06 Year of change. The year of change
is the taxable year for which a change in
method of accounting is effective, that is,
the first taxable year the new method is to
be used, even if no affected items are taken
into account for that year.
.07 Section 481(a) adjustment period.
The § 481(a) adjustment period is the applicable number of taxable years for taking
into account the § 481(a) adjustment required as a result of the change in method
of accounting. The year of change is the
first taxable year in the adjustment period
and the § 481(a) adjustment is taken into
account ratably over the number of taxable
years in the adjustment period. The applicable adjustment periods are set forth in
section 5.04 of this revenue procedure.
.08 Under examination.
(1) In general.
(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,

2008–36 I.R.B.

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.
(2) Partnerships subject to TEFRA. 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.
(3) S corporations subject to TEFRA
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 As-

2008–36 I.R.B.

sessment and Collection of Deficiency in
Tax for S Corporation Adjustments.
.09 Issue under consideration.
(1) Under examination. 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).
(2) Before an appeals office. 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.
(3) Before a federal court. 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

609

identified in writing to the taxpayer by the
counsel for the government.
.10 Change within the LIFO inventory
method. A change within the LIFO inventory method is a change from one LIFO inventory method or sub-method to another
LIFO inventory method or sub-method. A
change within the LIFO inventory method
does not include a change in method of
accounting that could be made by a taxpayer that does not use the LIFO inventory
method (for example, a method governed
by § 471 or § 263A).
.11 Director. The term “director” has
the same meaning as this term has in Rev.
Proc. 2008–1, 2008–1 I.R.B. 1 (or any
successor).
SECTION 4. SCOPE
.01 Applicability. This revenue procedure applies to a taxpayer requesting the
Commissioner’s consent to change to a
method of accounting described in the APPENDIX of this revenue procedure. This
revenue procedure is the exclusive procedure for a taxpayer within its scope to obtain the Commissioner’s consent.
.02 Inapplicability. Except as otherwise provided in the APPENDIX of this
revenue procedure (see, for example, section 2.01 of the APPENDIX of this revenue procedure), this revenue procedure
does not apply in the following situations:
(1) Under examination. 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) (120day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), and 6.03(6) (issue pending) of this
revenue procedure;
(2) Consolidated group member. 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;
(3) Partnerships and S corporations.
For an entity (including a limited liability company) treated as a partnership or an
S corporation for federal income tax pur-

September 8, 2008

poses, 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;
(4) Section 381(a) transaction. 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)):
(a) No differences in methods. 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.
(b) Separate trades or businesses.
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)

September 8, 2008

and §§ 1.381(c)(5)–1(b)(3) and (c) will
not apply.
(5) Final year of trade or business. 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.
(6) Prior five-year overall method
change. 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

610

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.

(7) Prior five-year item change.
(a) In general. 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.
(b) Exceptions. 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

2008–36 I.R.B.

within five years of adopting or changing
to the LIFO inventory method does not receive audit protection under section 7 of
this revenue procedure.
(c) Examples.
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.

.03 Nonautomatic changes. If a taxpayer is precluded other than by sections
4.02(1) through 4.02(3) of this revenue
procedure from using this revenue procedure to make a change in method of accounting, the taxpayer requesting such a
change must file a Form 3115 with the
Commissioner in accordance with the requirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27, 1997–1 C.B. 680, as modified and amplified by Rev. Proc. 2002–19,
2002–1 C.B. 696, as amplified and clar-

2008–36 I.R.B.

ified by Rev. Proc. 2002–54, 2002–2
C.B. 432, and modified by Rev. Proc.
2007–67, 2007–48 I.R.B. 1072 (or any
other applicable Code, regulation, or guidance published in the Internal Revenue
Bulletin (IRB)).
SECTION 5. TERMS AND
CONDITIONS OF CHANGE
.01 In general. An accounting method
change filed under this revenue procedure
must be made pursuant to the terms and
conditions provided in this revenue procedure.
.02 Year of change. The year of change
is the taxable year designated on the application and for which the application is
timely filed under section 6.02(3) of this
revenue procedure.
.03 Section 481(a) adjustment. Unless
otherwise provided in this revenue procedure, a taxpayer making a change in
method of accounting under this revenue
procedure must apply § 481(a) and take
into account a § 481(a) adjustment in the
manner provided in section 5.04 of this
revenue procedure.
.04 Section 481(a) adjustment period.
(1) In general. 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.
(2) Short period as a separate taxable
year. 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.

611

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.

(3) Shortened or accelerated § 481(a)
adjustment periods. 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) De minimis rule. 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.
(b) Cooperatives. 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.
(c) Ceasing to engage in the trade or
business or terminating existence.
(i) In general. 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.
(ii) Examples of transactions that are
treated as the cessation of a trade or busi-

September 8, 2008

ness. 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.
(iii) Conversion to or from S corporation status. 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.
(iv) Certain transfers to which § 381(a)
applies. 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.
(v) Certain transfers pursuant to § 351
within a consolidated group.
(A) In general. 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

September 8, 2008

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).
(B) Exception. 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

612

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.
.05 NOL carryback limitation for taxpayer subject to criminal investigation. No
portion of any net operating loss that is
attributable to a negative § 481(a) adjustment may be carried back to a taxable year
prior to the year of change that is the subject of any pending or future criminal investigation or proceeding concerning (1)
directly or indirectly, any issue relating to
the taxpayer’s federal tax liability, or (2)
the possibility of false or fraudulent statements made by the taxpayer with respect to
any issue relating to its federal tax liability.
.06 Certain foreign corporations. If
the change in method of accounting is on
behalf of a controlled foreign corporation
(CFC) as defined in § 953(c)(1)(B) or
§ 957 or a noncontrolled section 902 corporation as defined in § 904(d)(2)(E), the
following additional terms and conditions
apply:
(1) If the functional currency of the foreign corporation is not the U.S. dollar, the
§ 481(a) adjustment must be stated in the
functional currency of the foreign corporation and not in U.S. dollars;
(2) A positive § 481(a) adjustment
necessary to prevent the duplication of
amounts of an expense item will have the
same source, separate limitation classification, character, and treatment for purposes
of subpart F as the foreign corporation’s
gross income that was offset by the expense in the prior year or years. A positive
§ 481(a) adjustment necessary to prevent
the omission of amounts of an income
item will have the same source, separate
limitation classification, character, and
treatment for purposes of subpart F as the
foreign corporation’s income would have
had in the prior year or years. A negative
§ 481(a) adjustment necessary to prevent
the omission of amounts of an expense
item will be allocated to the class of gross
income that has the same source, separate
limitation classification, character, and

2008–36 I.R.B.

treatment for purposes of subpart F as the
foreign corporation’s income that would
have been offset by the expense in the
prior year or years. A negative § 481(a)
adjustment necessary to prevent the duplication of amounts of an income item will
be treated as an offset to gross income that
has the same source, separate limitation
classification, character, and treatment for
purposes of subpart F as the foreign corporation’s income in the prior year or years;
(3) For each taxable year of the adjustment period beginning with the year
of change, the appropriate amount of the
§ 481(a) adjustment must be taken into account in computing the foreign corporation’s subpart F income under § 951 and
its earnings and profits under §§ 964 and
986(b) for all federal income tax purposes;
(4) The written statement required by
§ 1.964–1T(c)(3)(i) and (ii) must be filed
by each controlling domestic shareholder
(or its common parent) with its tax return for its taxable year with or within
which ends the foreign corporation’s year
of change;
(5) The shareholders of the foreign corporation must maintain records and accounts with respect to the foreign corporation, for the year of change and for subsequent taxable years, in conformity with
the requirements of § 905(b) and § 964(c);
(6) If a foreign corporation loses its status as a CFC or noncontrolled section 902
corporation at any time prior to the expiration of the adjustment period, the foreign
corporation must take into account in computing its subpart F income and earnings
and profits, on the final day on which it is
a CFC or noncontrolled section 902 corporation, the balance of the § 481(a) adjustment not previously taken into account;
(7) Each U.S. shareholder of a CFC
must comply with its obligations to report
changes in the shareholder’s ownership of
the CFC on Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, during the adjustment period; and
(8) In the case of any disposition of
stock of the foreign corporation that is
owned directly or indirectly by a United
States person if the disposition (i) represents ten percent or more of the total
value of the stock of the corporation, or
(ii) results in the person no longer meeting the stock ownership requirements of
§ 6046(a)(2) with respect to the foreign

2008–36 I.R.B.

corporation, then the foreign corporation
must include, prior to the disposition, in
its income and earnings and profits the balance of the § 481(a) adjustment not previously taken into account. This condition
does not apply to any change in ownership
of the foreign corporation if the stock disposed of continues to be owned, directly
or indirectly, by a member of the U.S. consolidated group of which the former shareholder is a member.
.07 Change treated as initiated by the
taxpayer. For purposes of § 481, a change
in method of accounting made under this
revenue procedure is a change in method
of accounting initiated by the taxpayer.
SECTION 6. GENERAL APPLICATION
PROCEDURES
.01 Consent. Pursuant to § 1.446–
1(e)(2)(i),
the
consent
of
the
Commissioner is hereby granted to any
taxpayer within the scope of this revenue
procedure to change its method(s) of
accounting as described in the APPENDIX
to this revenue procedure. Such consent
is granted only for the change(s) of
accounting method and the affected
item(s) that are clearly and expressly
identified in the taxpayer’s application.
See section 6.02(1)(c) of this revenue
procedure. Such consent is granted only
to the extent that the taxpayer complies
with all the applicable provisions of this
revenue procedure and implements the
change in method of accounting for the
requested year of change.
.02 Filing requirements.
(1) Applications.
(a) Form. 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.
(b) Separate applications. Ordinarily,
a taxpayer must submit a separate application for each change in method of accounting. In some cases, however, the provi-

613

sions 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.
(c) Contents. 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.
(2) Waiver of taxable year filing
requirement.
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).
(3) Timely duplicate filing requirement.
(a) In general. 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

September 8, 2008

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.
(b) Certain foreign corporations. 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.
(c) Limited relief for late application.
(i) Automatic extension. 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)

September 8, 2008

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.
(ii) Other extensions. 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).
(4) Designated automatic accounting
method change number. 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

614

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.
(5) Signature requirements. 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.
(6) Authorized representative. 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

2008–36 I.R.B.

section 6.01(6) will not be given any information regarding the application.
(7) Where to file copy.
(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 12th 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.
(8) No acknowledgement of receipt. 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.
(9) No user fee. A user fee is not required for an application filed under this
revenue procedure.
(10) Single application for certain taxpayers. 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

2008–36 I.R.B.

or more controlled foreign corporations
(CFCs). See sections 9.02 and 15.07(4) of
Rev. Proc. 2008–1 (or any successor).
(11) Additional copies required.
(a) Scope restrictions waived for taxpayer under examination. 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).
(b) Taxpayer before an appeals office or
a federal court and issue not under consideration. 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.
.03 Taxpayer under examination.
(1) In general. Except as otherwise provided in the APPENDIX of this revenue
procedure (see, for example, section 2.01
of the APPENDIX of this revenue proce-

615

dure), 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) (120day 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.
(2) 90-day window period.
(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).
(3) 120-day window period.
(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

September 8, 2008

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).
(4) Consent of director.
(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

September 8, 2008

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).
(5) Changes lacking audit protection.
(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).
(6) Issue Pending.
(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.

616

(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).
.04 Taxpayer before an appeals office.
A taxpayer otherwise within the scope of
this revenue procedure that is before an
appeals office with respect to any income
tax issue may request a change in accounting method. However, the audit protection provisions of section 7 of this revenue procedure do not apply if the accounting method to be changed is an issue under consideration by the appeals office. 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
6.04 must provide a copy of the application
to the appeals officer at the 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
appeals officer(s).
.05 Taxpayer before a federal court. A
taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) otherwise within the scope of
this revenue procedure that is before a federal court with respect to any income tax
issue may request a change in accounting method. However, the audit protection provisions of section 7 of this revenue
procedure do not apply if the accounting
method to be changed is an issue under
consideration by the federal court. A taxpayer (or designated shareholder) that requests to change a method of accounting
under this section 6.05 must provide a copy
of the application to the counsel(s) for the
government at the time it files a copy of
the original application with the national
office. The application must contain the
name(s) and telephone number(s) of the
counsel(s) for the government.
.06 Compliance with provisions. If a
taxpayer to which this revenue procedure
applies changes to a method of accounting without complying with all the applicable provisions of this revenue procedure

2008–36 I.R.B.

(for example, the taxpayer changes 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 taxpayer has initiated a change
in method of accounting without obtaining the consent of the Commissioner as required by § 446(e). See sections 9.02 and
10.03 of this revenue procedure.
SECTION 7. AUDIT PROTECTION
FOR TAXABLE YEARS PRIOR TO
YEAR OF CHANGE
.01 In general. Except as provided in
sections 4.02(7)(b), 6.03(5), 6.03(6), 6.04,
6.05, 7.02 or the APPENDIX of this revenue procedure or in any other guidance
published in the IRB, when a taxpayer
timely files a copy of the application with
the national office in compliance with all
the applicable provisions of this revenue
procedure, the Service will not require the
taxpayer to change its method of accounting for the same item for a taxable year
prior to the year of change.
.02 Exceptions.
(1) Change not made or made improperly. 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).
(2) Change in sub-method. 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.
(3) Prior year Service-initiated change.
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-ini-

2008–36 I.R.B.

tiated change reported as an issue pending
or in a Revenue Agent’s Report.
(4) Criminal investigation. 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.
SECTION 8. EFFECT OF CONSENT
.01 In general. A taxpayer that changes
to a method of accounting pursuant to
this revenue procedure may be required to
change or modify that method of accounting for the following reasons:
(1) the enactment of legislation;
(2) a decision of the United States
Supreme Court;
(3) the issuance of temporary or final
regulations;
(4) the issuance of a revenue ruling, revenue procedure, notice, or other statement
published in the IRB;
(5) the issuance of written notice to the
taxpayer that the change in method of accounting is not in accord with the current
views of the Service; or
(6) a change in the material facts on
which the consent was based.
.02 Retroactive change or modification.
Except in rare or unusual circumstances, if
a taxpayer that changes its method of accounting under this revenue procedure is
subsequently required under section 8.01
of this revenue procedure to change or
modify that method of accounting, the required change or modification will not be
applied retroactively, provided that:
(1) the taxpayer complied with all the
applicable provisions of this revenue procedure;
(2) there has been no misstatement or
omission of material facts;
(3) there has been no change in the
material facts on which the consent was
based;
(4) there has been no change in the applicable law; and

617

(5) the taxpayer to whom consent was
granted acted in good faith in relying on
the consent, and applying the change or
modification retroactively would be to the
taxpayer’s detriment.
SECTION 9. REVIEW BY DIRECTOR
.01 In general. The director must apply
a change in method of accounting made
in compliance with all the applicable provisions of this revenue procedure in determining the taxpayer’s liability, unless
the director recommends that the change
in method of accounting should be modified or revoked. (See section 9.02 of this
revenue procedure if a change in method
of accounting is made without complying
with all the applicable provisions of this
revenue procedure.) The director will ascertain if the change in method of accounting was made in compliance with all the
applicable provisions of this revenue procedure, including whether:
(1) the representations on which the
change was based reflect an accurate statement of the material facts;
(2) the amount of the § 481(a) adjustment was properly determined; and
(3) the change in method of accounting
was implemented in compliance with all
the applicable provisions of this revenue
procedure.
The director will also ascertain
whether:
(4) there has been any change in the material facts on which the change was based
during the period the method of accounting was used; and
(5) there has been any change in the applicable law during the period the method
of accounting was used.
.02 Changes not made in compliance
with all applicable provisions. If the director determines that the taxpayer has not
complied with all of the applicable provisions of this revenue procedure, the director may:
(1) deny the change in method of accounting and require the taxpayer to continue to use the prior method of accounting;
(2) deny the change in method of accounting and place the taxpayer on a
proper method of accounting (see section
2.10 of this revenue procedure); or
(3) make any adjustments (including
the amount of any § 481(a) adjustment)

September 8, 2008

that are necessary to bring the change in
method of accounting into compliance
with all applicable provisions of this revenue procedure.
The director may impose any otherwise
applicable penalty, addition to tax, or additional amount on the understatement of
tax attributable to the change in method of
accounting.
.03 National office consideration. If
the director recommends that a change
in method of accounting (other than the
§ 481(a) adjustment) made in compliance
with all the applicable provisions of this
revenue procedure should be modified or
revoked, the director will forward the matter to the national office for consideration
before any further action is taken. Such
a referral to the national office will be
treated as a request for technical advice,
and the provisions of Rev. Proc. 2008–2
(or any successor) will be followed.
SECTION 10. REVIEW BY NATIONAL
OFFICE
.01 In general. Any application filed
under this revenue procedure may be reviewed by the national office. If the application is reviewed by the national office,
the procedures in sections 10.02 and 10.03
of this revenue procedure apply.
.02 Incomplete application.
(1) 30-day rule. 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.
(2) Failure to provide additional information. Ordinarily, if the taxpayer fails
to provide the additional information on a

September 8, 2008

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.
.03 National office determination.
(1) Conference in the national office.
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).
(2) Consent not granted. 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).
(3) Application changed. 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

618

(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.
SECTION 11. APPLICABILITY OF
REV. PROCS. 2008–1 AND 2008–4
Rev. Procs. 2008–1 and 2008–4 (or
any successors) apply to applications
filed under this revenue procedure, unless specifically excluded or overridden
by other guidance published in the IRB
(including any specific procedures in this
document).
SECTION 12. EFFECTIVE DATE
.01 In general. Except as provided
in section 12.02 of this revenue procedure, this revenue procedure is effective
for applications filed on or after August 18,
2008, for a year of change ending on or after December 31, 2007. The Service will
return any application that is filed with the
national office after August 18, 2008, for
a year of change ending on or after December 31, 2007, if the application is filed
pursuant to the Code, regulations, or other
guidance published in the IRB other than
this revenue procedure and the change in
method of accounting appears to be within
the scope of this revenue procedure.
.02 Transition rules. The following
transition rules apply.
(1) Forms 3115 filed under Rev. Proc.
97–27. If before August 18, 2008, a
taxpayer within the scope of Rev. Proc.
97–27 timely filed a Form 3115 under
Rev. Proc. 97–27 requesting consent for a
change in method of accounting described
in the APPENDIX of this revenue procedure for a year of change ending on or
after December 31, 2007, and the Form
3115 is pending with the national office on
August 18, 2008, the taxpayer may choose
to make the change under this revenue
procedure if the taxpayer is otherwise eligible under this revenue procedure. The
taxpayer must notify the national office of
its intent to make the change under this
revenue procedure prior to the later of
September 18, 2008, or the issuance of a
letter ruling granting or denying consent
for the change. If the taxpayer timely no-

2008–36 I.R.B.

tifies the national office that it will make
the change under this revenue procedure,
the national office ordinarily will return
the Form 3115 to the taxpayer to make the
necessary modifications to comply with
the applicable provisions of this revenue
procedure and will refund the user fee
submitted with the Form 3115.
A Form 3115 that is returned to the taxpayer for necessary modifications will be
converted to an application under this revenue procedure if the taxpayer resubmits
the Form 3115 with the necessary modifications, along with a copy of the national
office letter sent with the returned Form
3115, to the national office within 30 calendar days after the date of the Service’s
letter returning the Form 3115 to the taxpayer.
(2) Application filed under Rev. Proc.
2002–9.
(a) General rule. If a taxpayer properly
files an application with the national office
under Rev. Proc. 2002–9 to make a change
in method of accounting described in the
APPENDIX of Rev. Proc. 2002–9 and the
application was either post-marked or received by the national office before August
18, 2008, the taxpayer makes the change
under Rev. Proc. 2002–9.
(b) Option to file an amended application. If before August 18, 2008, a taxpayer
properly filed an application under Rev.
Proc. 2002–9 for a year of change that is
the taxpayer’s first taxable year ending on
or after December 31, 2007, the taxpayer
may choose to file an amended application for that year of change under this revenue procedure if, within 6 months from
the due date of the federal income tax return for the year of change (excluding extension), the taxpayer (i) files an original
or amended return using the new method
of accounting pursuant to this revenue procedure, (ii) attaches the original amended
application filed under this revenue procedure to its original or amended return
for the year of change, (iii) writes on the
top of page 1 of the national office copy
of the amended application “FILED UNDER SECTION 12.02(2) OF REV. PROC.
2008–52”; and (iv) sends the national office copy of the amended application to
the following address no later than the date
the original amended application is filed
with the original or amended return: Internal Revenue Service, P. O. Box 14095,

2008–36 I.R.B.

Benjamin Franklin Station, Washington,
DC 20044, Attention: CC:ITA:8.
(3) No application filed by August 18,
2008.
(a) General rule. If, prior to August 18,
2008, a taxpayer has not filed an application requesting consent to change a particular method of accounting for its first
taxable year ending on or before July 31,
2008, the taxpayer may elect to apply the
provisions of Rev. Proc. 2002–9 with
respect to such method of accounting for
such taxable year. For taxpayers making
such election, the timely duplicate filing
requirement of section 6.02(3)(a) of Rev.
Proc. 2002–9 is modified to require the
copy of the application to be submitted to
the National Office on or before September 15, 2008.
(b) Exception for changes from a hybrid
method. As of August 18, 2008, a taxpayer
may not apply the provisions of Rev. Proc.
2002–9 with respect to a change described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 if such change is not also
described in either section 14.01 or 14.09
of the APPENDIX to this revenue procedure. Notwithstanding section 5.01(1)(a)
of Rev. Proc. 97–27, the Service will treat
as timely filed under Rev. Proc. 97–27 any
Form 3115 requesting consent to a change
in method of accounting that is described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 but is not described in either
section 14.01 or 14.09 of the APPENDIX
to this revenue procedure for a taxpayer’s
first taxable year ending on or before July
31, 2008 if it is filed on or before September 15, 2008.
SECTION 13. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is clarified, modified, amplified, and superseded.
Section 6.02(1)(a) of Rev.
Proc.
2001–10, 2001–1 C.B. 272, as modified
by Announcement 2004–16, 2004–1 C.B.
668, and section 7.02(1)(a) of Rev. Proc.
2002–28, 2002–1 C.B. 815, as modified
by Announcement 2004–16, are modified
and amplified to provide that the scope
limitations of section 4.02 of this revenue
procedure apply to a change to the cash
method.
Rev. Proc. 2007–14, 2007–4 I.R.B.
357, is superseded.

619

Rev. Proc. 2008–43, 2008–30 I.R.B.
186, is modified to require a taxpayer to
use a cut-off basis when changing to a
rolling-average method of determining the
current-year cost of LIFO inventory pursuant to section 22.02(1)(a)(v) of the APPENDIX of this revenue procedure.
SECTION 14. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1551. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information displays
a valid OMB control number.
The collections of information in this
revenue procedure are in sections 6, 10,
and 12 and sections 5, 6, 7, 8, 9, 10, 11,
14, 15, 16, 17, 20, 21, 22, 23, 24, 31, and
32 of the APPENDIX. This information is
necessary and will be used to determine
whether the taxpayer properly changed to
a permitted method of accounting. The
collections of information are required for
the taxpayer to obtain consent to change
its method of accounting. The likely respondents are the following: individuals,
farms, business or other for-profit institutions, nonprofit institutions, and small
businesses or organizations.
The estimated total annual reporting
and/or recordkeeping burden is 13,976
hours.
The estimated annual burden per respondent/recordkeeper varies from 1/6
hour to 81/2 hours, depending on individual
circumstances, with an estimated average
of 11/2 hours. The estimated number of respondents is 13,250. The estimated annual
frequency of responses is on occasion.
SECTION 15. SIGNIFICANT
CHANGES
Significant changes to Rev.
Proc.
2002–9 include:
(1) Section 4.02(5) of this revenue procedure clarifies that, for purposes of the final year of a trade or business scope limitation, a cessation or termination of a trade

September 8, 2008

or business is determined without regard to
whether the § 481(a) adjustment is positive
or negative or whether the change is made
on a cut-off method;
(2) Sections 4.02(6) and 4.02(7) of this
revenue procedure provide separate prior
five-year change scope limitations for an
overall method change and for a change
relating to a specific item;
(3) Section 5.06 of this revenue procedure provides additional terms and conditions applicable to certain foreign corporations;
(4) Section 6.02(1)(c) of this revenue
procedure amplifies the requirements for a
complete application (e.g., Form 3115);
(5) Section 6.02(3)(b) provides timely
duplicate filing requirements for certain
foreign corporations;
(6) The requirements regarding designated automatic accounting method
change numbers are incorporated. See section 6.02(4) of this revenue procedure. A
designated automatic accounting method
change number is assigned to each change
in the APPENDIX of this revenue procedure;
(7) Explanations of how to implement
a change on a cut-off basis are added to
various sections of the APPENDIX that
require the use of the cut-off basis. See,
e.g., sections 2.01, 6.03, and 22.06 of the
APPENDIX of this revenue procedure;
(8) Section 6.03 of the APPENDIX of
this revenue procedure, relating to sale or
lease transactions, is modified to include
financing arrangements;
(9) The following sections of the APPENDIX of this revenue procedure are
modified to include taxpayers not complying with the capitalization requirements of
§ 263A for the costs to which the change
applies if the change is made in conjunction with a change to a UNICAP method
under section 11.01 or 11.02 of the APPENDIX of this revenue procedure:
(a) Section 6.01, relating to changes
from impermissible to permissible methods of accounting for depreciation or
amortization;
(b) Section 6.02, relating to changes
from permissible to permissible methods
of accounting for depreciation;
(c) Section 13.02, relating to changes
for certain deferred compensation
(bonuses and vacation pay);

September 8, 2008

(d) Section 19.01(1), relating to
changes for self-insured employee medical benefits;
(e) Section 19.02, relating to changes
involving the timing of incurring liabilities
for real property taxes, personal property
taxes, state income taxes, and state franchise taxes;
(f) Section 19.03, relating to changes
involving the timing of incurring liabilities
under a workers’ compensation act, tort,
breach of contract, or violation of law; and
(g) Section 19.04, relating to changes
involving the timing of incurring certain
liabilities for payroll taxes;
(10) Section 11.01(1)(b)(ii) of the
APPENDIX of this revenue procedure,
relating to changes to certain UNICAP
methods used by resellers and reseller-producers, is clarified to state that the change
applies to a small reseller changing from
the historic absorption ratio with the simplified resale method to a permissible
non-UNICAP inventory capitalization
method under section 11.01(1)(a)(i) of the
APPENDIX of this revenue procedure;
(11) Section 11.02 of the APPENDIX of
this revenue procedure, relating to certain
UNICAP methods used by producers and
reseller-producers, is clarified to state that
the change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capitalization;
(12) Sections 14.01 and 14.09 of the
APPENDIX of this revenue procedure
provide separate changes for changes from
the overall cash method to an overall accrual method and for changes from the
cash method to an accrual method for one
or more specific items. Sections 14.01 of
the APPENDIX of this revenue procedure
is modified to (a) eliminate changes from
a hybrid method, (b) include changes for a
taxpayer’s first § 448 year; and (c) permit
changes for farmers;
(13) Section 14.01(1)(b)(v)(A) of the
APPENDIX of this revenue procedure
clarifies that a taxpayer may change, as
well as adopt or continue to use, certain
inventory methods in conjunction with the
change to an overall accrual method;
(14) Section 14.03 of the APPENDIX
of this revenue procedure is modified to
state that the scope limitations in section
4.02 of this revenue procedure apply to
changes to the overall cash method provided in Rev. Proc. 2001–10 and Rev.

620

Proc. 2002–28, as modified by Announcement 2004–16;
(15) Section 14.05 of the APPENDIX
of this revenue procedure, regarding interest accruals on short-term consumer loansRule of 78’s method, is modified by removing the date limitations for the loans
to which the change relates;
(16) Section 18.01 of the APPENDIX
of this revenue procedure clarifies that the
change to the percentage-of-completion
method must be from an exempt-contract
method properly applied;
(17) Section 19.01(1) of the APPENDIX of this revenue procedure, relating to
changes involving timing of incurring liabilities for self-insured employee medical benefits, is modified to include method
changes involving liabilities to pay a third
party service provider;
(18) Section 19.02 of the APPENDIX of this revenue procedure, relating
to changes involving timing of incurring
liabilities for real property and personal
property taxes is modified to include
method changes for state franchise taxes;
(19) Section 19.03 of the APPENDIX of this revenue procedure, relating
to changes involving timing of incurring
liabilities under a workers’ compensation
act, tort, breach of contract, or violation
of law, is modified to include method
changes involving payments made by a
third party;
(20) Section 19.04 of the APPENDIX of this revenue procedure, relating
to changes involving timing of incurring
certain liabilities for payroll taxes imposed
with respect to year-end wages, is modified to include method changes for payroll
taxes imposed with respect to other forms
of compensation (including bonuses and
vacation pay) to the safe harbor method
provided in Rev. Proc. 2008–25, 2008–13
I.R.B. 686;
(21) Section 21.05 of the APPENDIX
of this revenue procedure is modified to
expand the types of impermissible inventory methods from which a taxpayer may
change;
(22) Section 22.01 of the APPENDIX of this revenue procedure, regarding
changes from the LIFO inventory method,
is modified to expand the permitted methods to which a taxpayer may change;
(23) Section 22.02 of the APPENDIX of this revenue procedure, regarding
determining current-year cost under the

2008–36 I.R.B.

LIFO inventory method, is modified to include changes to the specific identification
method;
(24) Section 22.05 of the APPENDIX
of this revenue procedure, relating to determining the cost of used vehicles purchased
or taken as a trade-in for a taxpayer using
the LIFO inventory method, is modified to
include changes to a different official used
vehicle guide;
(25) Section 22.06 of the APPENDIX of this revenue procedure, relating
to changes to the IPIC method, is modified to include additional types of method
changes;
(26) Section 22.07 of the APPENDIX
of this revenue procedure, relating to
changes within the IPIC method, is modified to include additional types of method
changes;
(27) Section 23.01 of the APPENDIX
of this revenue procedure, relating to commodities dealers, securities traders, and
commodities traders electing to use the
mark-to-market method of accounting under § 475(e) or (f), is modified by requiring a taxpayer to include on the Form 3115
for the year of change a statement that the
taxpayer has complied with the election
requirements under Rev. Proc. 99–17,
1999–1 C.B. 503, for purposes of section
475(e) or (f);
(28) Section 24.01 of the APPENDIX of this revenue procedure, relating
to banks changing from the § 585 reserve
method for bad debts to the § 166 specific
charge-off method, is modified to allow a
bank for which a QSub election is filed to
make a § 1361(g) election for the resulting
§ 481(a) adjustment, as provided in section 24.01(4)(b) of the APPENDIX of this
revenue procedure;
(29) Section 29.01 of the APPENDIX
of this revenue procedure, relating to
changes for functional currency, is modified to state that the change does not
apply to a QBU of a taxpayer described in
§ 1.985–1(b)(1)(iii); and
(30) The following sections are added
to the APPENDIX of this revenue procedure to provide additional changes in
method of accounting;
(a) Section 6.19 of the APPENDIX, relating to changes for lessor improvements
abandoned at termination of lease;
(b) Section 6.20 of the APPENDIX,
relating to changes for accounting for,

2008–36 I.R.B.

or identifying disposed, depreciable repairable and reusable spare parts;
(c) Section 6.21 of the APPENDIX, relating to changes from depreciating land
(or nondepreciable land improvement) to
not depreciating land (or nondepreciable
land improvement);
(d) Section 10.07 of the APPENDIX,
relating to changes to capitalize and depreciate repairable and reusable spare parts;
(e) Section 14.09 of the APPENDIX,
relating to changes from the cash method
to an accrual method for specific items;
(f) Section 14.11 of the APPENDIX,
relating to changes to the overall cash
method for specified transportation industry taxpayers;
(g) Section 14.12 of the APPENDIX,
relating to changes to overall cash/hybrid
method for certain banks;
(h) Section 14.13 of the APPENDIX,
relating to changes to overall cash method
for farmers;
(i) Section 14.14 of the APPENDIX, relating to changes for nonshareholder contributions to capital under section 118;
(j) Section 15.10 of the APPENDIX,
relating to changes for retainages under
§ 451;
(k) Sections 19.01(2) and (3) of the APPENDIX, relating to timing of incurring liabilities for employee bonuses and vacation pay under § 461;
(l) Section 19.07 of the APPENDIX,
relating to changes for rebates and allowances under § 461;
(m) Section 20.01 of the APPENDIX,
relating to changes from a ratable inclusion
of rental income or expense to inclusion in
accordance with the rent allocation;
(n) Section 21.11 of the APPENDIX,
relating to changes from permissible methods of identifying and valuing inventories;
(o) Section 21.12 of the APPENDIX,
relating to changes in the official used vehicle guide utilized in valuing used vehicles;
(p) Section 21.13 of the APPENDIX,
relating to invoiced advertising association
costs for new vehicle retail dealerships;
(q) Section 22.10 of the APPENDIX,
relating to changes to dollar-value pools of
manufacturers; and
(r) Section 30.01 of the APPENDIX, relating to changes to comply with
§ 1.1012–1(c)(1)–(4).

621

DRAFTING INFORMATION
The principal authors of this revenue
procedure are Kari Fisher, Karla Meola,
and Cheryl Oseekey of the Office of Associate Chief Counsel (Income Tax and
Accounting). For further information regarding this revenue procedure, contact
Ms. Fisher, Ms. Meola, or Ms. Oseekey
at (202) 622–4970 or (202) 622–4930 (not
a toll-free call).
For further information regarding a
specific change in method of accounting in the APPENDIX of this revenue
procedure, contact the appropriate individual listed in the “Contact Person(s)”
section located at the end of each section of the APPENDIX (calls are not
toll-free) or see the APPENDIX CONTACT LIST immediately following the
APPENDIX. The contact person is with
one of the following Offices of Associate
Chief Counsel: Corporate (CORP), Financial Institutions and Products (FI&P),
Income Tax & Accounting (IT&A), International (INTL), Passthroughs and Special
Industries (P&SI), or Tax Exempt and
Government Entities (TEGE).
APPENDIX
CHANGES IN METHODS OF
ACCOUNTING TO WHICH THIS
REVENUE PROCEDURE APPLIES
SECTION 1. GROSS INCOME (§ 61)
.01 Up-front Payments for Network Upgrades received by Utilities.
(1) Description of change. This change
applies to a Utility that wants to change
its method of accounting for Up-front
Payments to the “safe harbor method”
described in Rev. Proc. 2005–35, 2005–2
C.B. 76. In general, this change applies
to a Utility that receives an Up-front Payment from a Generator to finance Network
Upgrades to the Utility’s Transmission
System. For federal income tax purposes,
if an Up-front Payment is made pursuant
to an Interconnection Agreement that satisfies all of the conditions of section 5.02
of Rev. Proc. 2005–35, a Utility may
treat that Up-front Payment as not being
taxable income under § 61 when received
(the “safe harbor method”). In addition,
a Utility that uses the safe harbor method

September 8, 2008

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.
(2) Designated automatic accounting
method change number. 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.
(3) Contact information.
For further information regarding a change under this section, contact David Silber at
202–622–3930 (not a toll-free call).
.02 Reserved.
SECTION 2. COMMODITY CREDIT
LOANS (§ 77)
.01 Treating amounts received as loans.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for loans received
from the Commodity Credit Corporation
from including the loan amount in gross
income for the taxable year in which the
loan is received to treating the loan amount
as a loan.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Manner of making change. This
change is made on a cut-off basis and applies only to loans received from the Commodity Credit Corporation on or after the
beginning of the year of change. 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.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under

September 8, 2008

this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02 Reserved.
SECTION 3. TRADE OR BUSINESS
EXPENSES (§ 162)
.01 Advances made by a lawyer on behalf of clients.
(1) Description of change. This change
applies to a lawyer 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).
(2) Designated automatic accounting
method change number. 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.
(3) Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.02 ISO 9000 costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for costs incurred
to obtain, maintain and renew ISO 9000
certification to conform with Rev. Rul.
2000–4, 2000–1 C.B. 331.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Designated automatic accounting
method change number. 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.
(4) Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.03 Restaurant or tavern smallwares
packages.

622

(1) Description of change. This change
applies to a taxpayer engaged in the trade
or business of operating a restaurant or tavern (within the meaning of section 4.01
of Rev. Proc. 2002–12, 2002–1 C.B.
374) that wants to change its method of
accounting for the costs of smallwares to
the smallwares method described in Rev.
Proc. 2002–12.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Section 481(a) adjustment period.
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.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.04 Timber grower fertilization costs.
(1) Description of change. This change
applies to a timber grower that wants to
change its method of accounting to treat
post-establishment fertilization costs of an
established timber stand as ordinary and
necessary business expenses deductible
under § 162. See Rev. Rul. 2004–62,
2004–1 C.B. 1072.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Designated automatic accounting
method change number. 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.
(4) Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).

2008–36 I.R.B.

SECTION 4. BAD DEBTS (§ 166)
.01 Change from reserve method to specific charge-off method.
(1) Description of change. This change
applies to a taxpayer (other than a bank
as defined in § 585(a)(2)) that wants to
change its method of accounting for bad
debts from a reserve method (or other improper method) to a specific charge-off
method that complies with § 166. For procedures applicable to banks, see § 585(c)
and the regulations thereunder and section
24 of this APPENDIX.
(2) Designated automatic accounting
method change number. 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.
(3) Contact information.
For further information regarding a change under this section, contact Sean Dwyer at
202–622–5020 (not a toll-free call).
.02 Reserved.
SECTION 5. AMORTIZABLE BOND
PREMIUM (§ 171)
.01 Revocation of § 171(c) election.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for amortizable
bond premium by revoking its § 171(c)
election. Under § 171(c), a taxpayer that
holds certain taxable bonds may elect
to amortize any bond premium on the
bonds in accordance with regulations prescribed by the Secretary. Sections 1.171–1
through 1.171–5 provide rules relating to
the amortization of bond premium by a
taxpayer. Section 1.171–4 provides the
procedures to make a § 171(c) election to
amortize bond premium.
(2) Revocation of election. The revocation of a § 171(c) election applies to all
taxable bonds that are held by the taxpayer
on the first day of the first taxable year for
which the revocation is effective (year of
change), and to all taxable bonds that are
subsequently acquired by the taxpayer.
(3) Manner of making change. This
change is made using a cut-off basis and
applies only to taxable bonds held on or
after the beginning of the year of change.
See section 2.06 of this revenue procedure

2008–36 I.R.B.

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.
(4) Designated automatic accounting
method change number. 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.
(5) Additional requirements. On a statement attached to the Form 3115, the taxpayer must provide:
(a) the reason(s) for revoking the election; and
(b) a description of the method by
which, and the date on which, the taxpayer
made the § 171(c) election that is proposed
to be revoked.
(6) Audit protection. 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.
(7) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02 Reserved.
SECTION 6. DEPRECIATION
OR AMORTIZATION (§ 56(a)(1),
56(g)(4)(A), 167, 168, 197, 280F(a),
1400I, 1400L, or 1400N(d), OR FORMER
§ 168)
.01 Impermissible to permissible
method of accounting for depreciation or
amortization.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from
an impermissible to a permissible method

623

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).
(b) Taxpayer has not adopted a method
of accounting for the item of property.
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.
(c) Inapplicability. This change does
not apply to:

September 8, 2008

(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

September 8, 2008

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

624

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 prop-

2008–36 I.R.B.

erty, 20-year property, or water utility
property (other than real property with a
class life of more than 12.5 years).
(2) Certain scope limitations inapplicable. The scope limitations in sections
4.02(4) and 4.02(5) of this revenue procedure are not applicable to this change.
(3) Additional requirements. A taxpayer also must comply with the following:
(a) Permissible method of accounting
for depreciation. 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.
(b) Statements required. 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

2008–36 I.R.B.

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

625

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.”
(4) Section 481(a) adjustment. 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

September 8, 2008

Code (for example, § 263A) at the beginning of the year of change.
(5) Basis adjustment. 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).
(6) Meaning of depreciation allowable.
(a) In general. 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).
(b) Section 56(a)(1) property. 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.
(c) Section 56(g)(4)(A) property. 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.
(d) Section 167 property. 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 de-

September 8, 2008

preciation 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.
(e) Section 168 property. 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

626

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.
(f) Section 197 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).
(g) Former § 168 property. 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)).
(h) Qualified revitalization building.
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 onehalf 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

2008–36 I.R.B.

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.
(7) Concurrent automatic change. 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.
(8) Designated automatic accounting
method change number. 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.

2008–36 I.R.B.

(9) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02 Permissible to permissible method
of accounting for depreciation.
(1) Description of change. 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.
(2) Scope.
(a) Applicability. 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.
(b) Inapplicability. 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);

627

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

September 8, 2008

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-yearsdigits method, the sinking fund method,
or the declining-balance method using a
different proper percentage of the straightline rate;
(c) a change from the sum-of-the-yearsdigits 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);

September 8, 2008

(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).
(5) Additional requirements. A taxpayer also must comply with the following:
(a) Basis for depreciation. 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).
(b) Rate of depreciation. The rate of
depreciation for property changed to:
(i) the straight-line or the sum-of-theyear-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

628

(ii) the declining-balance method of depreciation must be based on the useful life
of the property measured from the placedin-service date, and not the expected remaining life from the date the change becomes effective.
(c) Regulatory requirements.
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.
(d) Public utility property. 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.
(6) Section 481(a) adjustment. 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.
(7) Concurrent automatic change. 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.
(8) Designated automatic accounting
method change number. 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.
(9) Contact information. For further
information regarding a change under

2008–36 I.R.B.

this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.03 Sale, lease, or financing transactions.
(1) Description of change and scope.
(a) Applicability. 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.
(b) Inapplicability. This change does
not apply to:
(i) a rent-to-own dealer that wants to
change its method of accounting for rentto-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.
(2) Manner of making 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.
(3) No audit protection. A taxpayer
does not receive audit protection under

2008–36 I.R.B.

section 7 of this revenue procedure in connection with this change.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under
this section, contact Edward Schwartz at
202–622–4960 (not a toll-free call).
.04 Modern golf course greens.
(1) Description of change. 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.
(2) Additional requirements. 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.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

629

number for a change under section 6.04
of this APPENDIX is “11.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.05 Original and replacement tire costs.
(1) Description of change. 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.
(2) Designated automatic accounting
method change number. 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.
(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.06 Depreciation of gas pump canopies.
(1) Description of change. 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.
(2) Additional requirements. 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

September 8, 2008

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.
(3) Designated automatic accounting
method change number. 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.
(4) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.07 Depreciation of utility assets.
(1) Description of change. 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.
(2) Designated automatic accounting
method change number. 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.
(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.08 Depreciation of cable TV fiber optics.
(1) Description of change. 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.

September 8, 2008

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.
(2) Designated automatic accounting
method change number. 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.
(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.09 Change in general asset account
treatment due to a change in the use of
MACRS property.
(1) Description of change. 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).
(2) Manner of making change.
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).
(3) Designated automatic accounting
method change number. 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.

630

(4) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.10 Change in method of accounting for
depreciation due to a change in the use of
MACRS property.
(1) Description of change. 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).
(2) Designated automatic accounting
method change number. 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.
(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.11 Depreciation of qualified non-personal use vans and light trucks.
(1) Description of change.
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.
(2) Designated automatic accounting
method change number. 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.

2008–36 I.R.B.

(3) Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.12 Depreciation of qualified revitalization building in the expanded area of a renewal community.
(1) Description of change. 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.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Time for making 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.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).

2008–36 I.R.B.

.13 Loss disallowance rule upon a disposition of an insurance contract acquired
in an assumption re-insurance transaction.
(1) Description of change.
(a) Applicability. 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.
(b) Inapplicability. 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.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Additional requirements.
The
change in accounting method results in
items being omitted or duplicated and
thus, an adjustment under § 481(a) must
be computed.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information.
For further information regarding a change under this section, contact Mark Weiss at
202–622–7750 (not a toll-free call).
.14 Income forecast method of depreciation.
(1) Description of change. 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.

631

(2) Scope.
(a) Applicability. 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.
(b) Inapplicability. 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.
(3) Time for making the change. 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.
(4) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(5) Additional requirements.
(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.
(6) Designated automatic accounting
method change number. 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.
(7) Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.15 GO Zone additional first year depreciation deduction.

September 8, 2008

(1) Description of change. 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.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Time for making the 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.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.16 Additional first year depreciation
deduction.
(1) Description of change.
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

September 8, 2008

final regulations. See section 3 of Rev.
Proc. 2006–43, 2006–2 C.B. 849, 850, for
the applicability and inapplicability of this
change.

ciation allowable, in the year of change (as
defined in section 6.17(4) of this APPENDIX) or any prior taxable year.

(2) Scope limitations inapplicable. 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.

(a) Applicability. 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.

(3) Time for making the change. 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.
(4) Designated automatic accounting
method change number. 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.
(5) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.17 Impermissible to permissible
method of accounting for depreciation or
amortization for disposed depreciable or
amortizable property.
(1) Description of change. 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 depre-

632

(2) Scope.

(b) Inapplicability. 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

2008–36 I.R.B.

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.
(3) Manner of making the change.
(a) Change made on an original return
for the year of change. 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.
(b) Change made on an amended return
for the year of change. 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.

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.
(7) Section 481(a) adjustment period.
A taxpayer must take the § 481(a) adjustment into account in the year of change.
(8) Designated automatic accounting
method change number. 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.
(9) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.18 Depreciation of MACRS property
acquired in a like-kind exchange or as a
result of an involuntary conversion.

(5) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.

(1) Description of change. 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.

(6) Filing requirements. Notwithstanding section 6.02(3)(a) of this revenue

(2) Applicability. The change in section
6.18(1)(a) of this APPENDIX applies only

(4) Year of change. 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.

2008–36 I.R.B.

633

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).
(3) Designated automatic accounting
method change number. 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.
(4) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.19 Lessor improvements abandoned at
termination of lease.
(1) Description of change.
(a) Applicability. 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).
(b) Inapplicability. 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.
(2) Designated automatic accounting
method change number. 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.

September 8, 2008

(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.20 Repairable and reusable spare
parts.
(1) Description of change.
(a) Applicability. 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.
(b) Inapplicability. 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

September 8, 2008

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.
(2) Establishment of pools. 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 re-

634

pairable and reusable spare parts included
in that pool.
(3) Permissible methods of identifying
disposed repairable and reusable spare
parts. 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.
(4) Manner of making change.
(a) Establishment of pools. 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.

2008–36 I.R.B.

(b) Identifying disposed repairable and
reusable spare parts. 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.
(5) Concurrent automatic change.
(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.
(6) Designated automatic accounting
method change number. 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.
(7) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.21 Land.
(1) Description of change.

2008–36 I.R.B.

(a) Applicability. 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.
(b) Inapplicability. This change does
not apply to:
(i) any depreciable land improvement;
or
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 6.21 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).
(2) Concurrent automatic change. 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.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under section 6.21 of this APPENDIX
is “119.” See section 6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.22 Kansas additional first year depreciation.
(1) Description of change.
(a) In general. This change applies to
a taxpayer that wants to make a change in
method of accounting for depreciation for
qualified Recovery Assistance (RA) property placed in service by the taxpayer on or
after May 5, 2007, during the taxable year
that includes May 5, 2007, to claim the

635

Kansas additional first year depreciation
deduction for a class of property for which
the taxpayer did not claim the Kansas additional first year depreciation deduction
on the taxpayer’s timely filed federal tax
return for the taxable year that includes
May 5, 2007, provided the taxpayer did not
make an election not to deduct the Kansas
additional first year depreciation for the
class of property pursuant to section 4.03
of Notice 2008–67, 2008–32 I.R.B 307.
For further details, see section 3.03 of Notice 2008–67
(b) Return for the first taxable year succeeding the taxable year that includes May
5, 2007, not filed on or before August 11,
2008. If, on or before August 11, 2008,
the taxpayer did not file its federal tax return for the first taxable year succeeding
the taxable year that includes May 5, 2007,
and the taxpayer owns the property as of
the first day of this taxable year, the taxpayer may file Form 3115 to make the
change in method of accounting under section 6.22 of this APPENDIX with the taxpayer’s timely filed federal tax return for
the first taxable year succeeding the taxable year that includes May 5, 2007.
(c) Return for the first taxable year succeeding the taxable year that includes May
5, 2007, filed on or before August 11, 2008.
If on or before August 11, 2008, the taxpayer filed its federal tax return for the
first taxable year succeeding the taxable
year that includes May 5, 2007, the taxpayer may make the change in method of
accounting under section 6.22 of this APPENDIX either by:
(i) Filing an amended federal tax return
(or a qualified amended return) on or before December 31, 2009, for the first taxable year succeeding the taxable year that
includes May 5, 2007, attaching a Form
3115 to the amended federal tax return,
and including the statement “Filed Pursuant to Notice 2008–67” at the top of any
amended return (or qualified amended return); or
(ii) Filing a Form 3115 with the taxpayer’s timely filed federal tax return for
the second taxable year succeeding the taxable year that includes May 5, 2007, if the
taxpayer owns the property as of the first
day of this taxable year.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this

September 8, 2008

revenue procedure do not apply to this
change.
(3) Designated automatic accounting
method change. The designated automatic
accounting method change number for a
change under section 6.22 of this APPENDIX is “115.” See section 6.02(4) of this
revenue procedure.
(4) Contact Information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
SECTION 7. RESEARCH AND
EXPERIMENTAL EXPENDITURES
(§ 174)
.01 Changes to a different method or
different amortization period.
(1) Description of change.
(a) This change applies to a taxpayer
that wants to change the treatment of expenditures that qualify as research and experimental expenditures under § 174.
(b) Section 174 and the regulations
thereunder provide the specific rules for
changing a method of accounting under § 174 for research and experimental
expenditures. Under § 174, a taxpayer
may treat research and experimental expenditures that are paid or incurred by
the taxpayer during the taxable year in
connection with the taxpayer’s trade or
business as expenses under § 174(a) or
as deferred expenses amortizable ratably
over a period of not less than 60 months
under § 174(b). Pursuant to § 1.174–1,
research and experimental expenditures
that are not treated as expenses or deferred
expenses under § 174 must be treated as
capital expenditures. Further, § 1.174–1
provides that the expenditures to which
§ 174 applies may relate either to a general
research program or to a particular project.
(c) If a taxpayer has not treated research and experimental expenditures as
expenses under § 174(a), § 174(a)(2)(B)
and § 1.174–3(b)(2) provide that the taxpayer may, with consent, adopt the expense method at any time.
(d) If a taxpayer has treated research
and experimental expenditures as expenses under § 174(a), § 174(a)(3) and
§ 1.174–3(b)(3) provide that the taxpayer
may, with consent, change to a different
method of treating research and experimental expenditures.

September 8, 2008

(e) If a taxpayer has treated research
and experimental expenditures as deferred
expenses under § 174(b), § 174(b)(2) and
§ 1.174–4(b)(2) provide that the taxpayer
may, with consent, change to a different
method of treating research or experimental expenditures or to a different period of
amortization for deferred expenses.
(2) Scope.
(a) Applicability. This change applies
to any taxpayer that is changing:
(i) from treating research and experimental expenditures for a particular
project or projects as expenses under
§ 174(a) to treating such expenditures as
deferred expenses under § 174(b), or vice
versa;
(ii) to a different period of amortization for research and experimental expenditures for a particular project or projects
that are being treated as deferred expenses
under § 174(b); or
(iii) from treating research and experimental expenditures for a particular
project or projects as expenses under
§ 174(a) or deferred expenses under
§ 174(b) to treating such expenditures as a
capital expenditure under § 263(a), or vice
versa.
(b) Inapplicability. This change does
not apply to:
(i) a portion of the research and experimental expenditures paid or incurred
for a particular project during the year
of change or in subsequent taxable years
(that is, the change must apply to all of
such expenditures; see §§1.174–3(a) and
1.174–4(a)(5));
(ii) a change in the treatment of computer software costs under Rev. Proc.
2000–50, 2000–2 C.B. 601, as modified
by Rev. Proc. 2007–16, 2007–4 I.R.B.
358 (but see section 9 of this APPENDIX
for making that change); or
(iii) a change in the treatment of Year
2000 costs under Rev. Proc. 97–50,
1997–2 C.B. 525 (but see section 9.02 of
this APPENDIX for making that change).
(3) Scope limitations clarified. The
scope limitation under section 4.02(7) of
this revenue procedure is applied on a
project by project basis.
(4) Manner of making change.
(a) This change is made on a cut-off basis and applies to all research and experimental expenditures paid or incurred for
a particular project or projects on or af-

636

ter the beginning of the year of change.
See section 2.06 of this revenue procedure and § 174(b)(2), and §§ 1.174–3(a),
1.174–3(b)(2), and 1.174–4(a)(5) for more
information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(b)
The
requirement
under
§§ 1.174–3(b)(2), 1.174–3(b)(3), and
1.174–4(b)(2) to file an application no
later than the end of the first taxable
year in which the different method or
different amortization period is to be used
is waived for this change. However, see
section 6 of this revenue procedure for
filing requirements applicable under this
revenue procedure.
(c) The consent granted under this
revenue procedure satisfies the consent
required under §§ 174(a)(2)(B), 174(a)(3),
and 174(b)(2), and §§ 1.174–3(b)(2),
1.174–3(b)(3), and 1.174–4(b)(2).
(5) Additional requirement. A taxpayer
must attach to its Form 3115 a written
statement providing:
(a) the information required in
§ 1.174–3(b)(2) if the taxpayer is changing to treating research and experimental
expenditures as expenses under § 174(a);
(b) the information required in
§ 1.174–3(b)(3) if the taxpayer is changing
from treating research and experimental
expenditures as expenses under § 174(a);
or
(c) the information required in
§ 1.174–4(b)(2) if the taxpayer is changing
from treating research and experimental
expenditures as deferred expenses under
§ 174(b) or is changing to a different
period of amortization for research and
experimental expenditures being treated
as deferred expenses under § 174(b).
(6) No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in connection with this change.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 7.01
of this APPENDIX is “17.” See section
6.02(4) of this revenue procedure.
(8) Contact information. For further
information regarding a change under
this section, contact Grant Anderson at
202–622–4930 (not a toll-free call).

2008–36 I.R.B.

.02 Reserved.
SECTION 8. ELECTIVE EXPENSING
PROVISIONS (§§ 179B(a), 181, and
194(b))
.01 Treatment of qualified film and television productions.
(1) Description of change. This change
applies to a taxpayer that wants to elect
under § 181 to treat the production costs
(as defined in § 1.181–1T(a)(3)) of any
qualified film or television production (as
defined in § 181(d) and § 1.181–3T) as an
expense that is not chargeable to a capital
account and to deduct the cost.
(2) Scope.
(a) Applicability.
This change in
method of accounting applies to:
(i) A qualified film or television production commencing after October 22,
2004, and before January 1, 2009. A
production commences when principal
photography begins with respect to the
production; and
(ii) A taxpayer that, before June 15,
2006, filed its federal tax return for the taxable year in which production costs were
first paid or incurred, and that wants to
make a § 181 election for that taxable year.
(b) Inapplicability. This change does
not apply to:
(i) Any qualified film or television
production, the production cost of which
exceeds $15,000,000 (or $20,000,000 for
the areas specified in § 181(a)(2)(B)). See
§ 1.181–1T(b) for further guidance; or
(ii) A taxpayer that made the § 181
election for the taxable year in which the
production costs were first paid or incurred by filing an amended federal tax
return for that taxable year, and all subsequent affected taxable year(s), on or
before November 15, 2006.
(3) Time for making the change. The
change in method of accounting under
section 8.01 of this APPENDIX must be
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure are not applicable to
this change.

2008–36 I.R.B.

(5) Additional requirements.
(a) The change in accounting method
results in items being omitted or duplicated
and thus, an adjustment under § 481(a)
must be computed; and
(b) The statement and information referenced in § 1.181–2T(e)(3) must be attached to the Form 3115.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.01
of this APPENDIX is “100.” See section
6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.02 Expensing of certain reforestation
expenditures.
(1) Description of change. This change
applies to a taxpayer that wants to elect,
under § 194(b), to treat up to $10,000 of
reforestation expenditures with respect to
any qualified timber property as an expense that is not chargeable to a capital account and to deduct those expenditures in
the year paid or incurred under § 194(b).
The remainder of the reforestation expenditures for the year may be amortized over
84 months under § 194(a).
(2) Scope.
(a) Applicability. This change in accounting method applies to:
(i) Reforestation expenditures paid or
incurred after October 22, 2004, with respect to qualified timber property; and
(ii) A taxpayer that, before June 15,
2006, filed its federal tax return for a taxable year ending after October 22, 2004,
in which reforestation expenditures were
paid or incurred after October 22, 2004,
with respect to qualified timber property,
and that wants to make a § 194(b) election
for the reforestation expenditures paid or
incurred during that taxable year.
(b) Inapplicability. This change does
not apply to:
(i) Reforestation expenditures paid or
incurred on or before October 22, 2004; or
(ii) A taxpayer that made the § 194(b)
election for the taxable year in which reforestation expenditures were paid or incurred after October 22, 2004, with respect
to qualified timber property, by filing an
amended federal tax return for that taxable

637

year, and all subsequent affected taxable
year(s), on or before November 15, 2006.
(3) Time for making the change. The
change in method of accounting under
section 8.02 of this APPENDIX must be
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(5) Additional requirements.
(a) The guidance about creating and
maintaining separate timber accounts for
each qualified timber property referenced
in section C.2. of Notice 2006–47, 2006–1
C.B. 892, 895, must be followed.
(b) The statement required under Interim Rules in section C.2. of Notice
2006–47, 2006–1 C.B. 892, 896, must be
attached to the Form 3115.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.02
of this APPENDIX is “101.” See section
6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under this
section, contact Jennifer Bernardini at
202–622–3110 (not a toll-free call).
.03 Deduction for capital costs incurred
in complying with Environmental Protection Agency sulfur regulations.
(1) Description of change. This change
applies to a small business refiner (as defined in § 45H(c)(1)) that wants to elect
under § 179B(a) to deduct 75 percent of
the qualified capital costs (as defined in
§ 45H(c)(2)) that are paid or incurred by
the taxpayer during the taxable year.
(2) Scope.
(a) Applicability. This change in accounting method applies to a small business refiner that, before June 15, 2006,
filed its federal tax return for a taxable
year ending after December 31, 2002, in
which qualified capital costs were paid or
incurred after December 31, 2002, and that
wants to make a § 179B(a) election for all
qualified capital costs paid or incurred during that taxable year.
(b) Inapplicability. This change does
not apply to:

September 8, 2008

(i) Qualified capital costs paid or incurred on or before December 31, 2002;
(ii) A taxpayer that made the § 179B(a)
election for a taxable year ending after December 31, 2002, in which qualified capital costs were paid or incurred after December 31, 2002, by filing an amended
federal tax return for that taxable year, and
all subsequent affected taxable year(s), on
or before November 15, 2006; or
(iii) The election under § 179B(e).
(3) Time for making the change. The
change in method of accounting under
section 8.03 of this APPENDIX must be
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(5) Additional requirements.
(a) The 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 the
Interim Rules in section C.3. of Notice
2006–47, 2006–1 C.B. 892, 897, must be
attached to the Form 3115; and
(c) The basis of any property must
be reduced by the portion of the cost of
the property taken into account under the
§ 179B(a) election.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.03
of this APPENDIX is “102.” See section
6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under
this section, contact Nicole Cimino at
202–622–3110 (not a toll-free call).
SECTION 9. COMPUTER SOFTWARE
EXPENDITURES (§§ 162, 167, and 197)
.01 Computer software expenditures.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the costs of
computer software to a method described
in Rev. Proc. 2000–50, 2000–2 C.B.
601, as modified by Rev. Proc. 2007–16,
2007–4 I.R.B. 358. Section 5 of Rev. Proc.
2000–50 describes the methods applicable

September 8, 2008

to the costs of developing computer software. Section 6 of Rev. Proc. 2000–50 describes the method applicable to the costs
of acquired computer software. Section
7 of Rev. Proc. 2000–50 describes the
method applicable to leased or licensed
computer software. If a taxpayer treats the
costs of computer software in accordance
with the applicable method described in
Rev. Proc. 2000–50, the Service will not
disturb the taxpayer’s treatment of its costs
of computer software.
(2) Scope. This change applies to all
costs of computer software as defined in
section 2 of Rev. Proc. 2000–50. However, this change does not apply to any
computer software that is subject to amortization as an “amortizable section 197 intangible” as defined in § 197(c) and the
regulations thereunder, or to costs that a
taxpayer has treated as research and experimentation expenditures under § 174.
(3) Statement required. If a taxpayer
is changing to the method described in
section 5.01(2) of Rev. Proc. 2000–50,
the taxpayer must attach to its Form 3115
a statement providing the information required in section 8.02(2) of Rev. Proc.
2000–50.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 9.01
of this APPENDIX is “18.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02 Year 2000 costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for Year 2000
costs (as defined in Rev. Proc. 97–50,
1997–2 C.B. 525, as modified by Rev.
Proc. 2000–50, 2000–2 C.B. 601, as modified by Rev. Proc. 2007–16, 2007–4
I.R.B. 358) to conform to the method described in section 3 of Rev. Proc. 97–50.
Section 3 of Rev. Proc. 97–50 provides that Year 2000 costs fall within the
purview of Rev. Proc. 69–21, 1969–2 C.B.
303, superseded by Rev. Proc. 2000–50,
as modified by Rev. Proc. 2007–16, and
that the Service will not disturb a taxpayer’s treatment of its Year 2000 costs

638

as deductible expenses or capital expenditures if the taxpayer treats these costs in
accordance with Rev. Proc. 2000–50.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 9.02
of this APPENDIX is “120.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
SECTION 10. CAPITAL
EXPENDITURES (§ 263)
.01 Package design costs.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package design costs that are within the scope of
Rev. Proc. 97–35, 1997–2 C.B. 448, as
modified by Rev. Proc. 98–39, 1998–1
C.B. 1320, to one of the three alternative
methods of accounting for package design
costs described in section 5 of Rev. Proc.
97–35. The three alternative methods of
accounting for package design costs described are: (i) the capitalization method,
(ii) the design-by-design capitalization
and 60-month amortization method, and
(iii) the pool-of-cost capitalization and
48-month amortization method.
(b) Inapplicability. This change does
not apply to a taxpayer that wants to
change to the capitalization method for
costs of developing (or modifying) any
package design that has an ascertainable
useful life.
(2) Additional requirements. If a taxpayer is changing its method of accounting for package design costs to the capitalization method or the design-by-design
capitalization and 60-month amortization
method, the taxpayer must attach a statement to its timely filed Form 3115. The
statement must provide a description of
each package design, the date on which
each was placed in service, and the cost basis of each (as determined under sections
5.01(2) or 5.02(2) of Rev. Proc. 97–35).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

2008–36 I.R.B.

number for a change under section 10.01
of this APPENDIX is “19.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.02 Line pack gas or cushion gas.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for line pack gas
or cushion gas to a method consistent with
the holding in Rev. Rul. 97–54, 1997–2
C.B. 23. Rev. Rul. 97–54 holds that the
cost of line pack gas or cushion gas is a
capital expenditure under § 263, the cost
of recoverable line pack gas or recoverable cushion gas is not depreciable, and the
cost of unrecoverable line pack gas or unrecoverable cushion gas is depreciable under §§ 167 and 168.
(2) Additional requirements. A taxpayer that changes its method of accounting for unrecoverable line pack gas or
unrecoverable cushion gas under section
10.02 of this APPENDIX must change to
a permissible method of accounting for
depreciation for the cost of that gas.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.02
of this APPENDIX is “20.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.03 Removal costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for certain costs
incurred in the retirement and removal of
depreciable assets to conform with Rev.
Rul. 2000–7, 2000–1 C.B. 712.
(2) Additional requirements.
(a) Except for assets for which depreciation is determined in accordance with
§ 1.167(a)–11 (ADR), the taxpayer’s new
method of treating removal costs for assets
accounted for in a multiple asset account
must be consistent with the taxpayer’s
method of treating salvage proceeds. See
Rev. Rul. 74–455, 1974–2 C.B. 63. (See
section 6.02 of the APPENDIX of this
revenue procedure for changing a tax-

2008–36 I.R.B.

payer’s present method of treating salvage
proceeds.)
(b) If this change involves assets
that are public utility property within
the meaning of § 168(i)(10) or former
§ 167(l)(3)(A), the taxpayer must comply
with the terms and conditions in section
6.01(3)(b)(v) of this APPENDIX.
(3) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.03
of this APPENDIX is “21.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.04 Distributor commissions.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from
currently deducting 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) to a method of capitalizing and amortizing distributor commissions using the
distribution fee period method, the 5-year
method, or the useful life method (all described in Rev. Proc. 2000–38).
(b) Inapplicability. This change does
not apply to an amortizable section 197 intangible (including any property for which
a timely election under § 13261(g)(2) of
the Revenue Reconciliation Act of 1993,
1993–3 C.B. 1, 128, was made).
(2) Manner of making change. This
change is made on a cut-off basis and applies only to distributor commissions paid
or incurred 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.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.04

639

of this APPENDIX is “47.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.05 Intangibles.
(1) Description of change. This change
applies to a taxpayer that wants to change
its treatment of an item to a method of
accounting permitted by §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b). See Rev.
Proc. 2006–12, 2006–1 C.B. 310, as modified by Rev. Proc. 2006–37, 2006–2 C.B.
499, for the specific requirements, information, and documentation required for
this change.
(2) Prior unauthorized change in
method of accounting. In certain circumstances, a taxpayer that made an unauthorized change in method of accounting for
an item the treatment of which is provided
for in §§ 1.263(a)–4, 1.263(a)–5, and
1.167(a)–3(b) is eligible for this change
only if the taxpayer amends prior federal
income tax returns to correct the unauthorized change in method of accounting. See
section 4.03 of Rev. Proc. 2006–12 for
details.
(3) Scope limitations. The 5-year prior
change scope limitation in section 4.02(7)
of this revenue procedure is modified for
this change in that the taxpayer does not
take into account a change in method of
accounting provided in §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b) requested
or made for a tax year ending on or before
December 31, 2005.
(4) Section 481(a) adjustment. In computing the § 481(a) adjustment for this
change, the taxpayer takes into account
only amounts paid or incurred in taxable
years ending on or after January 24, 2002.
See section 5 of Rev. Proc. 2006–12 for
detailed rules for computing the § 481(a)
adjustment and reporting it on Form 3115.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.05
of this APPENDIX is “78.” See section
6.02(4) of this revenue procedure.
(6) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).

September 8, 2008

.06 Rotable spare parts.
(1) Description of change. This change
applies to a taxpayer that maintains a pool
or pools of rotable spare parts that are
primarily used to repair customer-owned
(or customer-leased) equipment under
warranty or maintenance agreements, and
wants to change its method of accounting for the rotable spare parts to the safe
harbor method of accounting provided in
Rev. Proc. 2007–48, 2007–29 I.R.B. 110.
The taxpayer must meet the requirements
in section 4.01 of Rev. Proc. 2007–48 to
use this safe harbor method of accounting.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to a taxpayer that wants to make the change in
method of accounting for its first or second
taxable year ending on or after December
31, 2006, provided the taxpayer’s method
of accounting for rotable spare parts is not
an issue under consideration for taxable
years under examination, within the meaning of section 3.09 of this revenue procedure, at the time the Form 3115 is filed
with the national office.
(3) Change from safe harbor method.
A taxpayer that is required to change its
method of accounting from the safe harbor
method under section 5.06 of Rev. Proc.
2007–48, must make the change under section 21.09 of this APPENDIX.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.06
of this APPENDIX is “109.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.07 Repairable and reusable spare
parts.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting to treat repairable
and reusable spare parts as depreciable
property to conform with the holdings in
Rev. Rul. 69–200, 1969–1 C.B. 60, and
Rev. Rul. 69–201, 1969–1 C.B. 60. This
change applies to repairable and reusable
spare parts that: are owned by the taxpayer
at the beginning of the year of change; are

September 8, 2008

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. A
taxpayer making a change in method of
accounting under this section 10.07 of
the APPENDIX may treat its repairable
and reusable spare parts as tangible property for which depreciation is allowable
at the time that the related equipment is
placed in service by the taxpayer. The
method of computing depreciation for the
repairable and reusable spare parts is the
same method of computing depreciation
for the related equipment.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that is currently capitalizing and depreciating the cost of its repairable and reusable spare parts, or that
is currently capitalizing the cost of its repairable and reusable spare parts and treating these parts as nondepreciable property
(but see section 6.01 of this APPENDIX
for making a change from an impermissible to a permissible method of accounting
for depreciation);
(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 10.07 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
(iii) a taxpayer that is using an impermissible method of accounting for depreciation 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 of this APPENDIX.
(2) Additional requirements. In addition to the other filing requirements of this
revenue procedure, to change a method
of accounting under this section 10.07 of
the APPENDIX, a taxpayer must complete
Schedule E of Form 3115 for the repairable
and reusable spare parts and also provide

640

and attach the following to the completed
application:
(a) A description of the repairable and
reusable spare parts;
(b) A list of related equipment for which
the repairable and reusable spare parts are
acquired; and
(c) A complete description of the
method of computing depreciation (e.g.,
depreciation method, recovery period,
convention, and applicable 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) that the taxpayer
uses for the related equipment for which
the repairable and reusable spare parts are
acquired.
(3) Concurrent automatic change.
(a) 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.
(b) 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 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 makes this change
also may establish pools for the repairable
and reusable spare parts or may identify
disposed repairable and reusable spare
parts in accordance with section 6.20 of
this APPENDIX. A taxpayer that wants
to make both this change and the change
under section 6.20 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.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.07

2008–36 I.R.B.

of this APPENDIX is “121”. See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
SECTION 11. UNIFORM
CAPITALIZATION (UNICAP)
METHODS (§ 263A)
.01 Certain uniform capitalization
(UNICAP) methods used by resellers and
reseller-producers.
(1) Description of change.
(a) Applicability. This change applies
to:
(i) a small reseller of personal property that wants to change from a permissible UNICAP method to a permissible nonUNICAP inventory capitalization method
in any taxable year that it qualifies as a
small reseller;
(ii) a formerly small reseller that
wants to change from a permissible
non-UNICAP inventory capitalization
method to a permissible UNICAP method
in the first taxable year that it does not
qualify as a small reseller;
(iii) a reseller-producer that wants
to change from a permissible UNICAP
method for both its production and resale
activities to a permissible simplified resale
method described in § 1.263A–3(d)(3)
in any taxable year that it qualifies to
use a simplified resale method for both
its production and resale activities under
§ 1.263A–3(a)(4) (resellers with de minimis production activities);
(iv) a reseller-producer that wants to
change from a permissible simplified resale method described in § 1.263A–3(d)(3)
for both its production and resale activities
to a permissible UNICAP method for both
its production and resale activities in the
first taxable year that it does not qualify
to use a simplified resale method for both
its production and resale activities under
§ 1.263A–3(a)(4);
(v) a reseller that wants to change its
permissible UNICAP method to include a
special reseller cost allocation rule; or
(vi) a reseller that wants to change to
a UNICAP method (or methods) specifically described in the regulations (and
make any attendant changes in the identification of costs subject to § 263A and

2008–36 I.R.B.

including any special reseller cost allocation rules) in any taxable year, other
than the first taxable year, that it does not
qualify as a small reseller. However, this
does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (or vice versa)
under the simplified resale method.
(b) Inapplicability.
(i) Self-constructed assets.
This
change does not apply to a taxpayer
that wants to use either the simplified
service cost method or the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D) and
1.263A–2(b)(2)(i)(D).
(ii) Historic absorption ratio. This
change does not apply to a taxpayer that
wants to make an historic absorption
ratio election under §§ 1.263A–2(b)(4)
or 1.263A–3(d)(4), or to a taxpayer
that wants to revoke an election to
use the historic adsorption ratio with
the simplified resale method (see
§ 1.263A–3(d)(4)(iii)(B)), including a taxpayer using the simplified resale method
with an historic adsorption ratio that wants
to change to a UNICAP method specifically described in the regulations that
does not include the historic absorption
ratio. However, this change applies to a
small reseller that wants to change from
the historic absorption ratio with the simplified resale method to a permissible
non-UNICAP inventory capitalization
method under section 11.01(1)(a)(i) of this
APPENDIX.
(c) Scope limitations inapplicable. The
scope limitations of section 4.02 of this
revenue procedure do not apply to this
change.
(2) Definitions.
(a) “Reseller” means a taxpayer that acquires real or personal property described
in § 1221(a)(1) for resale.
(b) “Small reseller” means a reseller
whose average annual gross receipts for
the three immediately preceding taxable
years (or fewer, if the taxpayer has not
been in existence for the three preceding
taxable years) do not exceed $10,000,000.
See § 263A(b)(2)(B).
(c) “Formerly small reseller” means a
reseller that no longer qualifies as a small
reseller.

641

(d) “Producer” means a taxpayer that
produces real or tangible personal property.
(e) “Reseller-producer” means a taxpayer that is both a producer and a reseller.
(f) “Permissible UNICAP method”
means a method of capitalizing costs that
is permissible under § 263A.
(g) “A UNICAP method specifically
described in the regulations” includes the
simplified service cost method using a labor-based allocation ratio (§ 1.263A–1(h))
and the simplified resale method without an historic absorption ratio election
(§ 1.263A–3(d)), but does not include any
other reasonable allocation method within
the meaning of § 1.263A–1(f)(4).
(h) “Special reseller cost allocation rule” means the 90–10 de minimis
rule to allocate a mixed service department’s costs to property acquired
for resale (§ 1.263A–1(g)(4)(ii)), the
1/3 — 2/3 rule to allocate labor costs
of personnel to purchasing activities
(§ 1.263A–3(c)(3)(ii)(A)), and the 90–10
de minimis rule to allocate a dual-function
storage facility’s costs to property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)).
(i) “Permissible non-UNICAP inventory capitalization method” means a
method of capitalizing inventory costs that
is permissible under § 471.
(3) Section 481(a) adjustment period. Beginning with the year of change,
a taxpayer changing its method of accounting for costs pursuant to sections 11.01(1)(a)(i), 11.01(1)(a)(iii), or
11.01(1)(a)(iv) of this APPENDIX generally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over the same number of
taxable years, not to exceed four, that the
taxpayer used its former method of accounting. A taxpayer changing its method
of accounting for costs pursuant to sections 11.01(1)(a)(ii), 11.01(1)(a)(v) or
11.01(1)(a)(vi) of this APPENDIX generally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over four taxable years.
See section 5.04(3) of this revenue procedure for exceptions to this general rule.
(4) Multiple changes. A taxpayer that
wants to make both this change and another change in method of accounting for
the same year of change must comply with
the ordering rules of § 1.263A–7(b)(2).

September 8, 2008

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.01
of this APPENDIX is “22.” See section
6.02(4) of this revenue procedure.

(6) Example. The following example
illustrates the principles of section 11.01
of this APPENDIX for small resellers and
formerly small resellers.
Assume X, a corporate reseller of personal property, incorporated January 2, 2001, adopted a taxable

AVERAGE Annual Gross
Receipts for the Three Taxable
Years Immediately Preceding the
Current Taxable Year

Current
Taxable
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Furthermore, X which adopted the dollar-value
LIFO inventory method, has the following LIFO in-

$

0
5,000,000
6,000,000
7,000,000
11,000,000
11,000,000
9,000,000
8,000,000
11,000,000
12,000,000
ventory balances determined without considering the
effects of the UNICAP method:

2005
2006
2007
2008
2009
2010
X was required by § 263A to change to the
UNICAP method for 2005 because its average annual
gross receipts for the three taxable years immediately
preceding 2005 were $11,000,000, which exceeded
the $10,000,000 ceiling permitted by the small
reseller exception. Assume that X was required to
capitalize $80,000 of “additional § 263A costs” to
the cost of its 2005 beginning inventory because

year ending December 31. X determines that its average annual gross receipts for the three taxable years
(or fewer, if applicable) immediately preceding taxable years 2001 through 2010 are as shown in the table below:

Beginning

Ending

$1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000

$1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
1,600,000

of this change in inventory method. In addition, X
was required to include one-fourth of the § 481(a)
adjustment when computing taxable income for each
of the four taxable years beginning with 2005. Thus,
X was required to include a $20,000 positive § 481(a)
adjustment in its 2005 taxable income.
X elected to use the simplified resale method
without an historic absorption ratio election under

§ 1.263A–3(d)(3) for determining the amount of additional § 263A costs to be capitalized to each LIFO
layer. Assume that X was required to add $10,000
of additional § 263A costs to the cost of its 2005
ending inventory because of the $100,000 increment
for 2005.

X’s 2005 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
2005 Increment
Additional § 263A Costs in Beginning Inventory
Additional § 263A Costs in 2005 Increment
Total 2005 Ending Inventory

$1,000,000
100,000
80,000
10,000
$1,190,000

X’s Unamortized 2005 § 481(a) Adjustment:
2005 § 481(a) Adjustment
Amount included in 2005 Taxable Income
Unamortized 2005 § 481(a) Adjustment–12/31/05

Because X failed to satisfy the small reseller exception for 2006, X was required to continue using
the UNICAP method for its inventory costs. Further-

September 8, 2008

more, X was required to include $20,000 of the unamortized 2005 positive § 481(a) adjustment in 2006
taxable income. Assume that X was required to add

642

$80,000
<20,000>
$60,000

$10,000 of additional § 263A costs to the cost of its
2006 ending inventory because of the $100,000 increment for 2006.

2008–36 I.R.B.

X’s 2006 Ending Inventory:
Beginning Inventory (With UNICAP costs)
2006 Increment
Additional § 263A Costs in 2006 Increment
Total 2006 Ending Inventory

$1,190,000
100,000
10,000
$1,300,000

X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/05
Amount Included in 2006 Taxable Income
Unamortized 2005 § 481(a) Adjustment–12/31/06

Because X satisfies the small reseller exception for 2007, X may change voluntarily from the
UNICAP method to a permissible non-UNICAP
inventory capitalization method under section 11.01
of this APPENDIX. To reflect the removal of the

additional § 263A costs from the cost of its 2007 beginning inventory, X must compute a corresponding
§ 481(a) adjustment, which is a negative $100,000
($1,200,000 - $1,300,000). The entire amount of
this negative § 481(a) adjustment is included in the

$60,000
<20,000>
$40,000

computation of X’s taxable income for 2007. In
addition, X must include $20,000 of the unamortized
2005 § 481(a) adjustment in 2007 taxable income.

X’s 2007 Ending Inventory:
Beginning Inventory (With UNICAP costs)
2007 Increment
2007 § 481(a) Adjustment
Total 2007 Ending Inventory

$1,300,000
100,000
<100,000>
$1,300,000

X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–2/31/06
Amount included in 2007 Taxable Income
Unamortized 2005 § 481(a) Adjustment–12/21/07

$40,000
<20,000>
$20,000

X’s Unamortized 2007 § 481(a) Adjustment:
2007 § 481(a) Adjustment
Amount included in 2007 Taxable Income
Unamortized 2007 § 481(a) Adjustment–12/31/07

X also satisfies the small reseller exception for
2008 and, therefore, is not required to return to the

UNICAP method for 2008. X, however, must include

$<100,000>
100,000
$
0

$20,000 of the unamortized 2005 positive § 481(a)
adjustment in its 2008 taxable income.

X’s 2008 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
2008 Increment
Total 2008 Ending Inventory

$1,300,000
100,000
$1,400,000

X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/07
Amount in 2008 Taxable Income
Unamortized 2005 § 481(a) Adjustment–12/31/08

$20,000
<20,000>
$
0

X’s Unamortized 2009 § 481(a) Adjustment:
In 2009, X fails to satisfy the small reseller exception and, therefore, must return to the UNICAP
method as provided under section 11.01 of this APPENDIX. X changes to the simplified resale method
without a historic absorption ratio election under
§ 1.263A–3(d)(3). Assume that X must capitalize

2008–36 I.R.B.

$120,000 of additional § 263A costs to the cost of its
2009 beginning inventory because of this change in
inventory method. Because X used a non-UNICAP
method for two taxable years prior to 2009, the § 481
spread period for the positive §481(a) adjustment is
two years. Therefore, X must include one-half of

643

the § 481(a) adjustment ($60,000) when computing
taxable income for 2009 and 2010. Assume that
X must add $10,000 of additional § 263A costs to
the cost of its 2009 ending inventory because of the
$100,000 increment for 2009.

September 8, 2008

X’s 2009 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
2009 Increment
Additional § 263A costs in Beginning Inventory
Additional § 263A costs in 2009 Increment
Total 2009 Ending Inventory

$1,400,000
100,000
120,000
10,000
$1,630,000

X’s Unamortized 2009 § 481(a) Adjustment:
2009 § 481 Adjustment
Amount included in 2009 Taxable Income
Unamortized 2009 § 481(a) Adjustment–12/31/09

Because X fails to satisfy the small reseller exception for 2010, X must continue using the UNICAP
method for its inventory costs. Furthermore, X is re-

quired to include $60,000 of the unamortized 2009
positive § 481(a) adjustment in 2010 taxable income.
Assume that X is required to add $10,000 of addi-

$120,000
<60,000>
$60,000

tional § 263A costs to the cost of its 2010 ending inventory because of the $100,000 increment for 2010.

X’s 2010 Ending Inventory:
Beginning Inventory (With UNICAP costs)
2010 Increment
Additional § 263A Costs in 2010 Increment
Total 2010 Ending Inventory

$1,630,000
100,000
10,000
$1,740,000

X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment–12/31/09
Amount included in 2010 Taxable Income
Unamortized 2009 § 481(a) Adjustment–12/31/10

(7) Contact information. For further information regarding a change under this
section, contact Donna Crawford or Kari
Fisher at 202–622–4970 (not a toll-free
call).
.02 Certain uniform capitalization
(UNICAP) methods used by producers and
reseller-producers.
(1) Description of change.
(a) Applicability. This change applies to a producer (as defined in section 11.01(2)(d) of this APPENDIX) or
a reseller-producer (as defined in section 11.01(2)(e) of this APPENDIX) that
wants to change to a UNICAP method (or
methods) specifically described in the regulations and includes any changes in the
identification of costs subject to § 263A
made in connection therewith. However,
this does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (or vice versa)
under the simplified production method.
(b) Inapplicability. 1/3 This change does
not apply to a producer or reseller-producer that wants to revoke an election
to use the historic absorption ratio with
the simplified production method (see

September 8, 2008

§ 1.263A–2(b)(4)(iii)(B)), including a
taxpayer using the simplified production
method with an historic absorption ratio
changing to a UNICAP method specifically described in the regulations that does
not include the historic absorption ratio.
This change also does not apply to a taxpayer that wants to use either the simplified service cost method of the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D)
and 1.263A–2(b)(2)(i)(D). Also, this
change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capitalization.
(2) Definition. A “UNICAP method
specifically described in the regulations” includes the 90–10 de minimis
rule to allocate a mixed service department’s costs to production or resale
activities (§ 1.263A–1(g)(4)(ii)), the
1/3 — 2/3 rule to allocate labor costs
of personnel to purchasing activities
(§ 1.263A–3(c)(3)(ii)(A)), the 90–10 de
minimis rule to allocate a dual-function
storage facility’s costs to property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)),
the specific identification method

644

$60,000
<60,000>
$
0

(§ 1.263A–1(f)(2)), the burden rate
method (§ 1.263A–1(f)(3)), the standard cost method (§ 1.263A–1(f)(3)),
the
direct
reallocation
method
(§ 1.263A–1(g)(4)(iii)(A)), the step-allocation method (§ 1.263A–1(g)(4)(iii)(B)),
the simplified service cost method
(§ 1.263–1(h)) (with either a labor-based
allocation ratio or a production cost
allocation ratio), and the simplified
production method without the historic
absorption ratio election (§ 1.263A–2(b)),
but does not include any other reasonable
allocation method within the meaning of
§ 1.263A–1(f)(4).
(3) Multiple changes. A taxpayer that
wants to make both this change and another change in method of accounting in
the same year of change must comply with
the ordering rules of § 1.263A–7(b)(2).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.02
of this APPENDIX is “23.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Donna Crawford

2008–36 I.R.B.

or Kari Fisher at 202–622–4970 (not a
toll-free call).
.03 Change to no longer capitalize research and experimental expenditures under § 263A.
(1) Description of change. The change
applies to a taxpayer who no longer wants
to capitalize research and experimental expenditures to inventory under § 263A and
the regulations thereunder. A taxpayer
making this change must be in compliance
with all other aspects of § 263A and the
regulations thereunder and must have an
effective election under either § 174(a) or
(b).
(2) Manner of making change. A taxpayer must attach to its Form 3115 the following representations:
(a) “The § 174 costs that are the subject
of this Form 3115 filed under section 11.03
of the APPENDIX of Rev. Proc. 2008–52
and will not be capitalized to inventory under § 263A and the regulations thereunder
are costs that are subject to the taxpayer’s
effective election under [Insert, as appropriate: § 174(a) or § 174(b)] and the regulations thereunder” and
(b) “All § 174 costs that will be removed from inventory costs, have been
identified as § 174 costs at the time that the
costs were capitalized to inventory under
§ 263A and the regulations thereunder.”
(3) No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in connection with this change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.03
of this APPENDIX is “24.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further information regarding a change under this
section, contact Donna Crawford or Kari
Fisher at 202–622–4970 (not a toll-free
call).
.04 Impact fees.
(1) Description of change. This change
applies to a taxpayer that incurs impact
fees as defined in Rev. Rul. 2002–9,
2002–1 C.B. 614, in connection with the
construction of a new residential rental
building that wants to capitalize the costs
to the building under §§ 263(a) and 263A.

2008–36 I.R.B.

See Rev. Rul. 2002–9 for further information.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.04
of this APPENDIX is “25.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under
this section, contact Cheryl Oseekey at
202–622–4970 (not a toll-free call).
.05 Change to capitalizing environmental remediation costs under § 263A.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for environmental remediation costs from a method that
does not comply with the holding in Rev.
Rul. 2004–18, 2004–1 C.B. 509, to capitalizing them to inventory under § 263A.
(2) Concurrent automatic changes. A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided
the taxpayer enters the designated automatic change numbers for both changes
on the appropriate line on that Form 3115,
and complies with the ordering rules of
§ 1.263A–7(b)(2).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.05
of this APPENDIX is “77.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact John Faron at
202–622–4930 (not a toll-free call).
.06 Change in allocating environmental
remediation costs under § 263A.
(1) Description of change. This change
applies to a taxpayer that capitalizes environmental remediation costs to inventory
under § 263A, but allocates these costs to
inventory using a method of accounting
that does not comply with the holding in
Rev. Rul. 2005–42, 2005–2 C.B. 67, and
wants to change to allocating these costs
to inventory produced during the taxable
year in which the costs are incurred under
§ 263A. See Rev. Rul. 2005–42 for further
information.

645

(2) Concurrent automatic changes. A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A–7(b)(2).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.06
of this APPENDIX is “92.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact John Faron at
202–622–4930 (not a toll-free call).
SECTION 12. LOSSES, EXPENSES
AND INTEREST WITH RESPECT
TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)
.01 Change to comply with § 267.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of § 267,
which disallows or defers certain deductions attributable to transactions between
related taxpayers. However, this change
applies to a change for stated interest
only to the extent the stated interest is
qualified stated interest (as defined in
§ 1.1273–1(c)).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 12.01
of this APPENDIX is “26.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Steve Gee at
202–622–4970 (not a toll-free call).
.02 Reserved.
SECTION 13. DEFERRED
COMPENSATION (§ 404)
.01
Change
§ 404(a)(11).

to

comply

with

September 8, 2008

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to comply with
§ 404(a)(11). Section 404(a)(11) provides
that, for purposes of determining under
§ 404 whether compensation of an employee is deferred compensation and when
deferred compensation is paid, no amount
is treated as received by the employee, or
paid, until it is actually received by the
employee. Section 404(a)(11) overturns
the decision in Schmidt Baking Co., Inc.
v. Commissioner, 107 T.C. 271 (1996), in
which the court held that a § 83(a) income
inclusion event upon securitization of vacation and severance pay benefits with a
letter of credit constitutes receipt of those
benefits by employees for purposes of determining whether an employer’s deduction for the benefits is subject to § 404. See
Notice 99–16, 1999–1 C.B. 842.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Section 481(a) adjustment period.
A taxpayer must take the § 481(a) adjustment into account ratably over three
taxable years beginning with the year of
change.
(4) No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in connection with this change.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.01
of this APPENDIX is “27.” See section
6.02(4) of this revenue procedure.
(6) Contact information. For further
information regarding a change under this
section, contact Maryellen Simpson at
202–622–6030 (not a toll-free call).
.02 Deferred compensation.
(1) Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of accounting
to treat bonuses or vacation pay as follows (see § 404(a)(5) and § 1.404(b)–1T,
Q&A 2):
(a) Applicability.
(i) Bonuses.
(A) Bonuses not subject to capitalization under § 263A. If by the end of the tax-

September 8, 2008

able year all the events have occurred that
establish the fact of the liability to pay a
bonus and the amount of the liability can
be determined with reasonable accuracy
(see § 1.446–1(c)(1)(ii)), and the bonus is
otherwise deductible, but the bonus is received by the employee after the 15th day
of the 3rd calendar month after the end of
that taxable year, to treat the bonus as deductible in the taxable year of the employer
in which or with which ends the taxable
year of the employee in which the bonus is
includible in the gross income of the employee; or
(B) Bonuses that are subject to capitalization under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
a bonus and the amount of the liability can
be determined with reasonable accuracy
(see § 1.446–1(c)(1)(ii)), and the bonus
is otherwise deductible (without regard to
§ 263A), but the bonus is received by the
employee after the 15th day of the 3rd calendar month after the end of that taxable
year, to treat the bonus as capitalizable
(within the meaning of § 1.263A–1(c)(3))
in the taxable year of the employer in
which or with which ends the taxable year
of the employee in which the bonus is
includible in the gross income of the employee.
(ii) Vacation pay.
(A) Vacation pay not subject to capitalization under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
vacation pay and the amount of the liability
can be determined with reasonable accuracy (see § 1.446–1(c)(1)(ii)), and the vacation pay is otherwise deductible but the
vacation pay is received by the employee
after the 15th day of the 3rd calendar month
after the end of that taxable year, to treat
the vacation pay as deductible in the taxable year of the employer in which the vacation pay is paid to the employee; or
(B) Vacation pay that is subject to capitalization under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
vacation pay and the amount of the liability
can be determined with reasonable accuracy (see § 1.446–1(c)(1)(ii)), and the vacation pay is otherwise deductible (without regard to § 263A), but the vacation pay

646

is received by the employee after the 15th
day of the 3rd calendar month after the end
of that taxable year, to treat the vacation
pay as capitalizable (within the meaning
of § 1.263A–1(c)(3)) in the taxable year of
the employer in which the vacation pay is
paid to the employee.
(b) Inapplicability. This change does
not apply to the extent that it is also described in section 13.01 of this APPENDIX.
This change also does not apply to a taxpayer that is required under § 263A and
the regulations thereunder to capitalize the
costs with respect to which the taxpayer
wants to change its method of accounting under this section 13.02 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).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.02
of this APPENDIX is “28.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under this
section, contact Maryellen Simpson at
202–622–6030 (not a toll-free call).
.03 Grace period contributions.
(1) Description of change. This change
applies to a taxpayer that wants to cease
deducting contributions made during the
§ 404(a)(6) grace period to a qualified cash
or deferred arrangement within the meaning of § 401(k) or to a defined contribution plan as matching contributions with
the meaning of § 401(m) when the contributions are attributable to compensation
earned by plan participants after the end
of a taxable year as required by Rev. Rul.
2002–46, 2002–2 C.B. 117, as modified by
Rev. Rul. 2002–73, 2002–2 C.B. 805.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.03
of this APPENDIX is “29.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under
this section, contact James Holland at

2008–36 I.R.B.

202–283–9699 or Carlton Watkins at
202–283–9625 (not toll-free calls).
SECTION 14. METHODS OF
ACCOUNTING (§ 446)
.01 Change in overall method from the
cash method to an accrual method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
overall method of accounting from the
cash receipts and disbursements (cash)
method to an accrual method, with or
without a “special method” as defined respectively in sections 14.01(3)(a), (b), and
(e) of this APPENDIX, if subsequent to
this change, the taxpayer will be using an
overall accrual method of accounting (that
is, all items of income and expense are
accounted for using an accrual method).
A taxpayer changing its overall method
of accounting to an accrual method under
this section 14.01 of the APPENDIX may
also adopt the recurring item exception for
one or more types of recurring items. A
taxpayer that wants to change its method
of accounting for one or more items of
income or expense, but not its overall
method of accounting, may be eligible to
make such change(s) using section 14.09
of this APPENDIX.
If the year of change is the first taxable
year the taxpayer is required by § 448 to
change from the cash method (first § 448
year) and the taxpayer qualifies to make
this change under the automatic consent
procedures of § 1.448–1(g) and (h)(2) as
well as this revenue procedure, the taxpayer must comply with both the provisions of § 1.448–1(h)(2) and the requirements of this revenue procedure.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that will not use an “overall accrual method of accounting” subsequent to this change under section 14.01 of
this APPENDIX;
(ii) a taxpayer that is required by § 447
to change to an accrual method when the
year of change is the first taxable year
the taxpayer is required to change to that
method;
(iii) a cooperative organization described in § 501(c)(12), 521, or 1381;

2008–36 I.R.B.

(iv) an individual taxpayer, except for
activities conducted as a sole proprietorship;
(v) a taxpayer that is required by §§ 446
and 471 and §§ 1.446–1(a)(4)(i) and
1.471–1 to use an inventory method in the
year of change. However, the taxpayer
qualifies to make the change to an overall
accrual method under this section 14.01
of this APPENDIX when in the year of
change either:
(A) the taxpayer adopts or changes to
a proper inventory method or continues to
use a proper inventory method that it had
used in the taxable year immediately prior
to the year of change but only when:
(1) the taxpayer is a small reseller
within the meaning of § 1.263A–3(a)
and, if the taxpayer also has production activities, those activities qualify
under the de minimis presumption of
§ 1.263A–3(a)(2)(iii);
(2) the taxpayer is a reseller within the
meaning of § 263A and the regulations
thereunder that qualifies to use the simplified resale method under § 1.263A–3(d)
and the taxpayer either adopts or changes
to that method in the year of change or continues its use of that method from the taxable year immediately prior to the year of
change; or
(3) the taxpayer is a producer of real
or tangible personal property described
in § 1.263A–2 that adopts in the year of
change a “UNICAP method specifically
described in the regulations” within the
meaning of section 14.01(3)(d) of this
APPENDIX. (For purposes of this section
14.01(1)(b)(v)(A)(3) of the APPENDIX,
a method not listed in section 14.01(3)(d)
may not be adopted or changed in the year
of change); or
(B) the taxpayer continues to use
the proper inventory method and proper
UNICAP method that it had used in the
taxable year immediately prior to the year
of change and the taxpayer is a producer
of real or tangible personal property
described in § 1.263A–2;
(vi) a taxpayer that is either required
to or voluntarily wants to use a “special
method of accounting” in the year of
change regardless of whether a change to
that special method is requested in that
year. However, the taxpayer can request
its change to an overall accrual method
under this section 14.01 of the APPENDIX when (a) the change to the special

647

method of accounting is permitted to be
changed automatically either under this
revenue procedure or any other Code, regulation, or administrative provision, and
(b) the change to the special method of
accounting is requested for the identical
taxable year of the change requested under
this section 14.01 of the APPENDIX if
the taxpayer is required to use the special
method of accounting; and
(vii) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes such changes so that the same overall accrual method is used for each such
trade or business beginning with the year
of change.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02(6) of
this revenue procedure do not apply to a
change in method of accounting request
made under section 14.01 of this APPENDIX when the taxpayer changed to
the overall cash method within the previous 5 taxable years (including the year
of change) either under the provisions of
Rev. Proc. 2001–10, 2001–1 C.B. 272 or
Rev. Proc. 2002–28, 2002–1 C.B. 815.
(3) Definitions.
(a) Cash method of accounting is
the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(b) Accrual method of accounting is
the method identified by § 446(c)(2) and
§§ 1.446–1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(c) Recurring item exception is the
method described in § 461(h)(3) and
§ 1.461–5.
(d) UNICAP method specifically described in the regulations is one of the
following:
(i) the specific identification method
within the meaning of § 1.263A–1(f)(2);
(ii) the burden rate method within the
meaning of § 1.263A–1(f)(3);
(iii) the standard cost method within the
meaning of § 1.263A–1(f)(3);
(iv)
the
direct
reallocation
method within the meaning of
§ 1.263A–1(g)(4)(iii)(A);
(v) the step-allocation method within
the meaning of § 1.263A–1(g)(4)(iii)(B);
(vi) the simplified service cost method
within the meaning of § 1.263A–1(h); and

September 8, 2008

(vii) the simplified production method
without the historic absorption ratio election within the meaning of § 1.263A–2(b).
(e) Special method of accounting within
the meaning of this section 14.01 of the
APPENDIX is a method of accounting,
other than the cash method, expressly
permitted by the Code, regulations, or
guidance published in the IRB that deviates from the tax accrual accounting rules
of §§ 451 and 461 and the regulations
thereunder. For example, the installment
method of accounting under § 453, the
mark-to-market method under § 475, a
long-term contract method such as the
percentage of completion method, and the
deferral method of Rev. Proc. 2004–34,
2004–1 C.B. 991, used to account for advance payments are special methods of
accounting. In contrast, application of the
all-events test under a specific set of facts
is not a special method of accounting. See,
for example, Rev. Rul. 69–314, 1969–1
C.B. 139 (concerning the treatment of retainages).
(f) Overall accrual method of accounting within the meaning of this section
14.01 of the APPENDIX is a method of
accounting where, but for the use of a
“special method of accounting,” all items
of income and expense are accounted for
using an accrual method.
(4) Manner of making change.
(a) Section 481(a) adjustment. A taxpayer changing its method of accounting
under this section 14.01 of the APPENDIX must compute a § 481(a) adjustment.
This adjustment must reflect the account
receivables, account payables, inventory,
and any other item determined to be necessary in order to prevent items from being duplicated or omitted. However, the
adjustment does not include any item of
income accrued but not received that was
worthless or partially worthless (within the
meaning of § 166(a)) on the last day of
the year immediately prior to the year of
change.
(b) Concurrent change to a special
method of accounting not permitted to be
made under this revenue procedure. A
taxpayer, that can not change to an overall accrual method of accounting using
this section 14.01 of the APPENDIX because the taxpayer is seeking to make a
concurrent change to a special method of
accounting not permitted automatically

September 8, 2008

under this revenue procedure, may request
both changes by filing one Form 3115
under Rev. Proc. 97–27 (or any successor). Only one user fee per taxpayer will
be required when a Form 3115 is filed for
both changes.
(c) Adoption of recurring item exception. The taxpayer must attach to its Form
3115 a statement describing the types of liabilities for which the recurring item exception will be used.
(5) Coordination with section 33.01
of this APPENDIX for short-term obligations. When a taxpayer subject to § 1281
is changing its method of accounting for
interest income on short-term obligations
as part of the change to an overall accrual method, the taxpayer must request
the change for the interest income under
section 33.01 of this APPENDIX. Section
14.01 will govern the request for change in
method of accounting to an overall accrual
method. The taxpayer must timely file
individual Forms 3115 for each change
requested.
(6) Concurrent automatic change to the
deferral method for advance payments. A
taxpayer that wants to make both a change
to an overall accrual method under this
section 14.01 of the APPENDIX and an
automatic change to the deferral method
for advance payments under Rev. Proc.
2004–34 (see section 15.07 of this APPENDIX) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.01
of this APPENDIX for other than a taxpayer’s first § 448 year is “122.”
The designated automatic accounting
method change number for a change under section 14.01 of this APPENDIX for
the taxpayer’s first § 448 year is “123.”
Entering designated automatic accounting
method change number “123” on the appropriate line on the Form 3115 fulfills
the requirement of § 1.448–1(h)(2) to type
or print “Automatic Change to Accrual
Method — Section 448” at the top of page
1 of the Form 3115. See section 6.02(4) of
this revenue procedure.

648

(8) Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.02 Multi-year insurance policies for
multi-year service warranty contracts.
(1) Description of change.
(a) Applicability. This change applies
to a manufacturer, wholesaler, or retailer of
motor vehicles or other durable consumer
goods that wants to change its method of
accounting for insurance costs paid or incurred to insure its risks under multi-year
service warranty contracts to the method
described in section 14.02(2) of this APPENDIX. Multi-year service warranty
contracts to which this change applies
include only those separately priced contracts sold by a manufacturer, wholesaler,
or retailer also selling the motor vehicles
or other durable consumer goods (to the
ultimate customer or to an intermediary)
underlying the contracts. The classification of goods as “durable consumer goods”
for purposes of this change depends on the
common usage of the goods, rather than
the purchaser’s actual intended use of the
goods.
(b) Inapplicability. This change does
not apply to a taxpayer that covers its risks
under its multi-year service warranty contracts through arrangements not constituting insurance.
(2) Description of method. If a taxpayer
purchases a multi-year service warranty
insurance policy (in connection with its
sale of multi-year service warranty contracts to customers) by paying a lump-sum
premium in advance, the taxpayer must
capitalize the amount paid or incurred
and may only obtain deductions for that
amount by prorating (or amortizing) it over
the life of the insurance policy (whether
the cash method or an accrual method of
accounting is used to account for service
warranty transactions).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.02
of this APPENDIX is “31.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Erika Reigle at
202–622–4950 (not a toll-free call).

2008–36 I.R.B.

.03 Taxpayers changing to overall cash
method.
(1) Description of change. This change
applies to either:
(a) a taxpayer (other than a taxpayer described in § 448(a)(3) or a bank described
in section 14.12(2)(a) of this APPENDIX)
with “average annual gross receipts” (as
defined in section 5.01 of Rev. Proc.
2001–10, 2001–1 C.B. 272) of $1,000,000
or less that wants to change to the overall
cash receipts and disbursements (cash)
method of accounting as provided in Rev.
Proc. 2001–10; or
(b) a taxpayer (other than a taxpayer
described in § 448 or a bank described
in section 14.12(2)(a) of this APPENDIX) with “average annual gross receipts” (as defined in section 5.02 of Rev.
Proc. 2002–28, 2002–1 C.B. 815) of
$10,000,000 or less that wants to change
to the overall cash receipts and disbursements (cash) method of accounting as
provided in Rev. Proc. 2002–28.
(2) Scope limitations applicable. Rev.
Proc. 2001–10 and Rev. Proc. 2002–28
are modified to delete section 6.02(1)(a) of
Rev. Proc. 2001–10 and section 7.02(1)(a)
of Rev. Proc. 2002–28. Therefore, the
scope limitations in section 4.02 of this
revenue procedure (including the limitation regarding a prior change within five
taxable years of section 4.02(6)) and the requirements in sections 6.03 (regarding taxpayers under examination), 6.04 (regarding taxpayers before an appeals office) and
6.05 (regarding taxpayers before a federal
court) of this revenue procedure apply to a
change in method of accounting made under this section 14.03 of the APPENDIX.
(3) Manner of making change. See either Rev. Proc. 2001–10 or Rev. Proc.
2002–28 for additional guidance on the
computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4) Concurrent automatic change to
treat inventoriable items as nonincidental
materials and supplies under Rev. Proc.
2001–10 or Rev. Proc. 2002–28. A taxpayer that wants to make both a change to
the overall cash method under this section
14.03 of the APPENDIX and a change
to treat inventoriable items as materials
and supplies that are not incidental under § 1.162–3 (see section 21.03 of this
APPENDIX) for the same year of change
may file a single Form 3115 for both

2008–36 I.R.B.

changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(5) Banks changing to overall cash/hybrid method. This change does not apply
to a bank described in section 14.12(2)(a)
of this APPENDIX. However, such a bank
may be eligible to change to the overall
cash/hybrid method under section 14.12 of
this APPENDIX if it meets the requirements of that section.
(6) Designated automatic accounting method change number. The designated automatic accounting method
change number for a change under section 14.03(1)(a) of this APPENDIX is
“32.” The designated automatic accounting method change number for a change
under section 14.03(1)(b) of this APPENDIX is “33.” See section 6.02(4) of this
revenue procedure.
(7) Contact information.
For further information regarding a change under this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
.04 Nonaccrual-experience method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer within the scope of section 3.01(1) through (5) of Rev. Proc.
2006–56, 2006–2 C.B. 1169, that wants to
make certain changes to, from, or within a
nonaccrual-experience (NAE) method of
accounting.
(b) Inapplicability. This change does
not apply to a taxpayer within the scope
of section 3.01(6) through 3.01(8) of Rev.
Proc. 2006–56.
(2) Scope limitations inapplicable. 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 August 31, 2006. However, if the taxpayer’s NAE method of accounting is an issue under consideration
for taxable years under examination, before an appeals office, or before a federal
court, at the time the Form 3115 is filed
with the national office, the audit protection of section 7 of this revenue procedure
does not apply.
(3) Manner of making the change. A
change in method of accounting within
section 3.01(1), (2), (3), or (5) of Rev.

649

Proc. 2006–56 is made with a § 481(a)
adjustment. A change made under section 3.01(4) of Rev. Proc. 2006–56 is
made on a cut-off basis and the new applicable period applies only to the taxpayer’s nonaccrual-experience calculation
of its uncollectible amount for the year of
change and for subsequent years. Accordingly, a § 481(a) adjustment is neither permitted nor required for changes made under section 3.01(4) of Rev. Proc. 2006–56.
(4) Concurrent change to overall accrual method and a NAE method of accounting.
(a) First § 448 year. A taxpayer that is
within the scope of section 3.01(1) through
(5) of Rev. Proc. 2006–56 that wants to
change to a NAE method of accounting
(with or without also changing to a periodic system) and is required to change to
an overall accrual method of accounting
under § 448 and the regulations thereunder for the taxpayer’s first § 448 year must
request to make both changes by filing one
Form 3115, and the taxpayer must follow
the change in method of accounting provisions of § 1.448–1(h)(2). The taxpayer
must complete all applicable sections of
Form 3115, including sections that apply
to the change to an overall accrual method
and to the change to the NAE method,
and must enter the automatic accounting
method change numbers for both changes
on Form 3115.
(b) Concurrent automatic change to
overall accrual method. A taxpayer that is
within the scope of section 3.01(1) through
(5) of Rev. Proc. 2006–56 that wants to
make a change to a NAE method of accounting (with or without also changing
to a periodic system) under this section
14.04 of the APPENDIX and is eligible to
and wants to change to an overall accrual
method of accounting under Appendix
section 14.01 of this APPENDIX for the
same year of change, must file a single
Form 3115 for both changes. The taxpayer
must complete all applicable sections of
Form 3115, including sections that apply
to the change to an overall accrual method
and to the change to the NAE method,
and must enter the automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change

September 8, 2008

number for a change to the NAE method
of accounting under section 14.04 of this
APPENDIX is “35.”
The designated automatic accounting
method change number for a change to an
overall accrual method for the taxpayer’s
first § 448 year under the provisions of
§ 1.448–1(h)(2) is “34.” Entering the
designated automatic accounting method
change number “34” on the appropriate
line on the Form 3115 fulfills the requirement of § 1.448–1(h)(2) to type or print
“Automatic Change to Accrual Method
— Section 448” at the top of page 1 of
the Form 3115. See section 6.02(4) of this
revenue procedure.
(6) Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.05 Interest accruals on short-term consumer loans–Rule of 78’s method.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting from the Rule of
78’s method to the constant yield method
for stated interest (including stated interest that is original issue discount) on
short-term consumer loans described in
Rev. Proc. 83–40, 1983–1 C.B. 774,
which was obsoleted by Rev. Proc. 97–37,
1997–2 C.B. 455.
(2) Background.
(a) A short-term consumer loan is described in Rev. Proc. 83–40, provided:
(i) the loan is a self-amortizing loan that
requires level payments, at regular intervals at least annually, over a period not in
excess of five years (with no balloon payment at the end of the loan term); and
(ii) the loan agreement between the borrower and the lender provides that interest
is earned, or upon the prepayment of the
loan interest is treated as earned, in accordance with the Rule of 78’s method.
(b) In general, the Rule of 78’s method
allocates interest over the term of a loan
based, in part, on the sum of the periods’
digits for the term of the loan. See Rev.
Rul. 83–84, 1983–1 C.B. 97, for a description of the Rule of 78’s method.
(c) In general, the constant yield
method allocates interest and original issue discount over the term of a loan based
on a constant yield. See § 1.1272–1(b)
for a description of the constant yield
method. The Rule of 78’s method gener-

September 8, 2008

ally front-loads interest as compared to the
constant yield method.
(d) Rev. Proc. 83–40 was obsoleted
because, under §§ 1.446–2 and 1.1272–1
(which were effective for debt instruments
issued on or after April 4, 1994), taxpayers
generally must account for stated interest
and original issue discount on a debt instrument (loan) by using a constant yield
method. As a result, the Rule of 78’s
method is no longer an acceptable method
of accounting for federal income tax purposes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.05
of this APPENDIX is “71.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.06 Film producer’s treatment of certain
creative property costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for creative
property costs to the safe harbor method
provided by section 5 of Rev. Proc.
2004–36, 2004–1 C.B. 1063. This safe
harbor method of accounting applies to a
taxpayer engaged in the trade of business
of film production and to creative property
costs (as defined in section 2.01 of Rev.
Proc. 2004–36) properly written off by
the taxpayer under The American Institute
of Certified Public Accountants Statement
of Position (SOP) 00–2, “Accounting for
Producers or Distributors of Film.”
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.06
of this APPENDIX is “85.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.07 Deduction of incentive payments to
health care providers.
(1) Description of change. Rev. Proc.
2004–41, 2004–2 C.B. 90, permits an
insurance company that makes incentive
payments to health care providers to in-

650

clude those payments in discounted unpaid
losses without regard to § 404. A payment
by a taxpayer to a health care provider is a
“provider incentive payment,” and thus eligible for this treatment, if (a) the taxpayer
is taxable as an insurance company under
Part II of subchapter L; (b) the payment
is made pursuant to a written agreement
the purpose of which is to encourage participating health care providers to provide
quality health care to the taxpayer’s subscribers in a cost-efficient manner; (c) the
taxpayer’s liability for the payment is dependent on the attainment of one or more
preestablished goals during a performance
period consisting of not more than 12 consecutive months; (d) the terms of the arrangement pursuant to which the payment
is made are established unilaterally by
the taxpayer, and are not negotiated with
the health care providers; (e) the taxpayer
normally makes payments to health care
providers under the arrangement within 12
months after the close of the performance
period; (f) deferring the receipt of income
by the health care provider or otherwise
providing a tax benefit to the provider is
not a principal purpose of the arrangement; (g) the taxpayer records a liability
for the payment on its annual statement
filed for state regulatory purposes, and
includes this liability in the determination
of discounted unpaid losses under § 846;
and (h) the health care provider is not an
employee, and is not providing health care
as an agent, of the taxpayer. See Rev.
Proc. 2004–41.
(2) Scope. This procedure applies to
a taxpayer that wants to change to the
method of accounting for provider incentive payments, under which those payments are included in discounted unpaid
losses without regard to § 404.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.07
of this APPENDIX is “90.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under this
section, contact Josephine Firehock or Kay
Hossofsky, at 202–622–3970 (not a tollfree call).
.08 Change by bank for uncollected interest.

2008–36 I.R.B.

(1) Description of change.
This
change applies to a “bank” as defined in
§ 1.166–2(d)(4)(i) that: (1) uses an accrual method of accounting to determine
its taxable income for federal income tax
purposes; (2) is subject to supervision by
Federal authorities, or by state authorities
maintaining substantially equivalent standards; (3) has uncollected interest other
than interest described in § 1.446–2(a)(2);
and (4) has six or more years of collection experience. Under the safe harbor
method of accounting provided by section 4 of Rev. Proc. 2007–33, 2007–21
I.R.B. 1289, a bank determines for each
taxable year the amount of uncollected
interest (other than interest described in
§ 1.446–2(a)(2)) for which it is considered to have a reasonable expectancy of
payment by multiplying: (1) the total accrued (determined under § 1.446–2) but
uncollected interest for the year by, (2) the
bank’s “recovery percentage” (determined
under section 4.02 of Rev. Proc. 2007–33)
for that year. Solely for purposes of this
safe harbor, the bank is not considered
to have a reasonable expectancy of payment for the excess, if any, of the accrued
but uncollected interest over the expected
collection amount determined using the
bank’s recovery percentage. The bank
includes in gross income the portion of
accrued but uncollected interest for which
it has a reasonable expectancy of payment.
The bank excludes from income the portion of accrued but uncollected interest for
which it has no reasonable expectancy of
payment.
(2) Recovery percentage. Subject to the
limitations and conditions in Rev. Proc.
2007–33, sections 4.02(2), (3), and (4), a
bank determines its recovery percentage
for each taxable year by dividing: (a) total
payments that the bank received on loans
(including principal and interest) during
the 5 taxable years immediately preceding
the taxable year, by (b) total amounts that
were due and payable to the bank on loans
during the same 5 taxable years. The recovery percentage cannot exceed 100 percent and must be calculated to at least four
decimal places. The data used in the recovery percentage must take into account
acquisitions and dispositions. If a bank acquires the major portion of a trade or business of another person (predecessor) or the
major portion of a separate unit of a trade

2008–36 I.R.B.

or business of a predecessor, then in applying Rev. Proc. 2007–33 for any taxable
year ending on or after the acquisition, the
data from preceding taxable years of the
predecessor attributable to the portion of
the trade or business acquired, if available,
must be used in determining the bank’s recovery percentage. If a bank disposes of
a major portion of a trade or business or
the major portion of a separate unit of a
trade or business, and the bank furnished
the acquiring person the information necessary for the computations required by
Rev. Proc. 2007–33, then in applying
the revenue procedure for any taxable year
ending on or after the disposition, the data
from preceding taxable years attributable
to the disposed portion of the trade or business may not be used in determining the
bank’s recovery percentage.
(3) Scope limitations inapplicable.
The scope limitations in section 4.02 of
this revenue procedure do not apply to
a change made for either the bank’s first
or second taxable year ending on or after
December 31, 2006.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.08
of this APPENDIX is “108.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.09 Change from the cash method to an
accrual method for specific items.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer whose overall method of accounting is an accrual method of accounting but has identified a specific item or
items of income and expense that are being accounted for on the cash method of
accounting. This change does not apply
to a taxpayer that is changing its overall
method of accounting from cash to accrual.
Such a taxpayer may be eligible to change
to an overall accrual method using section
14.01 of this APPENDIX.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that will not have all
items of income and expense on an accrual

651

method subsequent to this change under
this section 14.09 of the APPENDIX;
(ii) a cooperative organization described in § 501(c)(12), 521, or 1381;
(iii) an individual taxpayer, except for
activities conducted as a sole proprietorship;
(iv) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes this change so that the identical
accrual method is used for each such trade
or business beginning with the year of
change;
(v) a change in method of accounting
for any payment liability described in
§ 1.461–4(g); and
(vi) any change that is specifically provided in another section of the APPENDIX
of this revenue procedure.
(2) Definitions.
(a) Cash method of accounting is
the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(b) Accrual method of accounting
is the method identified by § 446(c)(2)
and §§ 1.446–1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(3) Additional requirements. In addition to the other filing requirements of this
revenue procedure, to change a method of
accounting under this section 14.09 of the
APPENDIX, a taxpayer must fully and
completely describe each specific item for
which the change in method of accounting is being made and how the accrual
method applies to each item and list the
§ 481(a) adjustment for each item, if any,
associated with the change. The change
is fully and completely described if the
revenue or expense item is described with
specificity and how the all-events test (and
the economic performance requirement,
if applicable) applies to the item is described under the facts and circumstances
of the taxpayer’s trade or business. For
example, a taxpayer that merely states
that it is changing its accounting method
for advertising expenses from the cash
method to an accrual method, recites the
regulations under § 1.461–1(a)(2), and
enters the associated § 481(a) adjustment
has failed to describe fully and completely
the specific item for which the change
in method of accounting is being made.
In contrast, a taxpayer that states that it
is changing its method of accounting for

September 8, 2008

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.09
of this APPENDIX is “124.” See section
6.02(4) of this revenue procedure.

in lieu of the Form 3115 is authorized for
this change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “125”;
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual);
(iii) the year of change (both the beginning and ending dates); and
(iv) the information required under section 6.03 of Rev. Proc. 97–38, except that
the statement under section 6.03(2) (that
the taxpayer agrees to all of the terms and
conditions of the revenue procedure) also
should refer to Rev. Proc. 2008–52.

(5) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.10 Multi-year service warranty contracts.

(3) Additional requirement. A taxpayer
changing to the service warranty income
method of accounting under section 14.10
of this APPENDIX must satisfy the annual
reporting requirement set forth in section
6.04 of Rev. Proc. 97–38.

print advertising expenses from the cash
method to an accrual method, describes
all of the relevant facts related to the print
advertising expenses, and explains how
the all-events test applies to those facts
and when economic performance occurs
has fully and completely described the
item and the change. See section 6.02
of this revenue procedure for additional
filing requirements.

(1) Description of change.
(a) Applicability. This change applies
to an eligible accrual method manufacturer, wholesaler, or retailer of motor vehicles or other durable consumer goods that
wants to change to the service warranty
income method described in section 5 of
Rev. Proc. 97–38, 1997–2 C.B. 479. Under the service warranty income method, a
qualifying taxpayer may, in certain specified and limited circumstances, include a
portion of an advance payment related to
the sale of a multi-year service warranty
contract in gross income generally over the
life of the service warranty obligation.
(b) Inapplicability. This change does
not apply to a taxpayer outside the scope
of Rev. Proc. 97–38.
(2) Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off
basis and applies only to qualified advance
payments for multi-year service warranty
contracts 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.
(b)
In
accordance
with
§ 1.446–1(e)(3)(ii), the requirement of
§ 1.446–1(e)(3)(i) to file an application
on Form 3115 is waived and a statement

September 8, 2008

(4) Contact information.
For further information regarding a change under this section, contact Erika Reigle at
202–622–4950 (not a toll-free call).
.11 Overall cash method for specified
transportation industry taxpayers.
(1) Description of change. This change
applies to a “specified transportation industry taxpayer” with “average annual
gross receipts” of more than $10,000,000
and not in excess of $50,000,000 that
wants to change to the overall cash receipts and disbursement (cash) method.
(2) Definitions. For purposes of this
section 14.11 of this APPENDIX, the following definitions apply:
(a) Specified transportation industry taxpayer. A specified transportation
industry taxpayer is a taxpayer that satisfies the following criteria for the year of
change:
(i) The taxpayer reasonably identifies its “business” (as defined in section
14.11(2)(b) below) as being described in
one of the following NAICS subsector
codes (first three digits of the six-digit
NAICS codes):
(A) Air Transportation, Rail Transportation, Water Transportation, Truck
Transportation, Transit and Ground Passenger Transportation, or Scenic and
Sightseeing Transportation, within the
meaning of NAICS subsector codes
481–485 and 487; or

652

(B) Support Activities for Transportation within the meaning of NAICS subsector code 488.
(ii) The taxpayer is not prohibited from
using the overall cash method under § 448.
(b) Business. A taxpayer may use any
reasonable method of applying the relevant facts and circumstances to determine
its business. A business may consist of
several activities, which may or may not
be related. For example, a taxpayer engaged in transportation activities may provide various services such as transporting air cargo and then subsequently trucking the cargo throughout a metropolitan
area to warehouses and wholesale/retail
stores. However, each activity within a
taxpayer’s business must individually satisfy the description of a NAICS subsector
code in section 14.11(2)(a)(i)(A) or (B) of
this APPENDIX. For example, a sightseeing bus operator that sells box lunches in
connection with its tours is not a “specified
transportation industry taxpayer” because
each of its two activities (that is, sightseeing transportation and food sales) do not
each satisfy the description of a NAICS
subsector code in section 14.11(2)(a)(i)(A)
or (B) of this APPENDIX. Similarly, a
train operator who operates a dining car
where meals are served is not a “specified transportation industry taxpayer” because all of the activities of its “business”
fail to satisfy the descriptions of one or
more of the NAICS subsector codes in section 14.11(2)(a)(i)(A) or (B) of this APPENDIX. That is, while the rail service
satisfies the description of a NAICS subsector code in section 14.11(2)(a)(i)(A) of
this APPENDIX, the food service does not
satisfy the description of any NAICS subsector code in section 14.11(2)(a)(i)(A) or
(B) of this APPENDIX, and thus, the taxpayer’s business fails to meet the criteria
of section 14.11(2)(a)(i).
(c) Average annual gross receipts. A
taxpayer has average annual gross receipts
of more than $10,000,000 and not in excess of $50,000,000 if, for each prior taxable year ending on or after December 31,
2006, the taxpayer’s average annual gross
receipts for the three prior taxable-year period ending with the applicable prior taxable year are more than $10,000,000 and
do not exceed $50,000,000. If a taxpayer
has not been in existence for three prior
taxable years, the taxpayer must determine

2008–36 I.R.B.

its average annual gross receipts for the
number of years (including short taxable
years) that the taxpayer has been in existence. See § 448(c)(3)(A).
(d) Gross receipts. Gross receipts is defined consistent with § 1.448–1T(f)(2)(iv).
Thus, gross receipts for a taxable year
equal all receipts that must be recognized
under the method of accounting actually
used by the taxpayer for that taxable year
for federal income tax purposes. See also
§ 448(c)(3)(C).
(e) Aggregation of gross receipts. For
purposes of computing gross receipts under section 14.11(2)(d) of this APPENDIX, all taxpayers treated as a single employer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the taxpayers had employees) will be treated as
a single taxpayer. However, when transactions occur between taxpayers that are
treated as a single taxpayer by the previous
sentence, gross receipts arising from these
transactions will not be treated as gross receipts for purposes of the average annual
gross receipts limitation. See § 448(c)(2)
and § 1.448–1T(f)(2)(ii).
(f) Treatment of short taxable year. In
the case of a short taxable year, a taxpayer’s gross receipts must be annualized
by multiplying the gross receipts for the
short taxable year by 12 and then dividing
the result by the number of months in the
short taxable year. See § 448(c)(3)(B) and
§ 1.448–1T(f)(2)(iii).
(g) Treatment of predecessors. Any reference to a taxpayer in this section 14.11
of the APPENDIX includes a reference
to any predecessor of that taxpayer. See
§ 448(c)(3)(D).
(h) Cash method. The cash method
is the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.11
of this APPENDIX is “126.” See section
6.02(4) of this revenue procedure.
(4) Example.
Example. Taxpayer X is an LLC and taxed for
federal income tax purposes as a partnership. Taxpayer X does not have any C corporations as partners
and Taxpayer X is not a tax shelter within the meaning of § 448(d)(3). Taxpayer X’s business consists of

2008–36 I.R.B.

short-haul trucking among various cities within State
Y, which satisfies the description of the NAICS subsector code 484. Taxpayer X determines that its average annual gross receipts for each of the three prior
taxable years have been more than $10,000,000 and
not in excess of $50,000,000. Taxpayer X qualifies to
change to the overall cash method using this section
14.11 of the APPENDIX.

(5) Contact information.
For further information regarding a change under this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
.12 Change to overall cash/hybrid
method for certain banks.
(1) Description of change.
(a) Applicability. This change applies
to a bank described in section 14.12(2)(a)
of this APPENDIX that wants to change to
an overall cash/hybrid method described in
section 14.12(2)(b) of this APPENDIX.
(b) Inapplicability. A bank’s change to
an overall cash/hybrid method under this
section 14.12 of the APPENDIX does not
include any change in the accounting treatment of an item for which the bank uses
a special method (as described in section
14.12(2)(b) of this APPENDIX) before the
change, or is required to use a special
method, or will use a special method after
the change. No change in the accounting
treatment of such an item may be made under this section 14.12 of the APPENDIX.
Any change in the accounting treatment of
such an item must be made under an applicable section of this APPENDIX, under Rev. Proc. 97–27 (or any successor),
or under another guidance published in the
IRB, as appropriate.
(2) Definitions.
(a) Bank. A bank is described in this
section 14.12(2)(a) of the APPENDIX if
the bank:
(i) is a bank as defined in § 581;
(ii) is an S corporation as defined in
§ 1361(a)(1), or a qualified subchapter S
subsidiary as defined in § 1361(b)(3)(B);
and
(iii) has average annual gross receipts
(computed as described in section 14.12(5)
of this APPENDIX) not in excess of
$50,000,000.
(b) Overall cash/hybrid method. An
overall cash/hybrid method is the use of a
combination of accounting methods under
which some items of income or expense
are reported on the cash receipts and disbursements method (cash method) and

653

other items of income or expense are reported on methods permitted or required
for the accounting treatment of special
items (special methods).
(i) Cash method. The cash method
is the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(ii) Special methods. A few of the
special methods typically used by banks
include those provided for the accounting
treatment of the following items: securities held by a dealer in securities as
defined in § 475(c)(1) (the mark-to-market method of § 475); securities held
by a dealer in securities as defined in
§ 1.471–5 (inventories maintained under
§ 471 and § 1.446–1(c)(2)(i)); hedging
transactions (§ 1.446–4); contracts to
which § 1256 applies (§ 1256); original issue discount on debt instruments
(§§ 163(e) and 1271–1275); interest income (including acquisition discount and
original issue discount) on short-term
obligations (§§ 1281–1283); and stripped
debt instruments (§ 1286). For example, a
bank that regularly purchases or originates
mortgages in the ordinary course of its
business and engages in more than negligible sales of those mortgages generally
is a dealer in securities under § 475(c)(1)
and § 1.475(c)–1(c) and thus must use the
mark-to-market method of § 475 for mortgages and any other securities (as defined
in § 475(c)(2)) held by the bank.
(3) Additional condition of change. To
change to an overall cash/hybrid method
under this section 14.12 of the APPENDIX, a bank must comply with the following additional condition. In addition
to complying with the terms and conditions set forth in section 5 of this revenue
procedure, the bank must keep its books
and records for the year of change and
for subsequent taxable years on an overall cash/hybrid method allowed by this
section 14.12 of the APPENDIX. This
condition is considered satisfied if the
bank reconciles the results obtained under the method used in keeping its books
and records and those obtained under the
method used for federal income tax purposes pursuant to this section 14.12 of
the APPENDIX and the bank maintains
sufficient records to support such reconciliation. See also § 1.446–1(a)(4).

September 8, 2008

(4) Additional filing requirement. To
change to an overall cash/hybrid method
under this section 14.12 of this APPENDIX, a bank must include the following additional information on its Form 3115 filed
in accordance with section 6.02 of this revenue procedure. In addition to complying with all other applicable requirements,
the Form 3115 must describe each specific
item of the bank’s income or expense that
is affected by the change under this section 14.12 of the APPENDIX and, for each
such item, identify the following: the accounting method under which the bank reports that item for federal income tax purposes immediately before the change; and
the amount of the § 481(a) adjustment associated with changing that item to the
cash method under this section 14.12 of the
APPENDIX.
(5) Computation of average annual
gross receipts. For purposes of section
14.12(2)(a)(iii) of this APPENDIX, a
bank’s average annual gross receipts are
computed as described in this section
14.12(5) of the APPENDIX.
(a) Average annual gross receipts. A
bank has average annual gross receipts not
in excess of $50,000,000 if, for each prior
taxable year ending on or after December
31, 2006, the bank’s average annual gross
receipts for the three prior taxable-year period ending with the applicable prior taxable year do not exceed $50,000,000. If
a bank has not been in existence for three
prior taxable years, the bank must determine its average annual gross receipts for
the number of years (including short taxable years) that the bank has been in existence. See § 448(c)(3)(A).
(b) Gross receipts. Gross receipts is defined consistent with § 1.448–1T(f)(2)(iv).
Thus, gross receipts for a taxable year
equal all receipts that must be recognized
under the method of accounting actually
used by the bank for that taxable year for
federal income tax purposes. See also
§ 448(c)(3)(C).
(c) Aggregation of gross receipts. For
purposes of computing gross receipts under section 14.12(5)(b) of this APPENDIX, all taxpayers treated as a single employer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the taxpayers had employees) will be treated as a

September 8, 2008

single taxpayer (i.e., a single bank). However, when transactions occur between taxpayers that are treated as a single taxpayer
by the previous sentence, gross receipts
arising from these transactions will not be
treated as gross receipts for purposes of the
average annual gross receipts limitation.
See § 448(c)(2) and § 1.448–1T(f)(2)(ii).
(d) Treatment of short taxable year. In
the case of a short taxable year, a bank’s
gross receipts must be annualized by multiplying the gross receipts for the short
taxable year by 12 and then dividing the
result by the number of months in the
short taxable year. See § 448(c)(3)(B) and
§ 1.448–1T(f)(2)(iii).
(e) Treatment of predecessors. Any reference to a bank or taxpayer in section
14.12(5) of this APPENDIX includes a reference to any predecessor of that bank or
taxpayer. See § 448(c)(3)(D).
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.12
of this APPENDIX is “127.” See section
6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under
this section, contact Sharon Galm at
202–622–3930 (not a toll-free call).
.13 Change to overall cash method for
farmers.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer engaged in the trade or business of farming that wants to change to
the overall cash receipts and disbursement
(cash) method. If a taxpayer is engaged
in more than one trade or business, this
change applies only to the taxpayer’s trade
or business of farming.
(b) Inapplicability. This change does
not apply to a taxpayer that is required to
use an accrual method pursuant to § 447 or
prohibited from using the cash method by
§ 448.
(2) Definitions.
(a) Cash method of accounting is
the method defined by § 446(c)(1) and
§§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1). See also, §§ 1.61–4 and
1.162–12 for specific rules relating to
farmers.

654

(b) The trade or business of farming is a farming business as defined by
§ 263A(e)(4) and the regulations thereunder.
(3) Manner of making change. Generally, a taxpayer changing its method of
accounting under this section 14.13 of the
APPENDIX, must compute a § 481(a)
adjustment. However, if the taxpayer
is changing from the crop method, that
portion of the change shall be made using a cut-off basis under which expenses
reported on the crop method and not deducted prior to the year of change are
deducted in the year the related crop is
sold.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.13
of this APPENDIX is “128.” See section
6.02(4) of this revenue procedure.
(5) Contact information.
For further information regarding a change under this section, contact Robert Basso
at 202–622–4950 or Renay France at
202–622–5020 (not a toll-free call).
.14 Nonshareholder contributions to
capital under § 118.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for nontaxable
contributions to capital from excluding
certain payments received from gross income, by characterizing the payments as
nontaxable contributions to capital under
§ 118(a), to including the payments in
gross income. This change also applies to
a taxpayer that wants to change its method
of accounting of treating certain payments
received from including the payments in
gross income to excluding the payments
from income, as nontaxable contributions
to capital under § 118(a). See Rev. Rul.
2008–30, 2008–25 I.R.B. 1156.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.14
of this APPENDIX is “129.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further information regarding a change under this
section, contact Grant Anderson or Karla
Meola at 202–622–4930 (not a toll-free
call).

2008–36 I.R.B.

SECTION 15. TAXABLE YEAR OF
INCLUSION (§ 451)
.01 Accrual of interest on nonperforming loans.
(1) Description of change.
(a) This change applies to an accrual
method taxpayer that is a bank as defined
in § 581 (or whose primary business is
making or managing loans) and wants
to change its method of accounting to
comply with § 451 and § 1.451–1(a) for
qualified stated interest (as defined in
§ 1.1273–1(c)) on nonperforming loans.
(b) Section 1.451–1(a) requires income
to be accrued when all the events have
occurred that fix the right to receive the
income and the amount thereof can be
determined with reasonable accuracy. A
taxpayer may not stop accruing qualified
stated interest on a nonperforming loan
for federal income tax purposes merely
because payments on the loan are overdue by a certain length of time, such as
90 days, even if a federal, state, or other
regulatory authority having jurisdiction
over the taxpayer permits or requires that
the overdue interest not be accrued for
regulatory purposes.
(c) Under § 451 and § 1.451–1(a), a
taxpayer must continue accruing qualified
stated interest on any nonperforming loan
until either (i) the loan is worthless under § 166 and charged off as a bad debt,
or (ii) the interest is determined to be uncollectible. In order for interest to be determined uncollectible, the taxpayer must
substantiate, taking into account all the
facts and circumstances, that it has no reasonable expectation of payment of the interest. This substantiation requirement is
applied on a loan by loan basis.
(d) A taxpayer that changes its method
of accounting under section 15.01 of this
APPENDIX must do so for all of its loans.
(2) Section 481(a) adjustment.
In
general, the § 481(a) adjustment for a
method change under section 15.01 of
this APPENDIX represents the amount of
qualified stated interest, on the taxpayer’s
nonperforming loans outstanding as of
the beginning of the year of change, that
should have been accrued under § 451 and
§ 1.451–1(a) and was not accrued. Interest
for which the taxpayer, as of the beginning
of the year of change, has no reasonable
expectation of payment is not taken into

2008–36 I.R.B.

account in determining the amount of the
§ 481(a) adjustment.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.01
of this APPENDIX is “36.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.02 Advance rentals.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for advance
rentals (other than advance rentals subject
to § 467 and the regulations thereunder)
to include such advance rentals in gross
income in the taxable year received. See
§ 1.61–8(b).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.02
of this APPENDIX is “37.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.03 State or local income or franchise
tax refunds.
(1) Description of change. This change
applies to an accrual method taxpayer described in Rev. Rul. 2003–3, 2003–1 C.B.
252, that receives a state or local income
or franchise tax refund and wants to accrue
the refund in the year payment or notice of
the approval of the refund claim is received
(whichever is earlier).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.03
of this APPENDIX is “38.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.04 Capital cost reduction payments.
(1) Description of change. This change
applies to a taxpayer that purchases motor

655

vehicles subject to leases and assumes the
associated leases from the vehicles’ dealers and wants to use the safe harbor accounting method for capital cost reduction
(CCR) payments specified in Rev. Proc.
2002–36, 2002–1 C.B. 993.
(2) Audit protection. If a taxpayer complies with the requirements of Rev. Proc.
2002–36 and changes its method of accounting for CCR payments to the CCR
method provided in section 5 of Rev. Proc.
2002–36, the treatment of CCR payments
will not be raised as an issue in any taxable
year before the year of change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.04
of this APPENDIX is “39.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.05 Credit card annual fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
annual fees as described in Rev. Rul.
2004–52, 2004–1 C.B. 973, either to a
method that satisfies the all events test in
accordance with Rev. Rul. 2004–52 or
to the Ratable Inclusion Method for Credit
Card Annual Fees that is described in section 4 of Rev. Proc. 2004–32, 2004–1
C.B. 988. Rev. Rul. 2004–52 holds that
credit card annual fees are not interest for
federal income tax purposes and that such
fees are includible in income by the card
issuer when the all events test under § 451
is satisfied. Rev. Proc. 2004–32 provides
additional guidance for taxpayers seeking
to change their methods of accounting for
such fees, including guidance with respect
to the Ratable Inclusion Method for Credit
Card Annual Fees. However, a taxpayer
may make either change under this revenue procedure only if the taxpayer uses
an overall accrual method of accounting
for federal income tax purposes and issues
credit cards to, and receives annual fees
from, cardholders under agreements that
allow each cardholder to use a credit card
to access a revolving line of credit to make
purchases of goods and services and, if so
authorized, to obtain cash advances.

September 8, 2008

(2) Manner of making change. A taxpayer making this change must identify the
specific method to which the taxpayer is
changing. See also section 15.05(3) of this
APPENDIX.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.05
of this APPENDIX to a method that satisfies the all events test in accordance
with Rev. Rul. 2004–52 is “80.” The
designated automatic accounting method
change number for a change under section
15.05 of this APPENDIX to the Ratable
Inclusion Method for Credit Card Annual
Fees is “81.” See section 6.02(4) of this
revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.06 Credit card late fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
late fees to a method that treats these fees
as interest income that creates or increases
the amount of original issue discount
(OID) on the pool of credit card loans
to which the fees relate. This change is
available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer and that, for federal income
tax purposes, does not treat the credit card
purchase transactions of its cardholders as
creating either debt that is given in consideration for the sale or exchange of property
(within the meaning of § 1274) or debt that
is deferred payment for property (within
the meaning of § 483). See Rev. Proc.
2004–33, 2004–1 C.B. 989, for additional
guidance relating to this change.
(2) Additional requirements. A taxpayer making this change must be able to
demonstrate both of the following:
(a) the amount of any credit card late fee
charged to each cardholder by the taxpayer
is separately stated on the cardholder’s account when that fee is imposed; and
(b) under the applicable credit card
agreement governing each cardholder’s
use of the credit card, no amount identified as a credit card late fee is charged
for property or for specific services per-

September 8, 2008

formed by the taxpayer for the benefit of
the cardholder.
(3) Audit protection. The audit protection provided in connection with this
change is not a determination by the Commissioner that the taxpayer is properly accounting for any OID income on that pool
of credit card loans. Thus, for example,
the Service is not precluded from pursuing
the issue of whether a taxpayer is properly
accounting for its OID income (including
any OID income attributable to credit card
late fees) on its pool of credit card loans in
accordance with § 1272(a)(6).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.06
of this APPENDIX is “82.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.07 Advance payments.
(1) Description of change. This change
applies to a taxpayer using or changing to
an overall accrual accounting method that
receives advance payments, as defined in
Rev. Proc. 2004–34, 2004–1 C.B. 991,
and wants to use either the full inclusion
or deferral method, as described in Rev.
Proc. 2004–34. See also Announcement
2004–48, 2004–1 C.B. 998.
(2) Manner of making change. In lieu of
providing the information and documentation required by line 1 of Schedule B to
Form 3115, a taxpayer changing to the deferral method must also: (i) state whether
the taxpayer uses an applicable financial
statement and, if so, identify the type; (ii)
describe the bases used for deferral (that is,
the method the taxpayer uses in its applicable financial statement or how the taxpayer determines amounts earned, as applicable); and (iii) if the taxpayer makes an
allocation to which section 5.02(4) of Rev.
Proc. 2004–34 applies, include a statement
that the allocation method is based on payments the taxpayer regularly receives for
an item or items it regularly provides separately. See Rev. Proc. 2004–34 and Announcement 2004–48.
(3) Concurrent automatic change to an
overall accrual method. A taxpayer that
wants to make both a change to the defer-

656

ral method under this section 15.07 of the
APPENDIX and a change to an overall
accrual method under section 14.01 of this
APPENDIX for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.07 of
this APPENDIX to use the full-inclusion
method is “83.” The designated automatic
accounting method change number for a
change under 15.07 of this APPENDIX
to use the deferral method is “84.” See
section 6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.08 Credit card cash advance fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
cash advance fees to a method that treats
these fees as creating or increasing original issue discount (OID) on a pool of credit
card loans that includes the cash advances
that give rise to the fees. This change
is available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer both to make credit card purchase transactions and to obtain cash advances and that, for federal income tax purposes, does not treat the credit card purchase transactions of its cardholders as creating debt that is given in consideration for
the sale or exchange of property. See Rev.
Proc. 2005–47, 2005–2 C.B. 269, for additional guidance relating to this change.
(2) Other requirements. A taxpayer
making this change must be able to demonstrate both of the following:
(a) the amount of any credit card cash
advance fee charged to a cardholder by the
taxpayer is separately stated on the cardholder’s account when that fee is imposed;
and
(b) under the credit card agreement with
the cardholder, no amount identified as a
credit card cash advance fee is charged for
property or for specific services performed

2008–36 I.R.B.

by the taxpayer for the benefit of the cardholder.
(3) Audit protection. The audit protection provided in connection with this
change is not a determination by the Commissioner that the taxpayer is properly accounting for any OID income on that pool
of credit card loans. Thus, for example, the
Service is not precluded from pursuing the
issue of whether, under § 1272(a)(6), a taxpayer is correctly accounting for its OID
income (including any OID income attributable to credit card cash advance fees) on
its pool of credit card loans.

(3) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(4) Additional requirements. The statement described in section F.1, Interim
Rules, of Notice 2006–47, 2006–1 C.B.
892, should be attached to the Form 3115.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.09
of this APPENDIX is “103.” See section
6.02(4) of this revenue procedure.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.08
of this APPENDIX is “94.” See section
6.02(4) of this revenue procedure.

(6) Contact information. For further
information regarding a change under
this section, contact Michael Schmit at
202–622–4960 (not a toll-free call).
.10 Retainages.

(5) Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.09 Sales or dispositions to implement
Federal Energy Regulatory Commission or
state electric restructuring policy.

(a) Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for treating retainages under § 451 to a method
consistent with the holding in Rev. Rul.
69–314, 1969–1 C.B. 139.

(1) Description of change. This change
applies to a taxpayer that realizes qualified
gain from a qualifying electric transmission transaction and elects, under § 451(i),
to recognize all or part of the gain ratably
over an 8-year period beginning with the
year that includes the date of the qualifying electric transmission transaction.
(2) Scope.
(a) Applicability. This change applies
only to a qualified electric transmission
transaction occurring after October 22,
2004, for which a taxpayer filed its federal
tax return for the taxable year in which
the transaction occurred before June 15,
2006. This change may only be made for
the taxpayer’s first or second taxable year
ending on or after December 31, 2005.
(b) Inapplicability. This change does
not apply to a qualified electric transmission transaction occurring after October
22, 2004, for which a taxpayer filed its federal tax return for the taxable year in which
the transaction occurred before June 15,
2006, and filed on or before November 15,
2006, an amended federal tax return for the
taxable year in which the transaction occurred and all subsequent affected taxable
years.

2008–36 I.R.B.

(1) Description of change.

(b) Inapplicability. This change does
not apply to retainages that are received
under long-term contracts as defined in
§ 460.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.10
of this APPENDIX is “130.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
SECTION 16. OBLIGATIONS ISSUED
AT DISCOUNT (§ 454)
.01 Series E, EE or I U.S. savings bonds.
(1) Description of change. This change
applies to a cash method taxpayer that
wants to change its method of accounting for interest income on Series E, EE,
or I U.S. savings bonds. However, this
change only applies to a taxpayer that has
previously made an election under § 454
to report as interest income the increase
in redemption price on a bond occurring
in a taxable year, and that now wants to

657

report this income in the taxable year in
which the bond is redeemed, disposed of,
or finally matures, whichever is earliest.
(2) Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off basis and is effective for any increase in redemption price occurring after the beginning of the year of change for all Series E,
EE and I U.S. savings bonds held by the
taxpayer on or after the beginning of the
year of change. 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.
(b) In accordance with § 1.446–
1(e)(3)(ii), the requirement of § 1.446–
1(e)(3)(i) to file an application on Form
3115 is waived and a statement in lieu
of the Form 3115 is authorized for this
change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “131”;
(ii) the taxpayer’s name and employer
identification or social security number, as
applicable;
(iii) the year of change (both the beginning and ending dates);
(iv) the Series E, EE or I U.S. savings
bonds for which this change in accounting
method is requested;
(v) an agreement to report all interest
on any bonds acquired during or after the
year of change when the interest is realized
upon disposition, redemption, or final maturity, whichever is earliest; and
(vi) an agreement to report all interest
on the bonds acquired before the year of
change when the interest is realized upon
disposition, redemption, or final maturity,
whichever is earliest, with the exception of
any interest income previously reported in
prior taxable years.
(3) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02 Reserved.
SECTION 17. PREPAID
SUBSCRIPTION INCOME (§ 455)
.01 Prepaid subscription income.

September 8, 2008

(1) Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of accounting for prepaid subscription income to the
method described in § 455 and the regulations thereunder, including an eligible taxpayer that wants to make the “within 12
months” election under § 1.455–2.
(2) Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off basis and applies only to prepaid subscription
income received on or after the beginning
of the year of change. Any prepaid subscription income received prior to the year
of change is accounted for under the taxpayer’s former method of accounting. 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.
(b) In accordance with § 1.446–
1(e)(3)(ii), the requirement of § 1.446–
1(e)(3)(i) to file an application on Form
3115 is waived and a statement in lieu
of the Form 3115 is authorized for this
change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “132”;
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual);
(iii) the year of change (both the beginning and ending dates);
(iv) the information described in
§ 1.455–6(a), as required by § 1.455–6(b);
and
(v) if the taxpayer wants to make
a “within 12 months” election under
§ 1.455–6(c), the information described in
section § 1.455–6(c)(2).
(c) The consent granted under this revenue procedure satisfies the consent required under § 455(c)(3) and § 1.455–6(b).
(3) Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.02 Reserved.

SECTION 18. SPECIAL RULES FOR
LONG-TERM CONTRACTS (§ 460)
.01 Change from exempt-contract
method to percentage-of-completion
method.
(1) Description of change. This change
applies to a taxpayer that:
(a) is not required by § 460 and regulations thereunder to use the percentageof-completion method to account for its
long-term contracts, and
(b) wants to change its method of accounting for long-term contracts from an
exempt-contract method properly applied
(see § 1.460–4(c)) to the percentage-ofcompletion method (see § 1.460–4(b)).
(2) Manner of making change. This
change is made on a cut-off basis and applies only to long-term contracts entered
into on or after the beginning of the year
of change. See § 1.460–1(c)(2) for a description of when a contract is treated as
“entered into.” 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.
(3) No audit protection. The taxpayer
does not receive audit protection under
section 7 of this revenue procedure in connection with this change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 18.01
of this APPENDIX is “41.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Lore Cavanaugh at
202–622–4960 (not a toll-free call).
.02 Reserved.
SECTION 19. TAXABLE YEAR OF
DEDUCTION (§ 461)
.01 Timing of incurring liabilities for
employee compensation.
(1) Self-insured employee medical benefits.
(a) Description of change.
(i) Applicability.
This change applies to an accrual method taxpayer that
wants to change its method of accounting for self-insured liabilities (including

September 8, 2008

658

any amounts not covered by insurance,
such as a “deductible” amount under an
insurance policy) relating to employee
medical expenses that are not paid from a
welfare benefit fund within the meaning
of § 419(e) to a method as follows:
(A) If the taxpayer has a liability to
pay an employee for medical expenses incurred by the employee, the taxpayer will
treat the liability as incurred in the taxable year in which the employee files the
claim with the employer. See United States
v. General Dynamics Corp., 481 U.S. 239
(1987), 1987–2 C.B. 134.
(B) If the taxpayer has a liability to pay
a 3rd party for medical services provided
to its employees, the taxpayer will treat the
liability as incurred in the taxable year in
which the services are provided.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required under § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(1) 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).
(b) Amounts taken into account. Applicable provisions of the Code, regulations, and other guidance published in the
IRB prescribe the manner in which a liability that has been incurred is taken into
account. For example, for a taxpayer with
inventories, direct labor costs must be included in inventory costs and may be recovered through cost of goods sold. See
§ 1.263A–1(e)(2)(i)(B). A taxpayer may
not rely on the provisions of this section
19.01 of the APPENDIX to take a current
year deduction.
(c) Concurrent automatic change. 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.
(d) Designated automatic accounting method change number. The des-

2008–36 I.R.B.

ignated automatic accounting method
change number for a change under section
19.01(1) of this APPENDIX is “42.” See
section 6.02(4) of this revenue procedure.
(2) Bonuses.
(a) Description of change.
(i) Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
bonuses as incurred in the taxable year in
which all events have occurred that establish the fact of the liability to pay a
bonus and the amount of the liability can
be determined with reasonable accuracy
(see § 1.446–1(c)(1)(ii)). A taxpayer may
change its method of accounting under this
section 19.01(2) of the APPENDIX provided that:
(A) the terms of the bonus liability have
been made available to employees;
(B) the amount of the bonus is calculable as of year end; and
(C) the bonus is received by the employee by the 15th day of the 3rd calendar
month after the end of that taxable year.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required under § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(2) 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).
(b) Concurrent automatic change. 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) Designated automatic accounting method change number. The designated automatic accounting method
change number for a change under section
19.01(2) of this APPENDIX is “133.” See
section 6.02(4) of this revenue procedure.
(3) Vacation pay.

2008–36 I.R.B.

(a) Description of change.
(i) Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
vacation pay as incurred in the taxable year
in which all events have occurred that establish the fact of the liability to pay vacation pay, and the amount of the liability
can be determined with reasonable accuracy (see § 1.446–1(c)(1)(ii)). A taxpayer
may change its method of accounting under this section 19.01(3) of the APPENDIX provided that:
(A) the vacation pay vests in that taxable year; and
(B) the vacation pay is received by the
employee by the 15th day of the 3rd calendar month after the end of that taxable
year.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required under § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(3) 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).
(b) Concurrent automatic change. 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.

(1) Background. An accrual method
taxpayer generally incurs a liability
in the taxable year that all the events
have occurred that establish the fact of
the liability, the amount of the liability can be determined with reasonable
accuracy, and economic performance
has occurred with respect to the liability. See § 1.446–1(c)(1)(ii). Under
§ 1.461–4(g)(6), if the liability of the
taxpayer is to pay a tax, economic performance occurs as the tax is paid to the
government authority that imposed the
tax.
(2) Description of change.
(a) Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to:
(i) treat liabilities (for which the all
events test of § 461(h)(4) is otherwise met)
for real property taxes, personal property
taxes, state income taxes, or state franchise taxes as incurred in the taxable year
in which the taxes are paid, under § 461
and § 1.461–4(g)(6);
(ii) account for real property taxes, personal property taxes, state income taxes,
or state franchise taxes under the recurring
item exception method under § 461(h)(3)
and § 1.461–5(b)(1); or
(iii) revoke an election under § 461(c)
(ratable accrual election).

(c) Designated automatic accounting method change number. The designated automatic accounting method
change number for a change under section
19.01(3) of this APPENDIX is “134.” See
section 6.02(4) of this revenue procedure.

(b) Inapplicability. This change does
not apply to:
(i) a taxpayer’s liability for a tax subject
to the limitation on acceleration of accrual
of taxes under § 461(d); or
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.02 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).

(4) Contact information. For further
information regarding a change under
this section, contact Sandra Cheston at
202–622–7900 (not a toll-free call).
.02 Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state franchise taxes.

(3) Amounts taken into account. Applicable provisions of the Code, regulations, and other guidance published in the
IRB prescribe the manner in which a liability that has been incurred is taken into account. For example, for a taxpayer with inventories, certain real property taxes must
be included in inventory costs and may be

659

September 8, 2008

recovered through cost of goods sold. See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.02 of the APPENDIX to take a current
year deduction.
(4) Concurrent automatic change. 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.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.02
of this APPENDIX is “43.” See section
6.02(4) of this revenue procedure.
(6) Contact information.
For further information regarding a change under this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.03 Timing of incurring liabilities under
a workers’ compensation act, tort, breach
of contract, or violation of law.
(1) Description of change.
(a) Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for selfinsured liabilities (including any amounts
not covered by insurance, such as a “deductible” amount under an insurance policy) arising under any workers’ compensation act or out of any tort, breach of contract, or violation of law, to treating the liability for the workers’ compensation, tort,
breach of contract, or violation of law as
being incurred in the taxable year in which
all the events have occurred which establish the fact of the liability, the amount of
the liability can be determined with reasonable accuracy, and payment is made to
the person to which the liability is owed.
See § 461 and § 1.461–4(g)(1) and (2).
(b) Inapplicability. This change does
not apply to a taxpayer that is required under § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.03 of the
APPENDIX if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize

September 8, 2008

these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2) Amounts taken into account. Applicable provisions of the Code, regulations, and other guidance published in the
IRB prescribe the manner in which a liability that has been incurred is taken into
account. For example, for a taxpayer with
inventories, certain employee benefit costs
(including workers’ compensation) must
be included in inventory costs and may be
recovered through costs of goods sold. See
§ 1.263A–1(e)(3)(ii)(D). A taxpayer may
not rely on the provisions of this section
19.03 of the APPENDIX to take a current
year deduction.
(3) Concurrent automatic change. 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.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.03
of this APPENDIX is “44.” See section
6.02(4) of this revenue procedure.
(5) Contact information.
For further information regarding a change under this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.04 Timing of incurring certain liabilities for payroll taxes.
(1) Description of change.
(a) Applicability. This change applies
to:
(i) an accrual method employer that
wants to change its method of accounting
for:
(A) FICA and FUTA taxes to a method
consistent with the holding in Rev. Rul.
96–51, 1996–2 C.B. 36. Rev. Rul. 96–51
holds that, under the all events test of
§ 461, an accrual method employer may
deduct in Year 1 its otherwise deductible
FICA and FUTA taxes imposed with respect to year-end wages properly accrued
in Year 1, but paid in Year 2, if the requirements of the recurring item exception are
met; and

660

(B) state unemployment taxes and, in
the event the taxpayer is an employer
within the meaning of the Railroad Retirement Tax Act (RRTA) (see § 3231(a)),
RRTA taxes to a method under which the
taxpayer may deduct in Year 1 its otherwise deductible state unemployment taxes
and railroad retirement taxes (if applicable) imposed with respect to year-end
wages properly accrued in year 1, but
paid in Year 2, if the requirements of the
recurring item exception are met (including the requirement that, as of the end of
the taxable year, all events have occurred
that establish the fact of the liability and
the amount of the liability can be determined with reasonable accuracy, see
§ 1.461–5(b));
(ii) an accrual method employer that
utilizes a method of accounting for FICA
and FUTA taxes that is consistent with the
holding in Rev. Rul. 96–51 and wants to
change its method of accounting for state
unemployment taxes and, in the event the
employer is an employer within the meaning of RRTA (see § 3231(a)), RRTA taxes
to a method under which the taxpayer may
deduct in Year 1 its otherwise deductible
state unemployment taxes and railroad
retirement taxes (if applicable) imposed
with respect to year-end wages properly
accrued in Year 1, but paid in Year 2, if
the requirements of the recurring item exception are met (including the requirement
that, as of the end of the taxable year, all
events have occurred that establish the fact
of the liability and the amount of the liability can be determined with reasonable
accuracy, see § 1.461–5(b)); or
(iii) an accrual method taxpayer that
wants to change its method of accounting for FICA and FUTA taxes to the safe
harbor method provided in Rev. Proc.
2008–25, 2008–13 I.R.B. 686. Rev. Proc.
2008–25 provides that for purposes of the
recurring item exception, a taxpayer will
be treated as satisfying the requirement in
§ 1.461–5(b)(1)(i) for its payroll tax liability in the same taxable year in which all
events have occurred that establish the fact
of the related compensation liability and
the amount of the related compensation liability can be determined with reasonable
accuracy.
(b) Inapplicability. This change does
not apply to a taxpayer that is required under § 263A and the regulations thereunder

2008–36 I.R.B.

to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.04 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).
(2) Recurring item exception. A taxpayer that previously has not changed to
or adopted the recurring item exception for
FICA taxes, FUTA taxes, state unemployment taxes, and railroad retirement taxes
(if applicable) must change to the recurring
item exception method for FICA taxes,
FUTA taxes, state unemployment taxes,
and railroad retirement taxes (if applicable) as specified in § 461(h)(3) as part of
this change.
(3) Scope limitations inapplicable.
The scope limitations in section 4.02
of this revenue procedure do not apply to a change described in section
19.04(a)(1)(iii) of this APPENDIX that is
made for the taxpayer’s first taxable year
ending on or after December 31, 2007.
(4) Amounts taken into account. Applicable provisions of the Code, regulation,
and other guidance published in the IRB
prescribe the manner in which a liability that has been incurred is taken into
account. For example, for a taxpayer
with inventories, certain taxes must be
included in inventory costs and may be
recovered through cost of goods sold. See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.04 of the APPENDIX to take a current
year deduction.
(5) Concurrent automatic change. 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.
(6) Designated automatic accounting method change number. The designated automatic accounting method
change number for a change under section
19.04(1)(a)(i) or (ii) of this APPENDIX is
“45.” The designated automatic account-

2008–36 I.R.B.

ing method change number for a change
under section 19.04(1)(a)(iii) of this APPENDIX is “113.” See section 6.02(4) of
this revenue procedure.
(7) Contact information.
For further information regarding a change under this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.05 Cooperative advertising.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cooperative
advertising costs to a method consistent
with the holding in Rev. Rul. 98–39,
1998–2 C.B. 198. Rev. Rul. 98–39 generally provides that, under the all events
test of § 461, an accrual method manufacturer’s liability to pay a retailer for cooperative advertising services is incurred in the
year in which the services are performed,
provided the manufacturer is able to reasonably estimate this liability, and even
though the retailer does not submit the required claim form until the following year.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.05
of this APPENDIX is “46.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.06 Timing of incurring certain liabilities for services or insurance.
(1) Description of change. This change
applies to a taxpayer that is currently treating the mere execution of a contract for services or insurance as establishing the fact
of the liability under § 461 and wants to
change from that method of accounting for
liabilities for services or insurance to comply with Rev. Rul. 2007–3, 2007–4 I.R.B.
350, that is, all the events needed to establish the fact of the liability occur when (a)
the event fixing the liability, whether that
be the required performance or other event
occurs or (b) payment is due, whichever
happens earliest.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.06
of this APPENDIX is “106.” See section
6.02(4) of this revenue procedure.

661

(3) Contact information.
For further information regarding a change under this section, contact Leta Ayres at
202–622–5020 (not a toll-free call).
.07 Rebates and allowances.
(1) Description of change.
(a) Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for treating its liability for rebates and allowances
to the recurring item exception method under § 461(h)(3) and § 1.461–5.
(b) Inapplicability. This change does
not apply to a taxpayer’s liability to pay a
refund.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.07
of this APPENDIX is “135.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
SECTION 20. RENT (§ 467)
.01 Change from a ratable inclusion of
rental income or expense to inclusion in
accordance with the rent allocation.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that:
(i) is a party to § 467 rental agreements
(within the meaning of § 1.467–1(c)(1) for
rental agreements entered into after May
18, 1999, and § 467(d) for all other agreements);
(ii) includes in taxable income a ratable
or straight-line amount of rental income or
expense for its § 467 rental agreements;
and
(iii) wants to change its method of
accounting for its fixed rent (as defined
in § 1.467–1(d)(2)) to the rent allocation
method provided in § 1.467–1(d)(2)(iii).
(b) Inapplicability. This change does
not apply to taxpayers required to use the
constant rental accrual method described
in § 1.467–(3)(a) or the proportional rental
accrual method described in § 1.467–(2)(a)
for their fixed rent.
(2) Additional requirements. The taxpayer must attach to its Form 3115 a copy

September 8, 2008

of one of its § 467 rental agreements to
be covered by this automatic change (or at
least the pages of the agreement relating to
the manner in which rent is allocated).
(3) Audit protection. A taxpayer receives audit protection under section 7
of this revenue procedure in connection
with this change for all of its § 467 rental
agreements except those determined by
the Commissioner to be disqualified leasebacks or long-term agreements described
in § 1.467–(3)(b).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 20.01
of this APPENDIX is “136.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under
this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02 Reserved.
SECTION 21. INVENTORIES (§ 471)
.01 Cash discounts.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cash discounts (discounts granted for timely payment) when they approximate a fair interest rate, from a method of consistently
including the price of the goods before
discount in the cost of the goods and including in gross income any discounts
taken (the “gross invoice method”), to a
method of reducing the cost of the goods
by the cash discounts and deducting as an
expense any discounts not taken (the “net
invoice method”), or vice versa. See Rev.
Rul. 73–65, 1973–1 C.B. 216.
(2) Computation of § 481(a) adjustment
for changes to net invoice method. In the
case of a taxpayer changing from the gross
invoice method to the net invoice method,
a negative adjustment is required to prevent duplications arising from the fact that
the gross invoice method reported income
upon timely payment for some or all of
the goods that remain in inventory, and a
positive adjustment is required to prevent
omissions arising from the fact that the
gross invoice method included the invoice
price, unadjusted for the cash discounts, of
some or all goods in cost of goods sold

September 8, 2008

and the discount will be earned by payment in a subsequent taxable year. The
net § 481(a) adjustment can be computed
by deducting the “Applicable Discount”
at the beginning of the year of change
from the “Available Discount” at the beginning of the year of change. The Available Discount is equal to the difference between the accounts payable balance under
the gross invoice method and the net invoice method. The Applicable Discount
is equal to the difference between the beginning inventory value under the gross invoice method and the net invoice method.
Example. Taxpayer’s accounts payable balance at the beginning of the year of change was
$1,000 under the gross invoice method and $980
under the net invoice method. Taxpayer’s inventory value was $3,000 under the gross invoice
method and $2,955 under the net invoice method.
The Available Discount is $20 ($1,000 - $980)
and the Applicable Discount is $45 ($3,000 $2,955). Thus, Taxpayer’s net § 481(a) adjustment is a negative $25 ($20 - $45).

(3) Computation of § 481(a) adjustment
for changes to gross invoice method. In
the case of a taxpayer changing from the
net invoice method to the gross invoice
method, a positive adjustment is required
to prevent omissions arising from the fact
that the net invoice method did not report income upon timely payment for some
or all of the goods that remain in inventory, and a negative adjustment is required
to prevent duplications arising from the
fact that the net invoice method included
the invoice price, adjusted for the cash
discounts, of some or all goods in cost
of goods sold and the discount will be
earned by payment in a subsequent taxable year. The net § 481(a) adjustment can
be computed by deducting the “Applicable
Discount” at the beginning of the year of
change from the “Available Discount” at
the beginning of the year of change. The
Available Discount is equal to the difference between the accounts payable balance under the gross invoice method and
the net invoice method. The Applicable
Discount is equal to the difference between
the beginning inventory value under the
gross invoice method and the net invoice
method.
Example. Taxpayer’s accounts payable balance at the beginning of the year of change
was $980 under the net invoice method and
$1,000 under the gross invoice method. Taxpayer’s inventory value was $2,955 under the
net invoice method and $3,000 under the gross
invoice method. The Applicable Discount is $45

662

($3,000 - $2,955) and the Available Discount
is $20 ($1,000 - $980). Thus, Taxpayer’s net
§ 481(a) adjustment is a negative $25 ($20 - $45).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.01
of this APPENDIX is “48.” See section
6.02(4) of this revenue procedure.
(5) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.02 Estimating inventory “shrinkage”.
(1) Description of change. This change
applies to a taxpayer that wants to change
to a method of accounting for estimating
inventory shrinkage in computing ending
inventory, using:
(a) the “retail safe harbor method” described in section 4 of Rev. Proc. 98–29,
1998–1 C.B. 857; or
(b) a method other than the retail safe
harbor method, provided (i) the taxpayer’s
present method of accounting does not estimate inventory shrinkage, and (ii) the
taxpayer’s new method of accounting (that
estimates inventory shrinkage) clearly reflects income under § 446(b).
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Additional requirements. If the
taxpayer wants to change to a method of
accounting for inventory shrinkage other
than the retail safe harbor method, the
taxpayer must attach to its Form 3115 a
statement setting forth a detailed description of all aspects of the new method of
estimating inventory shrinkage (including,
for last-in, first-out (LIFO) taxpayers, the
method of determining inventory shrinkage for, or allocating inventory shrinkage
to, each LIFO pool).
(4) Audit protection. A taxpayer does
not receive audit protection under section
7 of this revenue procedure in connection with a change to the retail safe harbor
method if, on the date the taxpayer files a
copy of the Form 3115 with the national
office, the taxpayer’s present method of
estimating inventory shrinkage is an issue
under consideration within the meaning of
section 3.09 of this revenue procedure.

2008–36 I.R.B.

(5) Future change. A taxpayer that
changes to the retail safe harbor method
described in Rev. Proc. 98–29 will not
be precluded, solely by reason of such
change, from changing to another safe
harbor method for estimating inventory
shrinkage in computing ending inventory
in the first year such other safe harbor
method is available.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.02
of this APPENDIX is “49.” See section
6.02(4) of this revenue procedure.
(7) Contact information.
For further information regarding a change under this section, contact Steve Gee at
202–622–4970 (not a toll-free call).
.03 Small taxpayer exception from requirement to account for inventories under
§ 471.
(1) Description of change. This change
applies to either a taxpayer (other than a
taxpayer described § 448(a)(3)) with “average annual gross receipts” (as defined
in section 5.01 of Rev. Proc. 2001–10,
2001–1 C.B. 272) of $1,000,000 or less
or a qualifying taxpayer (other than a taxpayer described in § 448) with “average
annual gross receipts” (as defined in section 5.02 of Rev. Proc. 2002–28, 2002–1
C.B. 815) of $10,000,000 or less that wants
to change from a method of accounting for
inventoriable items (including, if applicable, from the method of capitalizing costs
under § 263A) to the method described
in Rev. Proc. 2001–10 and Rev. Proc.
2002–28 for treating inventoriable items in
the same manner as materials and supplies
that are not incidental under § 1.162–3.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Manner of making change. See Rev.
Proc. 2001–10 or Rev. Proc. 2002–28
(as applicable) for additional guidance on
the computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4) Concurrent automatic change to
the overall cash method under Rev. Proc.
2001–10 or Rev. Proc. 2002–28. A taxpayer that wants to make both this change
and a change to the overall cash method
under Rev. Proc. 2001–10 or Rev. Proc.

2008–36 I.R.B.

2002–28 (see section 14.03 of this APPENDIX) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.03
of this APPENDIX for the small taxpayer
($1 million) inventory exception contained in Rev. Proc. 2001–10 is “50.” The
designated automatic accounting method
change number for a change under section
21.03 of this APPENDIX for the small
taxpayer ($10 million) inventory exception contained in Rev. Proc. 2002–28 is
“51.” See section 6.02(4) of this revenue
procedure.
(6) Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.04 Qualifying volume-related trade
discounts.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to treat qualifying
volume-related trade discounts as a reduction in the cost of merchandise purchased
at the time the discount is recognized in accordance with § 1.471–3(b). A “qualifying volume-related trade discount” means
a discount satisfying the following criteria:
(a) the taxpayer receives or earns the
discount based solely upon the purchase of
a particular volume of the merchandise to
which the discount relates;
(b) the taxpayer is neither obligated nor
expected to perform or provide any services in exchange for the discount; and
(c) the discount is not a reimbursement
of any expenditure incurred or to be incurred by the taxpayer.
(2) Section 481(a) adjustment. The
net § 481(a) adjustment attributable to the
change is computed in a manner similar
to the computation of a net § 481(a) adjustment in the case of a change to the
net invoice method of accounting for cash
discounts. See section 21.01(2) of this
APPENDIX.
(3) Designated automatic accounting
method change number. The designated

663

automatic accounting method change
number for a change under section 21.04
of this APPENDIX is “53.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.05 Impermissible methods of identification and valuation.
(1) Description of change. This change
applies to a taxpayer:
(a) changing from an impermissible method of accounting described in
§§ 1.471–2(f)(1) through (5), including
a LIFO taxpayer restoring a write down
of inventory below cost or discontinuing
maintaining an inventory reserve; or
(b) changing from a gross profit method
or from a method of determining market
that is not in accordance with § 1.471–4.
(i) Gross profit method. A gross profit
method is a method in which the taxpayer
estimates the cost of goods sold by reducing its gross sales by a percentage “markup” from cost. The estimated cost of goods
sold is subtracted from the sum of the beginning inventory and purchases and the
result is used as the ending inventory.
(ii) Method of determining market. An
example of a method of determining market that is not in accordance with § 1.471–4
is where a taxpayer, under ordinary circumstances, determines the market value
of purchased merchandise using judgment
factors, and not using the prevailing current bid price on the inventory date for the
particular merchandise in the volume in
which it is usually purchased by the taxpayer.
(2) Applicability. For purposes of this
change, a taxpayer must be changing to an
inventory method (identification or valuation, or both) specifically permitted by the
Code, the regulations, or a decision by the
United States Supreme Court, a revenue
ruling, a revenue procedure, or other guidance published in the IRB for the inventory
goods, and the taxpayer is neither prohibited from using that method nor required to
use a different inventory method for those
inventory goods. This change does not apply to a change described in another section of this revenue procedure or in other
guidance published in the IRB.

September 8, 2008

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.05
of this APPENDIX is “54.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.06 Core Alternative Valuation Method.
(1) Description of change.
(a) Applicability. This change applies
to a remanufacturer and rebuilder of motor
vehicle parts and a reseller of remanufactured and rebuilt motor vehicle parts
that use the cost or market, whichever is
lower, (LCM) inventory valuation method
to value their inventory of cores held for
remanufacturing or sale and wants to use
the Core Alternative Valuation (CAV)
method specified in Rev. Proc. 2003–20,
2003–1 C.B. 445.
(b) Inapplicability. This change does
not apply to a taxpayer that values its
inventory of cores at cost (including
a taxpayer using the LIFO inventory
method) unless the taxpayer concurrently
changes (under section 6.02 of Rev. Proc.
2003–20) from cost to the LCM method
for its cores (including labor and overhead related to the cores in raw materials,
work-in-process and finished goods).
(2) Concurrent automatic change. A
taxpayer that wants to make both this
change and (i) a change from the cost
method to the LCM method under section
21.11 of this APPENDIX, or (ii) a change
from the LIFO inventory method to a
permitted method for identification under
(and as determined and defined in) section
22.01(1)(b) of this APPENDIX for the
same year of change, should file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.06
of this APPENDIX is “55.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under

September 8, 2008

this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.07 Replacement cost for automobile
dealers’ parts inventory.
(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of selling vehicle parts
at retail, that is authorized under an agreement with one or more vehicle manufacturers or distributors to sell new automobiles or new light, medium, or heavy-duty
trucks, and that wants to use the replacement cost method described in section 4 of
Rev. Proc. 2002–17, 2002–1 C.B. 676, for
its vehicle parts inventory. See Rev. Proc.
2002–17 for further information regarding
this change.
(2) Manner of making change. This
change is made on a cut-off basis and applies only to the computation of ending inventories 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.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.07
of this APPENDIX is “63.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.08 Replacement cost for heavy equipment dealers’ parts inventory.
(1) Description of change. This change
applies to a heavy equipment dealer that
is engaged in the trade or business of selling heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy equipment, and that wants to use the replacement cost method described in section 4 of
Rev. Proc. 2006–14, 2006–1 C.B. 350, for
its heavy equipment parts inventory.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change for either the first or second taxable
year ending on or after April 30, 2005.
(3) Manner of making the change. This
change is made on a cut-off basis and ap-

664

plies only to the computation of ending inventories 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.
(4) Concurrent automatic change. A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A (see
section 11 of this APPENDIX) for the
same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A–7(b)(2).
(5) Designated automatic accounting
method change number. The taxpayer
must prepare and file a Form 3115 in
accordance with section 6 of Rev. Proc.
2006–14. The designated automatic accounting method change number for a
change under section 21.08 of this APPENDIX is “96.” See section 6.02(4) of
this revenue procedure.
(6) Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.09 Rotable spare parts.
(1) Description of change. This change
applies to a taxpayer that is using the safe
harbor method of accounting to treat its
rotable spare parts as depreciable assets
in accordance with Rev. Proc. 2007–48,
2007–29 I.R.B. 110, and wants to change
its method of accounting to treat its rotable
spare parts as inventoriable items. This
change also applies to a taxpayer who is
treating its rotable spare parts as depreciable assets in a manner similar to the safe
harbor method described in Rev. Proc.
2007–48, and wants to change its method
of accounting to treat its rotable spare parts
as inventoriable items. A taxpayer changing its method of accounting for rotable
spare parts under this section 21.09 of the
APPENDIX, must use a proper inventory
method to identify and value its rotable
spare parts.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to a taxpayer that is required to make the change

2008–36 I.R.B.

in method of accounting pursuant to section 5.06 of Rev. Proc. 2007–48.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.09
of this APPENDIX is “110.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.10 Advance Trade Discount Method.
(1) Description of change. This change
applies to a taxpayer that wants to use
the Advance Trade Discount Method described in Rev. Proc. 2007–53, 2007–30
I.R.B. 233.
(2) Scope. This change in method of
accounting applies to an accrual method
taxpayer required to use an inventory
method of accounting and maintaining
inventories, as provided in § 471 and the
regulations thereunder, that receives advance trade discounts as defined in § 4.03
of Rev. Proc. 2007–53.
(3) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to a taxpayer that wants to make the change for its
first taxable year ending on or after July 2,
2007.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.10
of this APPENDIX is “111.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.11 Permissible methods of identification and valuation.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from
one permissible method of identifying and
valuing inventories to another permissible
method of identifying and valuing inventories that is not a change described in another section of this revenue procedure or
in other guidance published in the IRB.
(b) Permissible method defined. For
purposes of this change, a permissible

2008–36 I.R.B.

method is an inventory method (identification or valuation, or both) specifically
permitted by the Code, the regulations,
a decision by the United States Supreme
Court, a revenue ruling, a revenue procedure, or other guidance published in the
IRB for the inventory goods, and the taxpayer is neither prohibited from using that
method nor required to use a different inventory method for those inventory goods.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.11
of this APPENDIX is “137.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.12 Change in the official used vehicle
guide utilized in valuing used vehicles.
(1) Description of change. Used vehicles taken in trade as part payment on the
sale of vehicles by a dealer may be valued for inventory purposes at valuations
comparable to those listed in an official
used vehicle guide as the average wholesale prices for comparable vehicles. See
Rev. Rul. 67–107, 1967–1 C.B. 115. This
change applies to: (a) a taxpayer that wants
to change from not using an official used
vehicle guide to using an official used vehicle guide for valuing used vehicles; or
(b) a taxpayer that wants to change to a different official used vehicle guide for valuing used vehicles.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.12
of this APPENDIX is “138.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.13 Invoiced advertising association
costs for new vehicle retail dealerships.
(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of retail sales of new automobiles or new light-duty trucks (“dealership”) that wants to discontinue capitalizing certain advertising costs as acquisition costs under § 1.471–3(b). The change

665

applies to advertising costs that meet the
following criteria: (a) the dealership must
pay this advertising fee when acquiring vehicles from the manufacturer; (b) the advertising costs are separately coded and included in the manufacturer’s invoice cost
of the new vehicle; (c) the advertising cost
is a flat fee per vehicle or a fixed percentage of the invoice price; and (d) the fees
collected by the manufacturer are paid to
local advertising associations that promote
and advertise the manufacturer’s products
in the dealership’s market area. Under the
new method, the dealership will exclude
advertising costs that meet the above criteria from the cost of new vehicles and
deduct the advertising costs under § 162 as
the advertising services are provided to the
dealership. See § 1.461–4(d)(2)(i).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.13
of this APPENDIX is “139.” See section
6.02(4) of this revenue procedure.
(3) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.14 Rolling-average method of accounting for inventories.
(1) Description of change. This change
applies to a taxpayer that uses a rollingaverage method to value inventories for
financial accounting purposes and wants
to use the same rolling-average method to
value inventories for federal income tax
purposes in accordance with Rev. Proc.
2008–43, 2008–30 I.R.B. 186.
(2) Certain scope limitation inapplicable. The scope limitation in section 4.02(7)
of this revenue procedure does not apply to
the change to a rolling-average method in
the taxpayer’s first or second taxable year
ending on or after December 31, 2007.
(3) Manner of making change. This
change is made on a cut-off basis unless
the taxpayer’s books and records contain sufficient information to compute a
§ 481(a) adjustment, in which case the taxpayer may choose to implement the change
with a § 481(a) adjustment as provided
in section 5.04 of this revenue procedure.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis.

September 8, 2008

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.14
of this APPENDIX is “114.” See section
6.02(4) of this revenue procedure.
(5) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 22. LAST-IN, FIRST-OUT
(LIFO) INVENTORIES (§ 472)
.01 Change from the LIFO inventory
method.
(1) Description of change.
(a) In general. This change applies to a
taxpayer that wants to:
(i) change from the LIFO inventory
method for all its LIFO inventory or for
one or more dollar-value pools; and
(ii) change to a permitted method
or methods as determined in section
22.01(1)(b) of this APPENDIX.
(b) Method to be used.
(i) Determining the permitted method
to be used. A taxpayer may change to
one or more non-LIFO inventory methods
for the LIFO inventories that are the subject of this accounting method change, but
only if the selected non-LIFO method is a
permitted method for the inventory goods
to which it will be applied. For example, a heavy equipment dealer may change
to the specific identification method for
new heavy equipment inventories and the
replacement cost method, as described in
Rev. Proc. 2006–14, 2006–1 C.B. 350, for
heavy equipment parts inventories.
(ii) Permitted method defined. For purposes of section 22.01 of this APPENDIX,
an inventory method (identification or valuation, or both) is a permitted method if
it is specifically permitted by the Code,
the regulations, a decision by the United
States Supreme Court, a revenue ruling, a
revenue procedure, or other guidance published in the IRB for the inventory goods
and if the taxpayer is neither prohibited
from using that method nor required to use
a different inventory method for those inventory goods.
(iii) Determining permitted method.
Whether an inventory method is a permitted method is determined without regard

September 8, 2008

to the types and amounts of costs capitalized under the taxpayer’s method of
computing inventory cost. See § 263A and
the regulations thereunder, which govern
the types and amounts of costs required to
be included in inventory cost for taxpayers
subject to those provisions.
(2) Certain scope limitation inapplicable. The scope limitation in section 4.02(7)
of this revenue procedure does not apply in
the first taxable year that the taxpayer does
not or will not comply with the requirements of § 472(e)(2) because the taxpayer
has applied or will apply International Financial Reporting Standards in its financial statements or because the taxpayer has
been acquired by an entity that has not or
will not use the LIFO method in its financial statements.
(3) Limitation on LIFO election. The
taxpayer may not re-elect the LIFO inventory method for a period of at least
five taxable years beginning with the year
of change unless, based on a showing of
unusual and compelling circumstances,
consent is specifically granted by the
Commissioner to change the method of
accounting at an earlier time. A taxpayer
that wants to re-elect the LIFO inventory
method within a period of five taxable
years (beginning with the year of change)
must file a Form 3115 in accordance with
Rev. Proc. 97–27 (or any successor). A
taxpayer that wants to re-elect the LIFO
inventory method after a period of five
taxable years (beginning with the year of
change) is not required to file a Form 3115
in accordance with Rev. Proc. 97–27, but
must file a Form 970, Application To Use
LIFO Inventory Method, in accordance
with § 1.472–3.
(4) Effect of subchapter S election by
corporation.
(a) S election effective for year of LIFO
discontinuance. If a C corporation elects
to be treated as an S corporation for the
taxable year in which it discontinues use
of the LIFO inventory method, § 1363(d)
requires an increase in the taxpayer’s gross
income for the LIFO recapture amount (as
defined in § 1363(d)(3)) for the taxable
year preceding the year of change (the taxpayer’s last taxable year as a C corporation) and a corresponding adjustment to
the basis of the taxpayer’s inventory as
of the end of the taxable year preceding
the year of change. Any increase in in-

666

come tax as a result of the inclusion of the
LIFO recapture amount is payable in four
equal installments, beginning with the taxpayer’s last taxable year as a C corporation as provided in § 1363(d)(2). Any corresponding basis adjustment is taken into
account in computing the § 481(a) adjustment (if any) that results upon the discontinuance of the LIFO inventory method by
the corporation.
(b) S election effective for a year after LIFO discontinuance. If a C corporation elects to be treated as an S corporation for a taxable year after the taxable year
in which it discontinued use of the LIFO
inventory method, the remaining balance
of any positive § 481(a) adjustment must
be included in its gross income in its last
taxable year as a C corporation. If this inclusion results in an increase in tax for its
last taxable year as a C corporation, this
increase in tax is payable in four equal installments, beginning with the taxpayer’s
last taxable year as a C corporation as provided in § 1363(d)(2), unless the taxpayer
is required to take the remaining balance
of the § 481(a) adjustment into account in
the last taxable year as a C corporation under another acceleration provision in section 5.04(3)(c) of this revenue procedure.
(5) Additional requirements. The taxpayer must complete the following statements and attach them to its Form 3115.
If the taxpayer will use different methods
for different inventory goods to which the
change applies, the taxpayer must complete the statements for each of those different types of inventory goods.
(a) “The new method of identifying [Insert description of inventory goods] is the
[Insert method, as appropriate; that is,
specific identification; FIFO; retail; etc.]
method.”
(b) “The new method of valuing [Insert description of inventory goods] is [Insert method, as appropriate; that is, cost;
LCM; etc.].”
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.01
of this APPENDIX is “56.” See section
6.02(4) of this revenue procedure.
(7) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).

2008–36 I.R.B.

.02 Determining current-year cost under the LIFO inventory method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to change its method of
determining current-year cost to:
(i) the actual cost of the goods most
recently purchased or produced (most-recent-acquisitions method);
(ii) the actual cost of the goods purchased or produced during the taxable year
in the order of acquisition (earliest-acquisitions method);
(iii) the average unit cost equal to the
aggregate actual cost of all the goods
purchased or produced throughout the
taxable year divided by the total number
of units so purchased or produced. See
§ 1.472–8(e)(2)(ii);
(iv) the specific identification method;
or
(v) a rolling-average method if the taxpayer uses that rolling-average method in
accordance with Rev. Proc. 2008–43,
2008–30 I.R.B. 186.
(b) Inapplicability. This change does
not apply to a taxpayer using the lower of
cost or market method to determine current-year cost. A taxpayer using the lower
of cost or market method that valued inventory below cost may not change to a
proper cost valuation under this section
22.02 of the APPENDIX.
(2) Certain scope limitation inapplicable. The scope limitation in section 4.02(7)
of this revenue procedure does not apply to
the change to a rolling-average method in
the taxpayer’s first or second taxable year
ending on or after December 31, 2007.
(3) Manner of making change. This
change is made using a cut-off basis and
applies only to the computations of current-year cost 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.
(4) Concurrent change to a rolling-average method. A taxpayer that wants to
make both a change to a rolling-average method of determining current-year
cost for its LIFO inventory under this
section 22.02 of the APPENDIX and a
change to a rolling-average method of ac-

2008–36 I.R.B.

counting for non-LIFO inventories under
Rev. Proc. 2008–43 (see section 21.14
of this APPENDIX) 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.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.02
of this APPENDIX is “57.” See section
6.02(4) of this revenue procedure.
(6) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.03 Alternative LIFO inventory method
for retail automobile dealers.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer engaged in the trade or business of retail sales of new automobiles
or new light-duty trucks (“automobile
dealer”) that wants to change to the “Alternative LIFO method” described in
section 4 of Rev. Proc. 97–36, 1997–2
C.B. 450, as modified by Rev. Proc.
2008–23, 2008–12 I.R.B. 664, for its
LIFO inventories of new automobiles and
new light-duty trucks. Light-duty trucks
are trucks with a gross vehicle weight of
14,000 pounds or less, which also are referred to as class 1, 2, or 3 trucks.
(b) Inapplicability. This change does
not apply to an automobile dealer that uses
the inventory price index computation
(IPIC) method for goods other than new
automobiles, new light-duty trucks, parts
and accessories, used automobiles, and
used trucks.
(2) Manner of making change.
(a) Cut-off basis. This change is made
using a cut-off basis and applies only to
the computation of ending inventories after the beginning of the year of change.
See section 2.06 of this revenue procedure
and section 5.03(6) of Rev. Proc. 97–36
for more information regarding a cut-off
basis. Accordingly, a § 481(a) adjustment
is neither permitted nor required.
(b) Concurrent change from IPIC
method. An automobile dealer using
the IPIC method that also has parts and
accessories, used automobiles, or used

667

light-duty trucks (other goods) inventory
may incorporate a change, using a cut-off
basis, from IPIC to another acceptable
LIFO method for those other goods into
this change. When changing from IPIC
to a dollar-value LIFO method for its
other goods, the automobile dealer must
establish separate inventory pools for new
automobiles and new light-duty trucks,
unless the automobile dealer also concurrently changes to the Vehicle-Pool Method
(see section 22.08 of this APPENDIX).
Further, the automobile dealer must establish a separate inventory pool for the parts
and accessories.
(c) Additional requirements. An automobile dealer also must comply with the
following:
(i) the conditions in section 5.03 of Rev.
Proc. 97–36; and
(ii) for an automobile dealer changing
from the IPIC method, the automobile
dealer also must attach to the application
a schedule setting forth the classes of
goods for which the automobile dealer has
elected to use the LIFO method and the
accounting method changes being made
under section 22.03 of this APPENDIX
for each class of goods.
(3) Concurrent change to the Vehicle-Pool Method. A taxpayer that wants
to make both a change to the Alternative
LIFO Method under this section 22.03
of the APPENDIX and a change to the
Vehicle-Pool Method under Rev. Proc.
2008–23, 2008–12 I.R.B. 664, (see section
22.08 of this APPENDIX) 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.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.03
of this APPENDIX is “58.” See section
6.02(4) of this revenue procedure.
(5) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.04 Used vehicle alternative LIFO
method.
(1) Description of change. This change
applies to a taxpayer that sells used automobiles and used light-duty trucks (“used

September 8, 2008

vehicle dealers”) that wants to change
to the “Used Vehicle Alternative LIFO
Method” as described in Rev. Proc.
2001–23, 2001–1 C.B. 784, as modified
by Announcement 2004–16, 2004–1 C.B.
668, and Rev. Proc. 2008–23, 2008–12
I.R.B. 664.
(2) Additional requirements. A taxpayer making this change must comply
with the additional conditions set forth in
section 5.04 of Rev. Proc. 2001–23.
(3) Manner of making change.
(a) Cut-off basis. This change is made
on a cut-off basis, which requires that the
value of the taxpayer’s used automobile
and used light-duty truck inventory at the
beginning of the year of change must be
the same as the value of that inventory at
the end of the preceding taxable year, plus
cost restorations, if any, required by section 5.04(5) of Rev. Proc. 2001–23. 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.
(b) Bargain purchase. If the taxpayer
has previously improperly accounted for
a bulk bargain purchase, the taxpayer
must, as part of this change, first change
its method of accounting to comply with
Hamilton Industries, Inc. v. Commissioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change. See Announcement 91–173,
1997–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.04 of this APPENDIX except
for complying with section 22.04(3)(b) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. However, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain purchase. Accordingly, the examining agent
may make any necessary adjustments in
any open year to effect compliance with
Hamilton Industries, Inc.
(c) New base year. In effecting a
change to the Used Vehicle Alternative
LIFO Method under this revenue procedure, any LIFO inventory cost increments
previously determined and the value of
those increments must be retained. Instead
of using the earliest taxable year for which
the taxpayer adopted LIFO as the base

September 8, 2008

year, the year of change must be used as
the new base year in determining the value
of all existing LIFO cost increments for
the year of change and later taxable years.
(The cumulative index at the beginning
of the year of change will be 1.00). The
base-year cost of all LIFO cost increments
at the beginning of the year of change
must be restated in terms of new base-year
costs, using the year of change as the new
base year, and the indexes for previously
determined inventory increments must
be recomputed accordingly. The new
base-year cost of a pool is equal to the
total current-year cost of all the vehicles
in the pool.
(d) Application. Taxpayers are reminded to complete all applicable parts of
the Form 3115, including Part I of Schedule C.
(4) Concurrent change from IPIC
method. A used vehicle dealer using the
IPIC method that also has parts and accessories, new automobiles, or new light-duty
trucks (other goods) inventory may incorporate a change, using a cut-off basis,
from IPIC to another acceptable LIFO
method for those other goods into this
change. When changing from IPIC to a
dollar-value LIFO method for its other
goods, the used vehicle dealer must establish separate inventory pools for new
automobiles and new light-duty trucks,
unless the used vehicle dealer also concurrently changes to the Vehicle-Pool Method
(see section 22.08 of this APPENDIX).
Further, the used vehicle dealer must establish a separate inventory pool for the
parts and accessories.
(5) Concurrent change to the VehiclePool Method. A taxpayer that wants to
make both a change to the Used Vehicle Alternative LIFO Method under this
section 22.04 of the APPENDIX and a
change to the Vehicle-Pool Method under
Rev. Proc. 2008–23 (see section 22.08
of this APPENDIX) 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.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.04
of this APPENDIX is “59.” See section
6.02(4) of this revenue procedure.

668

(7) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.05 Determining the cost of used vehicles purchased or taken as a trade-in.
(1) Description of change and scope.
(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to:
(i) determine the cost of used vehicles
acquired by trade-in using the average
wholesale price listed by an official used
vehicle guide on the date of the trade-in.
See Rev. Rul. 67–107, 1967–1 C.B.
115. The official used vehicle guide selected must be consistently used unless
the taxpayer receives permission to use a
different guide;
(ii) use a different official used vehicle
guide for determining the cost of used vehicles acquired by trade-in;
(iii) determine the cost of used vehicles
purchased for cash using the actual purchase price of the vehicle; or
(iv) reconstruct the beginning-of-theyear cost of used vehicles purchased for
cash using values computed by national
auto auction companies based on vehicles
purchased for cash. The national auto
auction company selected must be consistently used.
(b) Inapplicability. This change does
not apply to a taxpayer that adopted or
changed to the Used Vehicle Alternative
LIFO Method (see section 22.04 of the APPENDIX of this revenue procedure).
(2) Manner of making change. This
change is made on a cut-off basis and applies only to used vehicles acquired 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.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.05
of this APPENDIX is “60.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Patty Ward at
202–622–4970 (not a toll-free call).

2008–36 I.R.B.

.06 Change to the inventory price index
computation (IPIC) method.
(1) Description of change. This change
applies to a taxpayer that wants to change:
(a) from a non-IPIC LIFO inventory
method to the IPIC method in accordance with all relevant provisions of
§ 1.472–8(e)(3); or
(b) from the IPIC method as described
in T.D. 7814, 1982–1 C.B. 84, (March 15,
1982) (the old IPIC method) to the IPIC
method as described in T.D. 8976, 2002–1
C.B. 421, (January 8, 2002) (the new IPIC
method), which includes the following required changes (if applicable):
(i) from using 80% of the inventory
price index (IPI) to using 100% of the IPI
to determine the base-year cost and dollar-value of a LIFO pool(s);
(ii) from using a weighted arithmetic
mean to using a weighted harmonic mean
to compute an IPI for a dollar-value
pool(s); and
(iii) from using a components-of-cost
method to define inventory items to using a
total-product-cost method to define inventory items.
(2) Manner of making change. This
change is made on a cut-off basis and applies only to the computation of ending inventories 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.
(3) Bargain purchase. If the taxpayer
has previously improperly accounted for
a bulk bargain purchase, the taxpayer
must, as part of this change, first change
its method of accounting to comply with
Hamilton Industries, Inc. v. Commissioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change. See Announcement 91–173,
1997–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.06 of this APPENDIX except
for complying with section 22.06(3) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. However, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain purchase. Accordingly, the examining agent
may make any necessary adjustments in

2008–36 I.R.B.

any open year to effect compliance with
Hamilton Industries, Inc.
(4) Concurrent automatic changes.
(a) A taxpayer that wants to make this
change and to change its method of determining current-year cost under section
22.02 of this APPENDIX for the same year
of change may file a single Form 3115 for
both changes, provided the taxpayer enters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(b) A taxpayer that wants to make this
change and to change its method of pooling to IPIC-method pools described in
§ 1.472–8(b)(4) or § 1.472–8(c)(2) under
section 22.07 of this APPENDIX for the
same year of change may file a single
Form 3115, provided the taxpayer enters 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 this
change and to change its method of pooling under section 22.10 of this APPENDIX
for the same year of change may file a single Form 3115, provided the taxpayer enters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.06
of this APPENDIX is “61.” See section
6.02(4) of this revenue procedure.
(6) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.07 Changes within the inventory price
index computation (IPIC) method.
(1) Description of change. This change
applies to a taxpayer using the IPIC
method described in § 1.472–8(e)(3) as
revised by T.D. 8976, 2002–1 C.B. 421,
(new IPIC method) that wants to make one
or more of the following changes:
(a) change from the double-extension IPIC method to the link-chain
IPIC method, or vice versa.
See
§ 1.472–8(e)(3)(iii)(E) for principles concerning the computation of the inventory
price index under the double-extension
IPIC method and the link-chain IPIC
method;

669

(b) change to or from the 10 percent
method. See § 1.472–8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to BLS categories under
the IPIC method;
(c) change to IPIC-method pools
described in § 1.472–8(b)(4) or
§ 1.472–8(c)(2), including a change to
begin or discontinue applying one or both
of the 5 percent pooling rules;
(d) change to combine or separate pools
as a result of the application of a 5 percent
pooling rule described in § 1.472–8(b)(4)
or § 1.472–8(c)(2);
(e) change its selection of BLS table
from Table 3 (Consumer Price Index for
All Urban Consumers (CPI-U): U.S. city
average, detailed expenditure categories)
of the monthly CPI Detailed Report to
Table 6 (Producer price indexes percent
changes for commodity groupings and individual items, not seasonally adjusted) of
the monthly PPI Detailed Report, or vice
versa. See § 1.472–8(e)(3)(iii)(B)(2) for
principles concerning the selection of a
BLS table under the IPIC method;
(f) change the assignment of one or
more inventory items to BLS categories
under either Table 3 (Consumer Price Index for All Urban Consumers (CPI-U):
U.S. City average, detailed expenditure
categories) of the monthly CPI Detailed
Report or Table 6 (Producer price indexes
and percent changes for commodity groupings and individual items, not seasonally
adjusted) of the monthly PPI Detailed
Report. See § 1.472–8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to BLS categories under
the IPIC method; and
(g) change the representative month
when necessitated because of a change
in taxable year or a change in method
of determining current-year cost made
pursuant to section 22.02 of this APPENDIX. See § 1.472–8(e)(3)(iii)(B) for
principles concerning the determination
of a representative month under the IPIC
method. A change in method of determining current-year cost and a change of
the representative month may be made
using a single Form 3115, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115. See section 6.02(4) of this
revenue procedure.

September 8, 2008

(2) Manner of making change. These
changes are made on a cut-off basis and apply only to the computation of ending inventories 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.
A taxpayer that changes pursuant to sections 22.07(1)(a), (b) and (e) of this APPENDIX must establish a new base year
in the year of change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.07
of this APPENDIX is “62.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.08 Changes to the Vehicle-Pool
Method.
(1) Description of change.
This
change applies to a retail dealer or wholesale distributor (“reseller”) of cars and
light-duty trucks that wants to change to
the “Vehicle-Pool Method” as described in
Rev. Proc. 2008–23, 2008–12 I.R.B. 664.
(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories 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. A reseller that changes its method
of pooling under Rev. Proc. 2008–23
and this section 22.08 of the APPENDIX
must comply with § 1.472–8(g). Instead
of using the earliest taxable year for which
the reseller adopted the LIFO method for
any items in a pool, the reseller must use
the year of change as the base year when
determining the LIFO value of that pool
for the year of change and subsequent
taxable years (i.e., the cumulative index at
the beginning of the year of change will
be 1.00). The reseller must restate the
base-year cost of all layers of increment
in a pool at the beginning of the year of
change in terms of new base-year cost.
For an example of establishing a new base
year, see § 1.472–8(e)(3)(iv)(B)(1)(ii).

September 8, 2008

(3) Scope limitations inapplicable. The
scope limitation in section 4.02(7) of this
revenue procedure does not apply for the
reseller’s first taxable year ending on or
after December 31, 2007.

justment is neither permitted nor required.
A taxpayer that changes its method pursuant to section 22.09 of this APPENDIX
must establish a new base year in the year
of change.

(4) Concurrent change to the Alternative LIFO Method or the Used Vehicle
Alternative LIFO Method. A reseller
that wants to make both a change to the
Vehicle-Pool Method under this section
22.08 of the APPENDIX and a change to
the Alternative LIFO Method under Rev.
Proc. 97–36 (see section 22.03 of this APPENDIX) or the Used Vehicle Alternative
LIFO Method under Rev. Proc. 2001–23
see section 22.04 of this APPENDIX)
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.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.09
of this APPENDIX is “140.” See section
6.02(4) of this revenue procedure.
(4) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.10 Changes to dollar-value pools of
manufacturers.

(6) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.09 Changes within the used vehicle alternative LIFO method.

(1) Description of change. This change
applies to a manufacturer that:
(a) purchases goods for resale (resale
goods) and, thus, must reassign resale
goods from the pool(s) it maintains for
the goods it manufactures to one or more
resale pools;
(b) wants to change from using multiple
pools described in § 1.472–8(b)(3) to using natural business unit (NBU) pools described in § 1.472–8(b)(1), or vice versa;
and
(c) wants to reassign items in NBU
pools described in § 1.472–8(b)(1) into the
same number or a greater number of NBU
pools.

(1) Description of change. This change
applies to a taxpayer using the “Used Vehicle Alternative LIFO Method” as described in Rev. Proc. 2001–23, 2001–1
C.B. 784, as modified by Announcement
2004–16, 2004–1 C.B. 668, and Rev. Proc.
2008–23, 2008–12 I.R.B. 664, that wants
to change the particular “official used vehicle guide” utilized by the taxpayer in connection with the Used Vehicle Alternative
LIFO Method or any change in the precise
manner of its utilization (e.g., a change in
the specific guide category that a taxpayer
uses to represent vehicles of average condition for purposes of section 4.02(5)(a) of
Rev. Proc. 2001–23).

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending inventories after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off method. Accordingly,
a § 481(a) adjustment is neither permitted
nor required. A taxpayer that changes
its method of pooling pursuant to section
22.10 of this APPENDIX must combine or
separate pools as required by § 1.472–8(g).
A taxpayer that changes its method of
pooling pursuant to section 22.10 of this
APPENDIX must combine or separate
pools as required by § 1.472–8(g).

(2) Manner of making change. This
change is made on a cut-off basis and applies only to the computation of ending inventories 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) ad-

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.10
of this APPENDIX is “141.” See section
6.02(4) of this revenue procedure.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.08
of this APPENDIX is “112.” See section
6.02(4) of this revenue procedure.

670

2008–36 I.R.B.

(4) Contact information.
For further information regarding a change under this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 23. MARK-TO-MARKET
ACCOUNTING METHOD FOR
DEALERS IN SECURITIES (§ 475)
.01 Commodities dealers, securities
traders, and commodities traders electing
to use the mark-to-market method of accounting under § 475(e) or (f).
(1) Description of change. This change
applies to certain taxpayers that have
elected to use the mark-to-market method
of accounting under § 475(e) or (f). Under
§ 475(e) and (f) and Rev. Proc. 99–17,
1999–1 C.B. 503, if a taxpayer makes an
election under § 475(e) or (f), then beginning with the first taxable year for which
the election is effective (election year),
mark to market is the only permissible
method of accounting for securities or
commodities subject to the election. Thus,
if the electing taxpayer’s method of accounting for its taxable year immediately
preceding the election year is inconsistent with § 475, the taxpayer is required
to change its method of accounting to
comply with the election. A taxpayer
that makes a § 475(e) or (f) election but
fails to change its method of accounting
to comply with that election is using an
impermissible method. See section 4 of
Rev. Proc. 99–17.
(2) Scope. This change applies to a
taxpayer if all of the following conditions
are satisfied:
(a) the taxpayer is a commodities
dealer, securities trader, or commodities
trader that has made a valid election under
§ 475(e) or (f) (see section 5.03(1) of Rev.
Proc. 99–17) and that is required to change
its method of accounting to comply with
the election;
(b) the method of accounting to which
the taxpayer changes is in accordance with
its election under § 475(e) or (f); and
(c) the year of change is the election
year.
(3) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(4) Election under Rev. Proc. 99–17.
In accordance with section 5.03(1) of Rev.

2008–36 I.R.B.

Proc. 99–17, in order to make a section
475(e) or (f) election, a taxpayer must file
a statement satisfying the requirements in
section 5.04 of Rev. Proc. 99–17. The
statement must be filed not later than the
due date (without regard to extensions) of
the original federal income tax return for
the taxable year immediately preceding the
election year and must be attached either
to that return or, if applicable, to a request
for an extension of time to file that return. For example, if a calendar year individual taxpayer wants to make a section
475(e) or (f) election for 2009 (the election year), the taxpayer must file the statement on or before April 15, 2009, with the
taxpayer’s timely filed (without regard to
extensions) federal income tax return for
2008 or the taxpayer’s timely filed request
for an extension of time to file the 2008
federal income tax return. On the Form
3115 filed for the year of change, a taxpayer should indicate that the taxpayer has
filed the statement in compliance with section 5.03(1) of Rev. Proc. 99–17.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 23.01
of this APPENDIX is “64.” See section
6.02(4) of this revenue procedure.
(6) Contact information. For further
information regarding a change under
this section, contact Eric E. Boody at
202–622–3950 (not a toll-free call).
.02 Reserved.
SECTION 24. BANK RESERVES FOR
BAD DEBTS (§ 585)
.01 Changing from the § 585 reserve
method to the § 166 specific charge-off
method.
(1) Description of change.
(a) Applicability. This change applies
to a bank (as defined in § 581, including a bank for which a qualified subchapter S subsidiary (QSub) election is filed)
that wants to change its method of accounting for bad debts from the § 585 reserve
method to the § 166 specific charge-off
method.
(b) Inapplicability. This change does
not apply to a large bank as defined in
§ 585(c)(2).

671

(2) Certain scope limitations inapplicable. A bank that changed from the § 593
reserve method under § 593(g) to the § 585
reserve method will not be prohibited under section 4.02(7) of this revenue procedure from changing its method of accounting for bad debts under this section
24.01 of the APPENDIX solely because of
the § 593(g) change. A bank for which a
QSub election is filed will not be prohibited under section 4.02(7) of this revenue
procedure from changing its method of accounting for bad debts under this section
24.01 of the APPENDIX solely because of
the deemed liquidation of the bank arising
from a QSub election.
(3) Section 481(a) adjustment. Generally, the amount of the § 481(a) adjustment for a change in method of accounting under this section 24.01 of the APPENDIX is the amount of the bank’s reserve for bad debts as of the close of the
taxable year immediately before the year
of change. However, the amount of the
§ 481(a) adjustment does not include the
amount of a bank’s pre–1988 reserves (as
described in § 593(g)(2)(A)(ii), without
taking into account § 593(g)(2)(B)) if the
bank changed in a prior year from the
§ 593 reserve method to the § 585 reserve method and § 593(g) applied to that
change. The deemed liquidation of a bank
occurring solely because its parent makes
a QSub election does not accelerate the
§ 481(a) adjustment. In accordance with
section 5.04(3)(c) of this revenue procedure, a bank that ceases to be a bank under
§ 581 must accelerate its § 481(a) adjustment.
(4) Change from § 585 required when
electing S corporation status.
(a) General rule. A bank electing
S corporation status (or a bank for which
a QSub election is filed) cannot use the
§ 585 reserve method. The filing by a
bank of a Form 2553, Election by a Small
Business Corporation, or the filing by a
bank’s parent of Form 8869, Qualified
Subchapter S Subsidiary Election, with
respect to the bank will constitute an
agreement by the bank to change its
method of accounting for bad debts from
the § 585 reserve method to the § 166
specific charge-off method effective
as of the taxable year for which the
S corporation election or QSub election is
effective (year of change) in accordance

September 8, 2008

with all of the applicable provisions
of this revenue procedure (including
section 6 of this revenue procedure, which
requires filing a Form 3115 in duplicate).
The resulting § 481(a) adjustment is
recognized built-in gain under § 1374,
unless the bank elects under § 1361(g) and
section 24.01(4)(b) of this APPENDIX to
take the § 481(a) adjustment into account
in determining taxable income for the
taxable year immediately preceding the
year of change. See § 1.1374–4 (d).
(b) Election to include § 481(a) adjustment in taxable year immediately preceding the year of change.
(i) Election requirements. For a taxable year beginning after December 31,
2006, a bank that changes its method of
accounting for bad debts under this section 24.01 of the APPENDIX, from the
§ 585 reserve method to the § 166 specific charge-off method for the first taxable year for which the bank’s S corporation election is effective (year of change)
may elect under § 1361(g) to take into account the amount of the resulting § 481(a)
adjustment in determining taxable income
for the taxable year immediately preceding
the year of change. To make this election,
a bank must (1) file an original and copy
of Form 3115 under section 6.02(3) of this
revenue procedure for the year of change,
(2) file an additional copy of the Form
3115 with its original (or amended) federal income tax return for the taxable year
immediately preceding the year of change
filed no later than the date the original
Form 3115 is properly filed under section
6.02(3) of this revenue procedure, and (3)
include the amount of the § 481(a) adjustment in gross income for the taxable year
immediately preceding the year of change.
The bank must attach a statement to the
original and both copies of Form 3115 stating that the bank elects under § 1361(g) to
take the § 481(a) adjustment into account
in determining taxable income for the taxable year immediately preceding the year
of change.
(ii) Special rule for QSub banks. In
the case of a QSub bank, the S corporation parent must file an original and copy
of Form 3115 under section 6.02(3) of this
revenue procedure for the year of change.
The QSub bank must file an additional
copy of the Form 3115 with its original
(or amended) federal income tax return
for the taxable year immediately preced-

September 8, 2008

ing the year of change filed no later than
the date the original Form 3115 is properly filed under section 6.02(3) of this revenue procedure, and include the amount of
the § 481(a) adjustment in gross income
for the taxable year immediately preceding
the year of change. In the case of a QSub
bank, the Form 3115 should indicate that
the “filer” is the S corporation parent and
the “applicant” is the QSub bank.
(iii) The following example illustrates
the principles of section 24.01(4)(b) of this
APPENDIX.
Example. X, a calendar year taxpayer, is a bank
as defined in § 581 and is not a large bank as defined
in § 585(c)(2). For taxable years before 2007, X
accounted for its bad debts under the § 585 reserve
method. By March 15, 2007, X properly filed a Form
2553 electing to be an S corporation effective January 1, 2007. Pursuant to section 24.01(4)(a) of this
APPENDIX, the filing of the Form 2553 constituted
an agreement by X to change from the § 585 reserve
method to the § 166 specific charge-off method in
2007 in accordance with all of the applicable provisions of this revenue procedure. Thus, for example,
X must file a Form 3115 for this 2007 change in
duplicate, in accordance with section 6.02(3) of this
revenue procedure, by attaching the original Form
3115 to X’s timely filed (including extensions) original federal income tax return for 2007 and filing a
copy of the Form 3115 with the national office. The
amount of X’s § 481(a) adjustment for the change is
the amount of X’s bad debt reserve as of the close
of December 31, 2006. X wishes to elect under
§ 1361(g) to include the § 481(a) adjustment in income in the taxable year ending December 31, 2006,
the taxable year immediately preceding the year of
change. To make this election, X must (1) file an
original and copy of Form 3115 for the 2007 change
under section 6.02(3) of this revenue procedure, (2)
file an additional copy of that Form 3115 with its
original (or amended) federal income tax return for
2006 filed no later than the date the original Form
3115 is properly filed under section 6.02(3) of this
revenue procedure, and (3) include the amount of
its § 481(a) adjustment in gross income in its return
for 2006. X must attach a statement to the original
and both copies of Form 3115 stating that X elects
under § 1361(g) to take the § 481(a) adjustment into
account in determining taxable income for 2006,
the taxable year immediately preceding the year of
change.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 24.01
of this APPENDIX is “66.” See section
6.02(4) of this revenue procedure.
(6) Contact information.
For further information regarding a change under this section, contact Sharon Galm
at 202–622–3930 or Laura Fields at
202–622–3050 (not a toll-free call).

672

.02 Reserved.
SECTION 25. INSURANCE COMPANY
PREMIUM ACQUISITION EXPENSES
(§ 832)
.01 Safe harbor method of accounting
for premium acquisition expenses.
(1) Description of change. Rev. Proc.
2002–46, 2002–2 C.B. 105, sets forth
a safe harbor method of accounting for
premium acquisition expenses of certain
non-life insurance companies. Under this
method, an insurance company is permitted to treat as premium acquisition
expenses incurred for the taxable year an
amount equal to the sum of (a) the amount
of premium acquisition expenses paid
during the taxable year; (b) the difference
between the unpaid premium acquisition
expenses shown on the company’s annual
statement for the taxable year and the unpaid premium acquisition expenses shown
on the company annual statement for the
preceding taxable year; and (c) the difference between the amount of the insurance
company’s pro forma premium acquisition
expenses at the end of the taxable year and
the company’s pro forma premium acquisition expenses at the end of the preceding
taxable year. The amount taken into account as a net increase in the pro forma
premium acquisition expenses, however,
cannot exceed the insurance company’s
unearned premium reserve offset amount
for that year. A special rule applies to premium acquisition expenses with respect to
certain contracts with installment premiums. See Rev. Proc. 2002–46.
(2) Scope. This automatic change in
accounting method applies to any insurance company that is subject to tax under § 831(a) and determines its premiums
earned for insurance contracts during the
taxable year under § 832(b)(4) in accordance with the provisions of § 1.832–4.
The automatic change does not apply to an
existing Blue Cross or Blue Shield organization or any other organization to which
§ 833 applies. The scope limitations in
section 4.02 of this revenue procedure do
not apply to this change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 25.01

2008–36 I.R.B.

of this APPENDIX is “67.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further information regarding a change under this
section, contact Melissa Luxner or Kay
Hossofsky at 202–622–3970 (not a tollfree call).
.02 Reserved.
SECTION 26. DISCOUNTED UNPAID
LOSSES (§ 846)
.01 Composite method for discounting
unpaid losses.
(1) Description of change. Section
846 defines “discounted unpaid losses”
for purposes of computing the insurance
company taxable income of certain insurance companies. Notice 88–100, 1988–2
C.B. 439, section V, sets forth a composite
method for computing unpaid losses with
respect to accident years not separately
stated on the NAIC annual statement. Rev.
Proc. 2002–74, 2002–2 C.B. 980, section
3.01, clarifies that the composite method
of Notice 88–100, section V, is permitted,
but not required; section 3.02 sets forth
an alternative method for those taxpayers
that do not use the composite method of
section 3.01. An insurance company using a method provided in section 3.01 or
3.02 of Rev. Proc. 2002–74 to compute
discounted unpaid losses, must use the
same method to compute discounted estimated salvage recoverable. An insurance
company that currently uses a permissible method of accounting for discounted
unpaid losses may change its method
of accounting to or from the composite
method of Notice 88–100, section V, without the consent of the Commissioner. This
change applies to insurance companies
that are required to discount unpaid losses
under § 846. See Rev. Proc. 2002–74.

SECTION 27. REAL ESTATE
MORTGAGE INVESTMENT CONDUIT
(REMIC) (§§ 860A–860G)
.01 REMIC inducement fees.
(1) Description of change. A taxpayer
that receives an inducement fee in connection with becoming the holder of a noneconomic residual interest in a REMIC must
take that fee into account over the remaining expected life of the applicable REMIC
in accordance with § 1.446–6. This change
applies to a taxpayer that seeks to change
from any method of accounting for such
inducement fees to one of the safe harbor
methods provided under § 1.446–6(e)(1) –
(2). See Rev. Proc. 2004–30, 2004–1 C.B.
950, for additional guidance relating to this
change.
(2) Manner of making change. A taxpayer making this change must identify
the specific safe harbor method under
§ 1.446–(6)(e) to which the taxpayer is
changing.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 27.01
of this APPENDIX is “79.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.02 Reserved.
SECTION 28. INCOME FROM
SOURCES WITHIN THE UNITED
STATES (§ 861)
.01 Transactions involving computer
programs.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 26.01
of this APPENDIX is “68.” See section
6.02(4) of this revenue procedure.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for transactions
involving computer programs to conform
to the provisions of § 1.861–18. This
change applies only to transactions occurring pursuant to contracts entered into on
or after December 31, 1998.

(3) Contact information. For further information regarding a change under this
section, contact Melissa Luxner or Kay
Hossofsky at 202–622–3970 (not a tollfree call).
.02 Reserved.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 28.01
of this APPENDIX is “69.” See section
6.02(4) of this revenue procedure.

2008–36 I.R.B.

673

(3) Contact information. For further
information regarding a change under
this section, contact Anne Shelburne at
202–435–5145 (not a toll-free call).
.02 Reserved.
SECTION 29. FUNCTIONAL
CURRENCY (§ 985)
.01 Change in functional currency.
(1) Description of change. This change
applies to a taxpayer that wants to change
its functional currency or the functional
currency of a qualified business unit
(QBU) of the taxpayer. The preceding
sentence does not apply to a QBU of a
taxpayer described in § 1.985–1(b)(1)(iii).
(2) Manner of making change. A taxpayer making this change must make all
necessary adjustments required by such
change. See §§ 1.985–5, 1.985–8(c).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 29.01
of this APPENDIX is “70.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under
this section, contact Barbara Felker at
202–622–3850 (not a toll-free call).
.02 Reserved.
SECTION 30. BASIS OF
CERTAIN SECURITIES SOLD
OR TRANSFERRED (§ 1012)
.01
Change
to
§ 1.1012–1(c)(1) – (4).

comply

with

(1) Description of change.
(a) Applicability. This change applies to a taxpayer that sells or transfers
shares of stock in a corporation, bonds,
or book-entry securities (as defined in
§ 1.1012–1(c)(7)(iii)) (collectively referred to as “securities”), and wants
to change to the method provided in
§ 1.1012–1(c)(1) for determining basis
in the securities sold or transferred. The
method in § 1.1012–1(c)(1) provides that
the taxpayer determines the cost or basis
of the securities sold or transferred by
(1) adequately identifying the securities
sold or transferred or the lot from which
the securities are sold or transferred and,
(2) being deemed to have identified the

September 8, 2008

cost or basis of the securities sold from
the lot(s) of securities purchased or acquired the earliest, if the taxpayer does
not make an adequate identification. See
§ 1.1012–1(c)(2) – (4) for examples of
what constitutes adequate identification.
(b) Inapplicability.
(i) This change does not apply to any
shares of stock for which a taxpayer
may make an election as to certain regulated investment company stock under
§ 1.1012–1(e).
(ii) This change does not apply, because there is no change in method of accounting, when for prior sales a taxpayer
who has not adequately identified securities sold or transferred is deemed to have
identified the securities sold or transferred
that were purchased or acquired the earliest and for subsequent sales that taxpayer
adequately identifies the securities sold or
transferred, or vice versa.
(2) Manner of making change and
designated automatic accounting method
change number.
(a) Section 481(a) adjustment. Except
as provided in section 30.01(2)(b) of this
APPENDIX, this change is made using a
§ 481(a) adjustment. The § 481(a) adjustment is calculated as the difference between the basis of the shares on hand at the
beginning of the year of change under the
new and prior methods.
(b) Cut-off basis. In lieu of a § 481(a)
adjustment, the taxpayer may make an irrevocable election to make this change on
a cut-off basis under which the taxpayer
begins using the new method for determining basis in its securities for all sales and
transfers made 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. The election to make this change on a cut-off basis must be made on the taxpayer’s timely
filed Form 3115 (see section 6.02(3) of this
revenue procedure). If the taxpayer elects
to make this change on a cut-off basis, the
basis of the shares on hand at the beginning
of the year of change is the basis determined under the taxpayer’s prior method
of accounting, i.e., the method from which
it is changing.
(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 30.01

September 8, 2008

of this APPENDIX is “142.” See section
6.02(4) of this revenue procedure.
(d) Contact information. For further
information regarding a change under
this section, contact Shareen Pflanz at
202–622–4920 (not a toll-free call).
.02 Reserved.
SECTION 31. ORIGINAL ISSUE
DISCOUNT (§§ 1272, 1273)
.01 De minimis original issue discount
(OID).
(1) Description of change. This change
applies to a taxpayer that wants to change
to the principal-reduction method of accounting described in section 5 of Rev.
Proc. 97–39, 1997–2 C.B. 485. The principal-reduction method of accounting is
an aggregate method of accounting for de
minimis OID (discount) on certain loans
originated by the taxpayer.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3) Description. The principal-reduction method of accounting is a permissible method for use by taxpayers to account
for discount on one or more categories of
loans described in section 4.02 or 4.03 of
Rev. Proc. 97–39. If the principal-reduction method is used to account for any
loans in a category of loans, the method
must be used for the entire category of
loans. The principal-reduction method applies only to loans described in section 3 of
Rev. Proc. 97–39.
(4) Manner of making change.
(a) This change is made on a cut-off
basis and applies only to loans described
in section 3 of Rev. Proc. 97–39 that were
acquired 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.
(b) The taxpayer must maintain books
and records sufficient to satisfy the director that old and new loans have been adequately segregated.
(5) Additional requirements. On a statement attached to the Form 3115, the taxpayer must:

674

(a) identify the categories of loans to
which the new method will apply; and
(b) describe any “additional categories”
permitted under section 4.03 of Rev. Proc.
97–39.
(6) No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in connection with this change.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 31.01
of this APPENDIX is “72.” See section
6.02(4) of this revenue procedure.
(8) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02 Reserved.
SECTION 32. MARKET DISCOUNT
BONDS (§ 1278)
.01 Revocation of § 1278(b) election.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market discount bonds by revoking its § 1278(b)
election. Under § 1278(b), a taxpayer
may elect a method of accounting under
which market discount is currently included in gross income for the taxable
years to which the discount is attributable.
See Rev. Proc. 92–67, 1992–2 C.B. 429,
for the procedures to make a § 1278(b)
election (including a deemed § 1278(b)
election). The procedures for revoking a
§ 1278 election were formerly provided in
section 7 of Rev. Proc. 92–67.
(2) Revocation of election. The revocation of a § 1278(b) election applies to all
market discount 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 market discount bonds that are subsequently acquired
by the taxpayer. If a § 1278(b) election is
revoked, then for purposes of § 1278(a),
accrued market discount with respect to
any bond previously subject to the election
means accrued market discount as defined
in § 1276(b) less any market discount included in income while the bond was subject to the § 1278(b) election.

2008–36 I.R.B.

(3) Manner of making change. This
change is made on a cut-off basis and
applies only to market discount accruing
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.
Market discount accruing on a bond prior
to the year of change was currently included in income and market discount
accruing on the bond on and after the first
day of the year of change is included in
income generally upon disposition of the
bond. See § 1276(a). Because a cut-off
basis is prescribed for this change, the
basis of any bond, adjusted for amounts
previously included in income during the
period of the election, is not affected by
the revocation.
(4) Additional requirements. On a statement attached to the Form 3115, the taxpayer must provide:
(a) the reason(s) for revoking the
§ 1278(b) election (or deemed § 1278(b)
election);
(b) a description of the method by
which, and the date on which, the taxpayer
made the § 1278(b) election (or deemed
§ 1278(b) election) that is being revoked;
and
(c) a statement that, after the revocation, the taxpayer will not make a constant
interest rate election for any bond that has
been subject to the § 1278(b) election (or
deemed § 1278(b) election) being revoked
and for which a constant interest rate election was not effective in the year of acquisition.
(5) Audit protection. 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 accrued market discount under § 1276(b) for a taxable year
prior to the year of change.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 32.01
of this APPENDIX is “73.” See section
6.02(4) of this revenue procedure.

2008–36 I.R.B.

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

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.01
of this APPENDIX is “74.” See section
6.02(4) of this revenue procedure.

SECTION 33. SHORT-TERM
OBLIGATIONS (§ 1281)

(4) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02 Stated interest on short-term loans
of cash method banks.

.01 Interest income on short obligations.
(1) Description of change.
(a) This change applies to a taxpayer
that wants to change its method of accounting to comply with § 1281 for interest income on short-term obligations.
(b) Under § 1281, a holder of certain
short-term obligations, including a bank as
defined in § 581, must include in gross
income any accrued interest income on
such obligations, regardless of the holder’s
overall method of accounting. Section
1281 applies to all types of interest income, including acquisition discount, original issue discount (OID), and stated interest. See S. Rep. No. 99–313, 99th Cong.,
2d Sess. 903 (1986), 1986–3 (Vol. 3) C.B.
903.
(c) Section 1283(a)(1) generally defines a short-term obligation as any bond,
debenture, note, certificate, or other evidence of indebtedness that matures in one
year or less from its issue date.
(d) Under §§ 1281(a) and 1283(c), a
holder of a short-term obligation subject
to § 1281 must include in gross income an
amount equal to the sum of the daily portions of the acquisition discount or OID,
whichever is applicable, on the obligation
for each day during the taxable year that
the obligation is held by the holder. See
§ 1283(b), as modified by § 1283(c), to
determine the daily portions of acquisition
discount or OID. In addition, § 1281(a) requires the holder to include in gross income any stated interest that is payable on
the short-term obligation (other than stated
interest taken into account to determine the
amount of the acquisition discount or OID)
as it accrues.
(2) Section 481(a) adjustment period.
A taxpayer must take the entire § 481(a)
adjustment into account in computing taxable income for the year of change.

675

(1) Description of change. This change
applies to a bank that uses the cash receipts
and disbursements (cash) method of accounting as its overall accounting method
and that wants to change its method of
accounting from accruing stated interest
on short-term loans made in the ordinary course of business to using the cash
method for that interest. For example, see
Security State Bank v. Commissioner, 214
F.3d 1254 (10th Cir. 2000), aff’g 111 T.C.
210 (1998), acq., 2001–1 C.B. xix; and Security Bank Minnesota v. Commissioner,
994 F.2d 432 (8th Cir. 1993), aff’g 98
T.C. 33 (1992), in which the courts held
that § 1281 does not apply to short-term
loans made by a cash method bank in the
ordinary course of its business.
(2) Scope limitations inapplicable. The
scope limitations in section 4.02 of this
revenue procedure are not applicable to
this change.
(3) Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into account
in computing taxable income for the year
of change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.02
of this APPENDIX is “75.” See section
6.02(4) of this revenue procedure.
(5) Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).

September 8, 2008

APPENDIX CONTACT LIST
APPENDIX
Section
Number

Designated
Automatic
Accounting
Change Number

1.01
2.01
3.01
3.02
3.03
3.04
4.01
5.01
6.01
6.02
6.03
6.04
6.05
6.06
6.07
6.08
6.09
6.10
6.11
6.12
6.13
6.14
6.15
6.16
6.17
6.18
6.19
6.20
6.21
6.22
7.01
8.01
8.02
8.03
9.01
9.02
10.01
10.02
10.03
10.04
10.05
10.06
10.07
11.01

91
1
2
3
4
86
5
16
7
8
10
11
12
13
14
15
87
88
89
97
98
99
104
105
107
116
117
118
119
115
17
100
101
102
18
120
19
20
21
47
78
109
121
22

11.02

23

11.03

24

11.04
11.05
11.06
12.01
13.01
13.02

25
77
92
26
27
28

September 8, 2008

Contact Name

Telephone Number

Office

David Silber
William Ruane
Martin Osborne
Martin Osborne
Martin Osborne
Martin Osborne
Sean Dwyer
William E. Blanchard
Douglas Kim
Douglas Kim
Edward Schwartz
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Bernard Harvey
Douglas Kim
Mark Weiss
Bernard Harvey
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Douglas Kim
Grant Anderson
Bernard Harvey
Jennifer Bernardini
Nicole Cimino
Douglas Kim
Douglas Kim
Gwen Turner
Gwen Turner
Gwen Turner
Gwen Turner
Gwen Turner
Gwen Turner
Gwen Turner
Donna Crawford
Kari Fisher
Donna Crawford
Kari Fisher
Donna Crawford
Kari Fisher
Cheryl Oseekey
John Faron
John Faron
Steve Gee
Maryellen Simpson
Maryellen Simpson

202–622–3930
202–622–4920
202–622–7900
202–622–7900
202–622–7900
202–622–7900
202–622–5020
202–622–3950
202–622–4930
202–622–4930
202–622–4960
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–7750
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–4930
202–622–3110
202–622–3110
202–622–4930
202–622–4930
202–622–5020
202–622–5020
202–622–5020
202–622–5020
202–622–5020
202–622–5020
202–622–5020
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4930
202–622–4930
202–622–4970
202–622–6030
202–622–6030

FI&P
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
FI&P
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
CORP
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
PS&I
PS&I
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
TEGE
TEGE

676

2008–36 I.R.B.

APPENDIX
Section
Number

Designated
Automatic
Accounting
Change Number

13.03

29

14.01
14.02
14.03
14.04
14.05
14.06
14.07

122, 123
31
32,33
34, 35
71
85
90

14.08
14.09
14.10
14.11
14.12
14.13

108
124
125
126
127
128

14.14

129

15.01
15.02
15.03
15.04
15.05
15.06
15.07
15.08
15.09
15.10
16.01
17.01
18.01
19.01
19.02
19.03
19.04
19.05
19.06
19.07
20.01
21.01
21.02
21.03
21.04
21.05
21.06
21.07
21.08
21.09
21.10
21.11
21.12
21.13
21.14
22.01
22.02
22.03
22.04
22.05

36
37
38
39
80, 81
82
83, 84
94
103
130
131
132
41
42, 133, 134
43
44
45, 113
46
106
135
136
48
49
50, 51
53
54
55
63
96
110
111
137
138
139
114
56
57
58
59
60

2008–36 I.R.B.

Contact Name

Telephone Number

Office

James Holland
Carlton Watkins
W. Thomas McElroy, Jr.
Erika Reigle
Kari Fisher
W. Thomas McElroy, Jr.
William E. Blanchard
Bernard Harvey
Josephine Firehock
Kay Hossofsky
Timothy Sebastian
Gwen Turner
Erika Reigle
Kari Fisher
Sharon Galm
Robert Basso
Renay France
Grant Anderson
Karla Meola
Timothy Sebastian
R. Matthew Kelley
R. Matthew Kelley
R. Matthew Kelley
Santina Jannotta
Santina Jannotta
R. Matthew Kelley
Santina Jannotta
Michael Schmit
R. Matthew Kelley
William E. Blanchard
Willie Armstrong
Lore Cavanaugh
Sandra Cheston
Jamie Kim
Jamie Kim
Jamie Kim
Jamie Kim
Leta Ayres
Jamie Kim
William Ruane
Patty Ward
Steve Gee
W. Thomas McElroy, Jr.
Patty Ward
Patty Ward
Willie Armstrong
Willie Armstrong
Willie Armstrong
Gwen Turner
W. Thomas McElroy, Jr.
Patty Ward
Patty Ward
Patty Ward
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Patty Ward

202–283–9699
202–283–9625
202–622–4970
202–622–4950
202–622–4970
202–622–4970
202–622–3950
202–622–4930
202–622–3970
202–622–3970
202–622–3920
202–622–5020
202–622–4950
202–622–4970
202–622–3930
202–622–4950
202–622–5020
202–622–4930
202–622–4930
202–622–3920
202–622–7900
202–622–7900
202–622–7900
202–622–3930
202–622–3930
202–622–7900
202–622–3930
202–622–4960
202–622–7900
202–622–3950
202–622–4970
202–622–4960
202–622–7900
202–622–4950
202–622–4950
202–622–4950
202–622–4950
202–622–5020
202–622–4950
202–622–4920
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–5020
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970

EP
EP
IT&A
IT&A
IT&A
IT&A
FI&P
IT&A
FI&P
FI&P
FI&P
IT&A
IT&A
IT&A
FI&P
IT&A
IT&A
IT&A
IT&A
FI&P
IT&A
IT&A
IT&A
FI&P
FI&P
IT&A
FI&P
IT&A
IT&A
FI&P
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

677

September 8, 2008

APPENDIX
Section
Number

Designated
Automatic
Accounting
Change Number

22.06
22.07
22.08
22.09
22.10
23.01
24.01

61
62
112
140
141
64
66

25.01

67

26.01

68

27.01
28.01
29.01
30.01
31.01
32.01
33.01
33.02

79
69
70
142
72
73
74
75

26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of tax
liability.

Rev. Proc. 2008–53
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by foreign life insurance companies and foreign
property and liability insurance companies to compute their minimum effectively
connected net investment income under
section 842(b) of the Internal Revenue
Code for taxable years beginning after
December 31, 2006. Instructions are provided for computing foreign insurance
companies’ liabilities for the estimated tax
and installment payments of estimated tax
for taxable years beginning after December 31, 2006. For more specific guidance
regarding the computation of the amount
of net investment income to be included by
a foreign insurance company on its U.S. income tax return, see Notice 89–96, 1989–2
C.B. 417. For the domestic asset/liability
percentage and domestic investment yield,
as well as instructions for computing foreign insurance companies’ liabilities for
estimated tax and installment payments of
estimated tax for taxable years beginning

September 8, 2008

Contact Name

Telephone Number

Office

Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Eric E. Boody
Sharon Galm
Laura Fields
Melissa Luxner
Kay Hossofsky
Melissa Luxner
Kay Hossofsky
Santina Jannotta
Anne Shelburne
Barbara Felker
Shareen Pflanz
William E. Blanchard
William E. Blanchard
William E. Blanchard
William E. Blanchard

202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–3950
202–622–3930
202–622–3050
202–622–3970
202–622–3970
202–622–3970
202–622–3970
202–622–3930
202–435–5145
202–622–3850
202–622–4920
202–622–3950
202–622–3950
202–622–3950
202–622–3950

IT&A
IT&A
IT&A
IT&A
IT&A
FI&P
FI&P
PS&I
FI&P
FI&P
FI&P
FI&P
FI&P
INTL
INTL
IT&A
FI&P
FI&P
FI&P
FI&P

after December 31, 2005, see Rev. Proc.
2007–58, 2007–37 I.R.B. 585.

turn data following the same methodology
used for the 2006 year.

SECTION 2. CHANGES

SECTION 3.
APPLICATION-ESTIMATED TAXES

DOMESTIC
ASSET/LIABILITY
PERCENTAGES FOR 2007. The Secretary determines the domestic asset/liability
percentage separately for life insurance
companies and property and liability insurance companies. For the first taxable
year beginning after December 31, 2006,
the relevant domestic asset/liability percentages are:
124.4 percent for foreign life insurance
companies, and
197.1 percent for foreign property and
liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 2007. The Secretary is
required to prescribe separate domestic investment yields for foreign life insurance
companies and for foreign property and
liability insurance companies. For the first
taxable year beginning after December 31,
2006, the relevant domestic investment
yields are:
4.9 percent for foreign life insurance
companies, and
4.2 percent for foreign property and liability insurance companies.
.03 SOURCE OF DATA FOR 2007.
The section 842(b) percentages to be used
for the 2007 tax year are based on tax re-

678

To compute estimated tax and the installment payments of estimated tax due
for taxable years beginning after December 31, 2006, a foreign insurance company must compute its estimated tax payments by adding to its income other than
net investment income the greater of (i) its
net investment income as determined under section 842(b)(5), that is actually effectively connected with the conduct of a
trade or business within the United States
for the relevant period, or (ii) the minimum effectively connected net investment
income under section 842(b) that would result from using the most recently available
domestic asset/liability percentage and domestic investment yield. Thus, for installment payments due after the publication of
this revenue procedure, the domestic asset/liability percentages and the domestic
investment yields provided in this revenue
procedure must be used to compute the
minimum effectively connected net investment income. However, if the due date of
an installment is less than 20 days after the
date this revenue procedure is published
in the Internal Revenue Bulletin, the asset/liability percentages and domestic investment yields provided in Rev. Proc.

2008–36 I.R.B.