Rp 2001-24

(2) the used vehicle dealer must
maintain and retain complete records of
index computations under the Used
Vehicle Alternative LIFO Method, including relevant used vehicle guides, and
complete records of the current-year cost
of vehicles held in ending inventory for
each open year, including purchase
invoices for each vehicle purchased and
used vehicle guides used to cost trade-ins
consistent with the requirements of
§ 1.472–8(d);
(3) the used vehicle dealer must
combine and/or separate its dollar-value
LIFO pool(s) in accordance with
§ 1.472–8(g)(2) to conform with the pooling requirements of section 4.02(3) of this
revenue procedure, including any pool(s)
resulting from section 5.04(4) of this revenue procedure;
(4) the used vehicle dealer must convert from a specific-goods LIFO method,
if applicable, to the Used Vehicle
Alternative LIFO Method in accordance
with § 1.472–8(f)(2); and,
(5) the used vehicle dealer must
elect to adopt or extend LIFO, and comply with the cost restoration provisions
of § 472(d) and § 1.472–3 (see also Rev.
Rul. 76–282, 1976–2 C.B. 137), for any
used automobiles or used light-duty
trucks to which a LIFO election did not
previously apply but that are required to
be included in dollar-value LIFO pools
under the Used Vehicle Alternative LIFO
Method.
SECTION 6. ELECTING LIFO AND
ADOPTING THE USED VEHICLE
ALTERNATIVE LIFO METHOD

section 10.01(2) of the APPENDIX of
Rev. Proc. 99–49 will be waived for
affected taxpayers desiring to elect the
Used Vehicle Alternative LIFO Method
pursuant to this revenue procedure.
(2) A taxpayer electing LIFO and
adopting the Used Vehicle Alternative
LIFO Method must comply with the conditions stated in section 5.04 of this revenue procedure.
SECTION 7. INQUIRIES
Inquiries regarding this revenue procedure may be addressed to the
Commissioner of Internal Revenue,
Attention: CC:ITA:7, 1111 Constitution
Avenue, N.W., Washington, D.C. 20224.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 99–49 is modified and
amplified to include this automatic
change in section 10 of the APPENDIX.
The APPENDIX of Rev. Proc. 99–49 is
modified to provide that the automatic
accounting method change provided in
section 10.02, which relates to a change in
the method of determining the cost of
used vehicles purchased or taken as a
trade-in, does not apply to taxpayers that
have adopted or changed to the Used
Vehicle Alternative LIFO Method.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending on or after December
31, 2000.
DRAFTING INFORMATION

.01 In general. If a used vehicle dealer is required to make an election to
adopt or extend LIFO in connection with
adoption of the Used Vehicle Alternative
LIFO Method, the used vehicle dealer
must complete and file a statement of
election of the LIFO inventory method
on Form 970, Application to Use LIFO
Inventory Method. The use of the Used
Vehicle Alternative LIFO Method should
be clearly indicated on the Form 970, or
in an attachment thereto, and a reference
should be made to this revenue procedure.
.02 Conditions. (1) The five year limitation on re-election of LIFO provided in

March 5, 2001

The principal author of this revenue
procedure is Alan J. Tomsic of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Mr. Tomsic at (202) 622-4970 (not a tollfree call).

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part 1 , §§ 446, 451, 481; 1.446–1, 1.451–1,
1.481–1, 1.481–4.)

Rev. Proc. 2001–24

788

SECTION 1. PURPOSE
This revenue procedure provides the
procedures by which an insurance company (“Company”) may obtain automatic
consent to change its method of accounting for cash advances on commissions
(“cash advances”) paid to its agents from
deducting a cash advance in the taxable
year paid to the agent to deducting a cash
advance in the taxable year earned by the
agent (“earned cash advance”). This revenue procedure applies only to cash
advances that qualify as loans under this
revenue procedure.
SECTION 2. BACKGROUND
.01 Change in method of accounting
defined. Section 1.446–1(e)(2)(ii)(a) of
the Income Tax Regulations 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
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.
.02 Securing permission to make a
method change. Sections 446(e) and
1.446–1(e) 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 order to
obtain the Commissioner’s consent to
change a method of accounting, 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. Rev. Proc.
99–49, 1999–2 C.B. 725 provides the procedures by which taxpayers may obtain
automatic consent to change certain specified methods of accounting by the filing
of a Form 3115 within the time specified
for the filing of a tax return for the year of
change.
.03 Terms and conditions of a method
change. Section 1.446–1(e)(3)(ii) authorizes the Commissioner to 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

2001–10 I.R.B.

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.
SECTION 3. SCOPE
This revenue procedure applies to cash
advances paid by the Company to an
agent if (and only if) all four of the following conditions are met: (1) the agreement between the Company and the agent
states that the cash advance is a “loan”;
(2) the Company charges adequate interest on the cash advance during the period
it is outstanding; (3) the agent is personally liable for the repayment of the cash
advance and payment of any accrued but
unpaid interest (that is, the Company’s
source of repayment is not limited to the
agent’s earned cash advances); and (4) the
Company treats the cash advance as a
loan for all federal tax purposes including
employment tax purposes.
SECTION 4. CHANGE IN
ACCOUNTING METHOD
.01 In general. Any change in a
Company’s method of accounting pursuant to this revenue procedure is a
change in method of accounting to which
the provisions of §§446 and 481 and the
regulations thereunder apply.
.02 Automatic change for taxpayers
within the scope of this revenue procedure. A Company changing its method of
accounting for cash advances meeting the
requirements of Section 3 for the first or
second taxable year beginning after
December 31, 1999 (“year of change”)
pursuant to the provisions of this revenue
procedure must follow the automatic
change in accounting method provisions
of Rev. Proc. 99–49 (or its successor) with
the following modifications:
(1) To both copies of its Form 3115,
the Company must attach a statement that
complies with the provisions of Section
4.03 of this revenue procedure.
(2) The scope limitations in section
4.02 of Rev. Proc. 99–49 do not apply.
However, if the Company is under examination, before an appeals office, or before
a federal court regarding any income tax
issue, the Company must provide a copy
of the Form 3115 to the examining agent,
appeals officer, or counsel for the govern-

2001–10 I.R.B.

ment, as appropriate, at the same time that
it files the copy of the Form 3115 with the
National Office.
(3) This change is effected on a “cutoff” basis in the year of change, as specified
in section 2.06 of Rev. Proc. 99–49. Thus, a
§481(a) adjustment is neither required nor
permitted. If the Company previously
changed its method of accounting for cash
advances from “loans” to “earned cash
advances” and that change resulted in a
§481(a) adjustment that has not been fully
included in the Company’s taxable income,
the Company must include the remaining
§481(a) adjustment in taxable income in the
year of change. Similarly, if the Company
previously changed its method of accounting for cash advances from “loans” to
“earned cash advances” and that change
resulted in a §481(a) adjustment that has not
been fully included in the agent’s reported
income, the Company must include the
remaining §481(a) adjustment on the
agent’s applicable Form 1099–MISC,
Miscellaneous Income, or Form W-2, Wage
and Tax Statement, for the year of change.
.03 Statement. The statement referred
to in section 4.02 of this revenue procedure should be identified at the top as follows: “CHANGE IN METHOD OF
ACCOUNTING UNDER REV. PROC.
2001–24” The statement must include:
(1) a paragraph stating that the
Company is changing its method of accounting for cash advances that meet the requirements of section 3 of this Rev. Proc.
2001–24, effective for the year of change
and all subsequent tax years, from deducting
the cash advances in the taxable year paid to
an agent to deducting the cash advances in
the taxable year earned by the agent.
(2) a paragraph stating that for the
year of change and all subsequent years,
the Company will treat cash advances as
earned cash advances when the Company
incurs a liability to the agent arising from
the underlying transaction (e.g., when the
Company receives a premium payment
from the policy holder who purchased the
policy from the agent).
(3) a paragraph stating that for the
year of change and all subsequent years,
the Company will treat earned cash
advances as wages subject to federal
employment taxes in the case of an
employee agent or as compensation in the
case of an independent contractor agent.
For this purpose, earned cash advances do

789

not include commissions retained by the
Company to recoup cash advances (or
interest thereon) that were reported by the
Company as earned by the agent in a prior
calendar year under the Company’s former method of accounting for cash
advances.
(4) a paragraph stating that the
Company agrees to all the terms and conditions of this Rev. Proc. 2001–24 and
Rev. Proc. 99–49.
(5) the signature by, or on behalf of,
the Company making the election by an
individual with the authority to bind the
Company in these matters. Thus, an officer must sign on behalf of a corporation, a
general partner must sign on behalf of a
state law partnership, a member-manager
must sign on behalf of a limited liability
company, a trustee must sign on behalf of
a trust, and an individual must sign on
behalf of a sole proprietorship. If the
Company is a member of a consolidated
group, the statement submitted on behalf
of the Company must be signed by a duly
authorized officer of the common parent.
See section 6.02(4) of Rev. Proc. 99–49.
.04
Consent.
Pursuant
to
§1.446–1(e)(2)(i), the consent of the
Commissioner is hereby granted to any
Company within the scope of this revenue
procedure to change its method of
accounting for cash advances, provided
the Company complies with all the applicable provisions of this revenue procedure
and, to the extent applicable, Rev. Proc.
99–49. Further, agents of a Company
changing its method of accounting pursuant to this revenue procedure are granted consent to change their method of
accounting to report cash advances meeting the requirements of Section 3 in the
year earned rather than in the year paid, so
long as their change in method of
accounting is consistent with the
Company’s reporting. No separate filing
is required by an agent.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 99–49 is modified and
amplified to include this automatic
change in section 5A of the APPENDIX.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 1999.

March 5, 2001

SECTION 7. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure has 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
1545–1736.
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 collection of information in this revenue procedure is in section 4. This information is required to notify the IRS that the

March 5, 2001

Company is changing its method of
accounting for cash advances that meet the
requirements of section 3 of this Rev. Proc.
2001–24 under the required terms and conditions. This information will be used to
update the IRS’s records. The collection of
information is required to obtain or retain
benefits. The likely respondents are business or other for-profit institutions and
small businesses or organizations.
The estimated total annual reporting
burden is 1,318 hours.
The estimated annual burden per
respondent is 15 minutes.
The estimated number of respondents
5,270.
The estimated annual frequency of
responses is once.

790

Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Leo F. Nolan II of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Mr. Nolan at (202) 622-4960 (not a tollfree call).

2001–10 I.R.B.