Instructions for Form 3115 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Enter the name of the filer on the first line of page 1 of Form 3115. In the case of an advance consent request, the Form
3115 and any attached
statements required to be signed must be signed and dated by, or on behalf of, the filer. In the case of an automatic consent
request, the copy of the
Form 3115 that is sent to the IRS National Office must be signed and dated by, or on behalf of, the filer; the Form 3115 attached
to the income tax
return (including any additional statements) does not need to be signed. The name and signature requirements are discussed
below.
In general, the filer of the Form 3115 is the applicant. However, for certain corporations discussed in the following paragraphs,
Form 3115 is
filed on behalf of the applicant. If such an exception applies, enter the filer name and identification number on the first
line of Form 3115 and
enter the applicant's name and identification number on the fourth line. If Form 3115 is filed for multiple applicants in
a consolidated group of
corporations, attach a schedule listing each applicant, its identification number, and principal business activity code (see Principal Business
Activity Code on page 3). This schedule may be combined with the information requested for Part III, line 23a (regarding the user fee) and
Part
IV (section 481(a) adjustment). If multiple names and signatures are required (e.g., as in the case of controlled foreign
corporations
(CFCs)—see instructions below), attach a schedule labeled “SIGNATURE ATTACHMENT” to the Form 3115, signed under penalties of perjury using
the same language as in the declaration on page 1 of Form 3115. Receivers, trustees, or assignees must sign the Form 3115
they are required to file.
Individuals.
If Form 3115 is filed for a husband and wife who file a joint income tax return, enter the names of both on the first
line and the signatures of
both on the signature line.
Partnerships.
Enter the name of the partnership on the first line of Form 3115. In the signature section of Form 3115, enter the
signature of one of the general
partners or limited liability company members authorized to sign and that person's name and title below the signature.
Corporations, personal service corporations, S corporations, cooperatives, and insurance companies.
Enter the name of the filer on the first line of Form 3115. In the signature section of Form 3115, enter the signature
of the officer authorized to
sign and the officer's name and title below the signature.
Consolidated group of corporations.
Enter the name of the parent corporation on the first line of Form 3115. Also enter the name(s) of the applicant(s)
on the fourth line of Form 3115
if a member of the consolidated group other than, or in addition to, the parent corporation is requesting an accounting method
change. Only an officer
authorized to sign for the parent corporation may sign Form 3115.
Controlled foreign corporations (CFCs).
For a CFC with a U.S. trade or business, use the same rules as other corporations. For a CFC that does not have a
U.S. trade or business, enter the
name(s) of the controlling U.S. shareholder(s) of the CFC on the first line of Form 3115 and the name of the CFC on the fourth
line. All of the
controlling U.S. shareholders must sign Form 3115.
However, if any controlling U.S. shareholder is a member of a consolidated group, enter the name of the shareholder's
parent corporation rather
than the shareholder's name on the first line of Form 3115. A person authorized to sign for the shareholder's parent corporation
must sign Form 3115.
10/50 corporations.
For a 10/50 corporation with a U.S. trade or business, use the same rules as other corporations. For a 10/50 corporation
that does not have a U.S.
trade or business, enter the name(s) of the majority domestic corporate shareholder(s) on the first line of Form 3115 and
the name of the 10/50
corporation on the fourth line. A person authorized to sign for each of the majority domestic corporate shareholders must
sign Form 3115.
However, if any majority domestic corporate shareholder is a member of a consolidated group, enter the name of the
shareholder's parent corporation
rather than the shareholder's name on the first line of Form 3115. A person authorized to sign for the shareholder's parent
corporation must sign Form
3115.
Estates or trusts.
Enter the name of the estate or trust on the first line of Form 3115. In the signature section of Form 3115, enter
the signature of the fiduciary,
personal representative, executor, administrator, etc., having legal authority to sign and that person's name and official
title below the signature.
Exempt organizations.
Enter the name of the organization on the first line of Form 3115. In the signature section of Form 3115 enter the
signature of a principal officer
or other person authorized to sign and that person's name and official title below the signature.
Preparer (other than filer/applicant).
If the individual preparing the Form 3115 is not the filer or applicant, the preparer also must sign. However, in
the case of an automatic change
request, the Form 3115 attached to the income tax return does not need to be signed.
Enter the filer's taxpayer identification number on the first line of Form 3115.
Individuals enter their social security number (SSN) (or individual taxpayer identification number (ITIN) for a resident or
nonresident alien). If
the Form 3115 is for a husband and wife who file a joint return, enter the identification number of both.
For all others, enter the employer identification number (EIN).
For a consolidated group of corporations enter the EIN of the parent corporation on the first line of Form 3115. Enter the
EIN of the applicant on
the fourth line if a member of the consolidated group other than, or in addition to, the parent corporation is requesting
the accounting method
change.
If Form 3115 is filed on behalf of a CFC or 10/50 corporation, and the foreign corporation does not have an EIN, it does not
have to obtain one.
Instead, enter “N/A” next to the CFC's or 10/50 corporation's name on the fourth line.
Principal Business Activity Code
For filer(s) that are businesses, enter the six-digit principal business activity (PBA) code of the filer. The principal business
activity of the
filer is the one generating the largest percentage of its total receipts. The PBA code is based on the North American Industry
Classification System
(NAICS) codes. See the instructions for the income tax return of the filer for the filer's PBA code and definition of “total receipts.”
Note:
An applicant requesting to change its accounting method under designated automatic accounting method change numbers 33 and/or
51 in the List of Automatic Accounting Method Changes beginning on page 8 must attach a schedule to the Form 3115 listing the
detailed NAICS code associated with the applicant's principal business activity. See Rev. Proc. 2002-28, 2002-18 I.R.B. 815,
for further guidance.
Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street
address and the
filer has a P.O. box, show the box number instead of the street address.
The contact person must be an individual authorized to sign Form 3115, or the filer's authorized representative. If this person
is someone other
than an individual authorized to sign Form 3115, you must attach Form 2848, Power of Attorney and Declaration of Representative.
An individual authorized to represent the filer before the IRS, to receive a copy of the requested letter ruling, or to perform
any other act(s),
must properly reflect the authorization on Form 2848. For further details for an authorized representative and a power of
attorney, see section
9.03(8) and (9) of Rev. Proc. 2004-1.
Note:
A filer that wants to receive correspondence regarding its Form 3115 (e.g., additional information letters or the letter ruling)
by fax must attach
to the Form 3115 a statement requesting this service. The attachment must also list the authorized name(s) and fax number(s)
of the person(s) who are
to receive the fax. The person(s) must be authorized to sign Form 3115 or an authorized representative of the filer that is
included on Form 2848. For
further details on the fax procedures, see section 9.04(3) of Rev. Proc. 2004-1.
Type of Accounting Method Change Requested
Check the appropriate box described below indicating the type of change being requested.
-
Depreciation or amortization. Check this box for a change in the (a) computation of depreciation or amortization
(e.g., the depreciation method or recovery period), (b) treatment of salvage proceeds or costs of removal, (c) method of
accounting for retirements of depreciable property, or (d) treatment of depreciable property from a single asset account to a multiple
asset account (pooling), or vice versa.
-
Financial products and/or financial activities of financial institutions. Check this box for a change in the treatment of a
financial product (e.g., accounting for debt instruments, derivatives, mark-to-market accounting, etc.), or in the financial
activities of a financial
institution (e.g., a lending institution, a regulated investment company, a real estate investment trust, a real estate mortgage
investment conduit, a
financial asset securitization investment trust, etc.).
-
Other. For advance consent requests, check this box if neither of the above boxes applies to the requested change. State the type
of method change being requested and, in the space provided, enter a short description of the change (e.g., LIFO to FIFO,
change within section 263A
costs, deduction of warranty expenses, changes to the completed contract method for long-term contracts, etc.). For automatic
change requests, this
informational requirement is satisfied by properly completing Part I, line 1 of Form 3115.
Follow the instructions below to correctly complete Form 3115.
-
Applicants requesting to change an accounting method using the automatic change request procedures must complete Parts I,
II, and
IV.
-
Applicants requesting a change to an accounting method using the advance consent request procedures must complete Parts II,
III, and
IV.
-
All applicants must complete Schedules A, B, C, D, and E, as applicable, for the change in accounting method
requested.
-
Attachments submitted with Form 3115 must show the filer's name and identification number. Also, indicate that the information
is an
attachment to Form 3115.
-
Report amounts in U.S. dollars, translated, if necessary, from functional currency with a statement of exchange rates used.
-
If more room is needed to respond to any line, attach a schedule labeled with the line number providing the applicable
information.
Part I—Information For Automatic Change Request
Automatic Change Request Scope Limitations
An applicant may not be eligible to use the automatic change request procedures with respect to an automatic change provided
by Rev. Proc. 2002-9
(either in the Appendix or included by reference in other published guidance) if any of the following six scope limitations
(section 4.02 of Rev.
Proc. 2002-9 as modified by Rev. Proc. 2002-19) apply at the time the copy of the Form 3115 would be filed with the IRS National
Office and
if the scope limitation(s) is applicable to the requested automatic accounting method change as described in the applicable
section of the Appendix of
Rev. Proc. 2002-9 or other published guidance.
-
The applicant is under examination, except as provided in section 4.02(1) of Rev. Proc. 2002-9.
-
The applicant is (or was formerly) a member of a consolidated group that is under examination, or before Appeals, or before
a Federal court
for the tax year(s) the applicant was a member of the group. For more information, see section 4.02(4) of Rev. Proc. 2002-9.
-
In the case of a partnership or S corporation, the accounting method the applicant is requesting to change is an issue under
consideration
in an examination, or by an Appeals office, or before a Federal court with respect to a partner, member, or shareholder of
the applicant. For more
information, see section 4.02(5) of Rev. Proc. 2002-9.
-
The applicant made or applied to make the same change in accounting method within the last 5 tax years, including the year
of change. For
more information, see section 4.02(6) of Rev. Proc. 2002-9.
-
The applicant engages in a transaction to which section 381(a) applies within the proposed tax year of change. For more information,
including exceptions to this limitation, see section 4.02(7) of Rev. Proc. 2002-9.
-
The applicant is in the final tax year of its trade or business as described in sections 4.02(8) and 5.04(3) of Rev. Proc.
2002-9.
Line 1.
Enter the designated automatic accounting method change number on line 1(a). These numbers may be found in the List of Automatic Accounting
Method Changes beginning on page 8, or in subsequently published guidance. In general, enter a number for only one change. However, in certain
limited circumstances, the numbers for two changes may be entered on line 1(a). The List of Automatic Accounting Method Changes specifies
which requests for change in accounting method may be made with another request for change.
If the accounting method change is not included in the List of Automatic Accounting Method Changes or assigned a number in subsequently
published guidance, the filer should check the box for line 1(b) and identify the revenue procedure or other published guidance
under which the
accounting method change is being requested.
Filers who properly complete line 1 have fulfilled the label requirements of section 6.02(4)(a) of Rev. Proc. 2002-9
and any similar requirements
in other guidance.
Line 2.
An applicant filing under the automatic change request procedures should review the applicable accounting method change
section in the Appendix of
Rev. Proc. 2002-9, or the procedures in other published guidance, if applicable, to determine if the scope limitations of
section 4.02 of Rev. Proc.
2002-9, as modified by Rev. Proc. 2002-19, are inapplicable to the specific change in accounting method requested.
Line 2 is asking whether the scope limitations do not apply to the accounting method change being requested. By answering
“ Yes” on line 2, the applicant is stating that the Appendix of Rev. Proc. 2002-9 or the procedures in other published guidance
specifically state
that the scope limitations are not applicable to the requested accounting method change. However, the applicant must complete
all the lines in Part
II, Information For All Requests. If any of the scope limitations apply to the requested accounting method change and apply to the
applicant, the applicant may not request an automatic accounting method change. However, the applicant may be eligible to
request its change under the
advance consent request procedures. See Part III—Information For Advance Consent Request on page 5 of these instructions to determine
if these procedures apply to the applicant. The descriptions of the automatic changes in the List of Automatic Accounting Method Changes
indicate whether, with respect to a particular change, scope limitations may not apply. Refer to section 4 of Rev. Proc. 2002-9,
as modified by Rev.
Proc. 2002-19, for specific requirements regarding scope limitations.
Line 3.
If the applicant would be required by section 5.04(3)(c) of Rev. Proc. 2002-9 to take the entire amount of the section
481(a) adjustment into
account in computing taxable income for the year of change, and if section 4.02(8) of Rev. Proc. 2002-9 applies to the applicant's
accounting method
change request, the applicant is not eligible to make the change under automatic change request procedures.
Part II—Information For All Requests
Note:
For lines 4a, 4b, 4c, 5a, 5c, and 6, the reference to “applicant” includes the applicant and any present or former consolidated group in which
the applicant was a member during the applicable tax year(s). A reference to “applicable tax year(s)” includes any tax years for which the
applicant's present or former consolidated group is under examination, before Appeals, and/or before a Federal court if the
applicant was a member of
the group in those tax years. For each of the applicable lines (4a, 4b, 4c, 5a, 5c, and/or 6), attach to the Form 3115 a list
of the beginning and
ending dates of the tax year(s) that the applicant (including its present and former consolidated group) is under examination,
before Appeals,
and/or before a Federal court. If the method of accounting the applicant is requesting to change is an issue either under
consideration, placed in
suspense, or pending for any tax year under examination, or if the method of accounting the applicant is requesting to change
is an issue under
consideration by an Appeals office or by a Federal court, indicate the applicable tax year(s).
Line 4a.
The applicant is under examination if it has a Federal income tax return under examination on the date the Form 3115
is filed. For the definition
of “ under examination,” see section 3.07 of Rev. Proc. 97-27 or section 3.08 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as
applicable.
Line 4b.
The applicant's method of accounting is an issue under consideration if the applicant receives written notification
from the examining agent
specifically citing the treatment of the item as an issue under consideration. For further details, see section 3.08 of Rev.
Proc. 97-27 or section
3.09 of Rev. Proc. 2002-9, as applicable. The applicant's method of accounting is an issue placed in suspense if the examining
agent has given the
applicant written notification that the issue is placed in suspense.
Line 4c.
The applicant's method of accounting is an issue pending if the IRS has given the applicant written notification indicating
that an adjustment is
being made or will be proposed with respect to the applicant's method of accounting for the tax year(s) under examination.
Attach a copy of this
written notification to Form 3115. For further details, see section 6.01(5) of Rev. Proc. 97-27 or section 6.03(6) of Rev.
Proc. 2002-9, both as
modified by Rev. Proc. 2002-19, as applicable.
Line 4d.
A taxpayer under examination may request to change an accounting method if the operating division director consents
to the filing of the Form 3115.
The operating division director will consent to the filing of the Form 3115 unless, in the opinion of the operating division
director, the method of
accounting to be changed would ordinarily be included as an item of adjustment in the year(s) for which the applicant is under
examination. The
applicant should submit its request for the consent of the operating division director to the examining agent. If the operating
division director
consents to the filing of the Form 3115, the consent must be attached to the Form 3115 filed with the IRS National Office.
Also, the applicant must
submit the operating division director copy of Form 3115 to the examining agent at the same time the Form 3115 is filed with
the IRS National Office.
For applicants filing under the automatic change request procedures, attach to the Form 3115 submitted with the filer's income
tax return a written
statement certifying that (a) the written consent was obtained from the director and (b) the applicant will retain a copy of the
consent for inspection by the IRS. For further details, see section 6.01(4) of Rev. Proc. 97-27 or section 6.03(4) of Rev.
Proc. 2002-9, as
applicable.
Line 4e.
The following exceptions apply to the under examination scope limitations:
-
90-day window period. This exception applies during the first 90 days of any tax year if the applicant has been under examination
for at least 12 consecutive months as of the first day of the tax year. The 90-day window period exception does not apply
if the method the applicant
is requesting to change is an issue under consideration or placed in suspense by the examining agent. For further details,
including the required
statement, see section 6.01(2) of Rev. Proc. 97-27 or 6.03(2) of Rev. Proc. 2002-9, as applicable.
-
120-day window period. This exception applies during the 120-day period following the date an examination ends regardless of
whether a subsequent examination has commenced. For the definition of when an examination ends, see section 3.07 of Rev. Proc.
97-27 or section 3.08
of Rev. Proc. 2002-9, as applicable. The 120-day window period exception does not apply if the method the applicant is requesting
to change is an
issue under consideration or placed in suspense by the examining agent. Applicants should include the ending date of the examination
that qualifies
the applicant to file under the 120-day window. For further details, including the required statement, see section 6.01(3)
of Rev. Proc. 97-27 or
section 6.03(3) of Rev. Proc. 2002-9, as applicable.
Line 5a.
If the applicant has any Federal income tax return before Appeals and/or a Federal court, refer to sections 6.02 and
6.03 of Rev. Proc. 97-27 or
sections 6.04 and 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.
Line 5c.
Except as otherwise provided in published guidance, an applicant that is requesting to change a method of accounting
that is an issue under
consideration by Appeals
and/or a Federal court will not receive audit protection for the requested change. For further details, see sections 6.02
and 6.03 of Rev. Proc.
97-27 or 6.04 and 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.
Line 6.
The information requested on line 6 may be provided in an attachment that includes the information requested on line
4f and/or line 5a, as
applicable.
Line 8.
Indicate the lack of audit protection by checking the “ Yes” box. An applicant filing under the automatic change request procedures should
review the applicable accounting method change section in the Appendix of Rev. Proc. 2002-9, or the procedures in other published
guidance, if
applicable, to determine if, under the specific change in accounting method requested, the applicant will not receive audit
protection in connection
with the change. Applicants filing under either the automatic change or advance consent request procedures must also indicate
lack of audit protection
for their change if audit protection does not apply under the provisions of sections 6.01(5), 6.02 or 6.03 of Rev. Proc. 97-27,
or under sections
6.03(6), 6.04 or 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19.
Line 13.
Each applicant, including each applicant that is a member of a consolidated group filing a single Form 3115 requesting
the identical accounting
method change, must attach a schedule describing its trade(s) or business(es) for each separate trade or business of the applicant.
For guidance
regarding the phrase “ separate trade or business,” see Regulations section 1.446-1(d).
Line 14.
Insurance companies must also state whether the proposed method of accounting will be used for annual statement accounting
purposes.
Line 16.
For details on requesting and scheduling a conference of right, see sections 9.05(4) and 10 of Rev. Proc. 2004-1.
Line 17.
For an applicant changing to or from the cash method or changing its method of accounting under sections 263A, 448,
460, or 471, enter the gross
receipts, as determined under the applicable Code section, of the applicant and other taxpayers, as applicable.
Part III—Information For Advance Consent Request
Advance Consent Request Scope Limitations
An applicant may not use the advance consent request procedures if any of the following four scope limitations apply at the
time the Form 3115
would be filed with the IRS National Office. See Rev. Proc. 97-27 as modified by Rev. Proc. 2002-19.
-
The change in accounting method is required to be made pursuant to a published automatic change procedure. For more information,
see section
4.02(1) of Rev. Proc. 97-27.
-
The applicant is under examination, except as provided in section 4.02(2) of Rev. Proc. 97-27.
-
The applicant is (or was formerly) a member of a consolidated group that is under examination, or before Appeals, or before
a Federal court
for the tax year(s) the applicant was a member of the group. For more information, see section 4.02(5) of Rev. Proc. 97-27.
-
In the case of a partnership or S corporation, the accounting method the applicant is requesting to change is an issue under
consideration
in an examination, or by an Appeals office, or before a Federal court with respect to a partner, member, or shareholder of
the applicant. For more
information, see section 4.02(6) of Rev. Proc. 97-27.
Line 18.
If the requested change is covered by an automatic change request procedure, and the procedure applies to the applicant
for the requested year of
change, the applicant is not eligible to file an advance consent request. If the requested change is covered by an automatic
change request procedure,
explain why the applicant is requesting to make the change under advance consent request procedures.
Line 19.
For further details on what is to be included in the attachment, see sections 9.03(1) (facts and other information),
9.03(4) (analysis of material
facts), 7.01(8) and 9.03(1) (statement of supporting authorities), 9.03(2) (statement of contrary authorities), and 9.03(7)
(statement identifying
pending legislation) of Rev. Proc. 2004-1.
Line 20.
True copies of all contracts, agreements, and other documents directly related to the proposed accounting method change
must be submitted with the
request. See section 9.03(3) of Rev. Proc. 2004-1.
Line 21.
For further details on what is to be included in the attachment, see section 7.01(1)(d) of Rev. Proc. 2004-1.
Line 23.
Taxpayers filing under the advance consent request procedures must pay a user fee for each Form 3115. See Appendix
A of Rev. Proc. 2004-1.
(Taxpayers filing under an automatic change request procedure do not pay a user fee.)
A separate user fee must be paid for each member of an affiliated group that files a Form 3115. However, a parent
corporation requesting an
identical accounting method change for more than one member of a consolidated group qualifies for a reduced user fee (see (A)(5) in
Appendix A of Rev. Proc. 2004-1). If a filer qualifies for a reduced user fee under this provision, the filer must submit
the additional information
required by section 15.07 of Rev. Proc. 2004-1. Only the members of the consolidated group requesting the accounting method
change are required to pay
a user fee.
Filers whose gross income is less than the amount specified in (A)(4) in Appendix A of Rev. Proc. 2004-1 qualify for
a reduced user fee. For the
definition of gross income, see (B)(2) and (3) in Appendix A of Rev. Proc. 2004-1. If the filer qualifies for the reduced
user fee under this
provision, the filer must attach to the Form 3115 the representation required by (B)(1) in Appendix A of Rev. Proc. 2004-1.
For information on user fees for tax-exempt organizations, see Rev. Proc. 2004-8, 2004-1 I.R.B. 240 (or its successor).
The user fee (check or money order payable to the Internal Revenue Service) must be attached to the Form 3115 that
is filed with the IRS National
Office.
Part IV—Section 481(a) Adjustment
Line 24.
Certain accounting method changes require the use of the cut-off method. In those cases there is no section 481(a)
adjustment.
Line 25.
Attach a schedule showing the section 481(a) adjustment for each applicant included in the Form 3115. This schedule
may be combined with the
information requested on the fourth line on page 1 (list of applicants, their identification numbers, and their principal
business activity codes) and
on line 23 (user fee). Include a summary of the computation of the section 481(a) adjustment and an explanation of the methodology
used to determine
it. If the section 481(a) adjustment is based on more than one component of the accounting method being changed, include a
summary of the computation
for each component. The summary of the computation and explanation of the section 481(a) adjustment need not be extensive
but should be sufficient to
demonstrate that the section 481(a) adjustment is being computed correctly.
Example.
Under its present method, XYZ Corporation is deducting certain costs that are required to be capitalized into inventory
under section 263A. XYZ
Corporation is proposing to change its method of accounting to properly capitalize such costs. The computation of the section
481(a) adjustment with
respect to the change in method of accounting may be demonstrated as follows:
Beginning inventory for year of change under
proposed method
|
$120,000 |
Beginning inventory for year of change under
present method
|
100,000 |
Difference (positive section 481(a) adjustment) |
+$ 20,000 |
Schedule A—Change in Overall Method of Accounting
Part I—Change in Overall Method
All applicants filing to change their overall method of accounting must complete Part I, including applicants filing under
designated automatic
accounting method change numbers 30, 32, 33, and 34 in the List of Automatic Accounting Method
Changes.
Lines 1a through 1g.
Enter the amounts requested on lines 1a through 1g, even though the calculation of some amounts may not have been
required in determining taxable
income due to the applicant's present method of accounting.
Note:
Do not include amounts that are not attributable to the change in method of accounting, such as amounts that correct a math
or posting error or
errors in calculating tax liability.
Line 1b.
Enter amounts received or reported as income in a prior year that were not earned as of the beginning of the year
of change. Examples include:
-
An advance payment received in a prior year for goods that were not delivered by the beginning of the year of change may be
reported upon
delivery if the taxpayer qualifies under Regulations section 1.451-5. If any amounts entered on line 1b are for advance payments,
complete Schedule B.
-
A discount on installment loans is reported as income in the year the loans were made instead of in the year(s) the income
was received or
earned.
Line 1h.
The following example illustrates how an applicant calculates the section 481(a) adjustment when changing to an accrual
method, a
nonaccrual-experience method, and the recurring item exception.
Example.
ABC corporation, a calendar year taxpayer using the cash method of accounting, has the following items of unreported
income and expense on December
31, 2003:
Accrued income |
$250,000 |
Uncollectible amounts based on |
|
the nonaccrual-experience method |
50,000 |
Accrued amounts properly |
|
deductible (economic performance has occurred) |
75,000 |
Expenses eligible for recurring item |
|
exception |
5,000 |
ABC corporation changes to an overall accrual method, a nonaccrual-experience method, and the recurring item exception
for calendar year 2004. The
section 481(a) adjustment is calculated as follows:
Accrued income |
$250,000 |
|
Less: |
|
|
Uncollectible amount |
50,000 |
|
Net income accrued but not received |
|
$200,000 |
Less: |
|
|
Accrued expenses |
75,000 |
|
Expenses deducted as recurring item |
5,000 |
|
Total expenses accrued but not paid |
|
80,000 |
Section 481(a) adjustment |
|
$120,000 |
Line 2.
If an applicant is requesting to use the recurring item exception (section 461(h)(3)), the section 481(a) adjustment
must include the amount of the
additional deduction that results from using the recurring item exception.
Part II—Change to the Cash Method For Advance Consent Request
Limits on cash method use.
Except as provided below, C corporations and partnerships with a C corporation as a partner may not use the cash method
of accounting. Tax
shelters, also, are precluded from using the cash method. For this purpose, a trust subject to tax on unrelated business income
under section 511(b)
is treated as a C corporation with respect to its unrelated trade or business activities.
The limit on the use of the cash method under section 448 does not apply to:
-
Farming businesses as defined in section 448(d)(1).
-
Qualified personal service corporations as defined in section 448(d)(2).
-
C corporations and partnerships with a C corporation as a partner if the corporation or partnership has gross receipts of
$5 million or
less. See section 448(b)(3) and (c) to determine if the applicant qualifies for this exception.
For farming corporations and partnerships with a C corporation as a partner, see section 447 for limits on the use
of the cash method.
Use of the cash method is also limited under Regulations sections 1.471-1 and 1.446-1(c)(2)(i) if the applicant purchases,
produces, or sells
merchandise that is an income-producing factor in its business. However, for exceptions to this limitation, see section 5.05
in the Appendix of Rev.
Proc. 2002-9 and Rev. Proc. 2002-28.
Schedule B—Change in Reporting Advance Payments
Line 1.
In general, payments received for services to be performed in the future must be included in gross income in the tax
year of receipt. However, Rev.
Proc. 71-21, 1971-2 C.B. 549, allows applicants on the accrual method, in certain circumstances, to defer for Federal income
tax purposes, payments
received (or amounts due and payable) in one tax year, if the services are to be performed by the end of the succeeding tax
year.
Line 2.
Advance payments received from a contract for the sale of goods generally may be deferred for Federal income tax purposes
until the second year
following the receipt of substantial advance payments on the contract. See Regulations section 1.451-5 for requirements that
must be met and for the
definition of “ substantial advance payments.”
Schedule C—Changes Within the LIFO Inventory Method
Use this schedule to request a change from one LIFO inventory method or submethod to another LIFO inventory method or submethod.
All applicants
changing within the LIFO inventory method or submethods must complete Part I. Complete Part II only if applicable.
Part I—General LIFO Information
Line 6.
Applicants changing to the IPIC method must use this method for all LIFO inventories. This includes applicants requesting
designated automatic
accounting method change numbers 61 or 62 in the List of Automatic Accounting Method Changes.
Schedule D—Change in the Treatment of Long-Term Contracts Under Section 460, Inventories, or Other Section 263A Assets
Part I—Change in Reporting Income From Long-Term Contracts
Line 2a.
Under section 460(f), the term “ long-term contract” means any contract for the manufacture, building, installation, or construction of
property that is not completed in the tax year in which it is entered into. However, a manufacturing contract will not qualify
as long-term unless the
contract involves the manufacture of (a) a unique item not normally included in finished goods inventory or (b) any item that
normally requires more than 12 calendar months to complete.
Generally, all long-term contracts entered into after July 10, 1989, that do not meet the exceptions under section
460(e) must be accounted for
using the percentage of completion method. See section 460 and the related regulations.
Line 2b.
To qualify for the contract exceptions under section 460(e), the contract must be:
-
A home construction contract entered into after June 20, 1988, involving dwelling units in buildings containing four or fewer
units
or
-
Any other construction contract entered into by the applicant if, at the time the contract is entered into, it is expected
to be completed
within 2 years and the applicant's average annual gross receipts determined under section 460(e)(2) for the 3-year period
preceding the tax year the
contract was entered into did not exceed $10 million.
Line 4b.
Under the simplified cost-to-cost method, only certain costs are used in determining both (a) costs allocated to the contract and
incurred before the close of the tax year and
(b) estimated contract costs. These costs are: (1) direct material costs; (2) direct labor costs; and
(3) allowable deductions for depreciation, amortization, and cost recovery allowances on equipment and facilities directly used
to
construct or produce the subject matter of the long-term contract. See Regulations section 1.460-5(c).
Part II—Change in Valuing Inventories Including Cost Allocation Changes
If the applicant is currently using a LIFO inventory method or submethod and is changing to another LIFO inventory method
or submethod, Part II is
not applicable. Use Schedule C, Changes Within the LIFO Inventory Method.
Line 3.
If an applicant is subject to, but not in compliance with, section 263A, generally on the same Form 3115 the applicant
must first comply with
section 263A before changing an inventory valuation method. The applicant must complete Schedule D, Part III, Method of Cost
Allocation. For
exceptions, see Regulations section 1.263A-7(b)(2).
Line 5a.
If the applicant properly elected the LIFO inventory method but is unable to furnish a copy of Form(s) 970, attach
the following statement to Form
3115:
“ I certify that to the best of my knowledge and belief (name of applicant) properly elected the LIFO inventory method by filing Form
970 with its return for the tax year(s) ended (insert date(s)) and otherwise complied with the provisions of section 472(d) and Regulations
section 1.472-3.”
Line 5c.
Attach the three statements required by section 10.01(4) in the Appendix of Rev. Proc. 2002-9.
Part III—Method of Cost Allocation
Applicants requesting to change their method of accounting for any property (produced or acquired for resale) subject to section
263A or any
long-term contracts as described in section 460 must complete this schedule.
If the change is for noninventory property that is subject to section 263A, attach a detailed description of the types of
property involved and an
explanation detailing how that property was accounted for prior to January 1, 1987.
There are several methods available for allocating and capitalizing costs under section 263A, and for allocating and, where
appropriate,
capitalizing costs properly allocable to long-term contracts. A change to or from any of these methods is a change in accounting
method that requires
IRS consent. Using the applicable regulations and notice listed below, the applicant should verify which methods are presently
being used and the
proposed methods that will be used before completing Schedule D, Part III. These methods are as follows:
1. Allocating Direct and Indirect Costs
-
Specific identification method—Regulations sections 1.263A-1(f)(2) and 1.460-5.
-
Burden rate method—Regulations sections 1.263A-1(f)(3)(i) and 1.460-5.
-
Standard cost method—Regulations sections 1.263A-1(f)(3)(ii) and 1.460-5.
-
Any other reasonable allocation method—Regulations sections 1.263A-1(f)(4) and 1.460-5.
2. Allocating Mixed Service Costs
-
Direct reallocation method—Regulations section 1.263A-1(g)(4)(iii)(A).
-
Step-allocation method—Regulations section 1.263A-1(g)(4)(iii)(B).
-
Simplified service cost method:
Using the labor-based allocation ratio—Regulations section 1.263A-1(h)(4). |
Using the production cost allocation ratio—Regulations section 1.263A-1(h)(5). |
-
Any other reasonable allocation method—Regulations section 1.263A-1(f)(4).
3. Capitalizing Additional Section 263A Costs
-
Simplified production method:
Without historic absorption ratio election—Regulations section 1.263A-2(b)(3). |
With historic absorption ratio election—Regulations section 1.263A-2(b)(4). |
-
Simplified resale method:
Without historic absorption ratio election—Regulations section 1.263A-3(d)(3). |
With historic absorption ratio election—Regulations section 1.263A-3(d)(4). |
-
U.S. ratio method—Notice 88-104, 1988-2 C.B. 443.
-
Any other reasonable allocation method—Regulations section 1.263A-1(f)(4) (including the methods listed above under Allocating
Direct and Indirect Costs).
Schedule E—Change in Depreciation or Amortization
Automatic change for depreciable property.
All applicants requesting to change their method of depreciation or amortization must complete Schedule E of Form
3115. Applicants changing their
method of accounting for depreciation or amortization under the automatic change request procedures should see the depreciation
changes in the
List of Automatic Accounting Method Changes.
Do not file Form 3115:
-
To make an election under sections 167, 168, 1400I, 1400L(b), or 1400L(c), or former section 168,
-
To revoke an election made under one of those sections,
-
To make or revoke an election under section 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (relating to section
197
intangibles),
-
To change the placed-in-service date,
-
To change the salvage value (except for a change in salvage value to zero when the salvage value is expressly treated as zero
by the Code,
the regulations, or other published guidance), or
-
To change a useful life under section 167 (except for a change to or from a useful life, recovery period, or amortization
period that is
specifically assigned by the Code, the regulations, or other published guidance).
List of Automatic Accounting Method Changes
Listed below are automatic accounting method changes providing for the filing of Form 3115. The List of Automatic Accounting Method
Changes includes regulatory automatic changes, changes provided for in the Appendix of Rev. Proc. 2002-9, and automatic changes provided
for in
other guidance. These automatic changes may be modified or supplemented with additional automatic changes by subsequently
published guidance.
Note:
The list provides a brief description of each automatic accounting method change that is included in the list. A
filer/applicant may not rely on the list or the descriptions of accounting method changes in the list as authority for making
an accounting method
change. A filer/applicant that is within the scope of, and complies with, all the applicable provisions of the published guidance
that authorizes each
listed change may rely on the applicable published guidance as authority for its automatic accounting method change. If any
information in the
List of Automatic Accounting Method Changes conflicts with published guidance, the published guidance applies.
Each item in the list below:
-
Designates an automatic accounting method change number for each change for entry on line 1a of Form 3115.
-
Briefly describes the accounting method change.
-
Indicates if scope limitation rules may not apply.
-
Indicates if audit protection may not apply.
-
Indicates in some cases which schedules of Form 3115 to complete.
-
Indicates in some cases any additional reporting requirements.
-
Indicates in some cases if the change is made on a cut-off basis.
-
Provides a reference to the basic published guidance (e.g., revenue procedure) that provides for the automatic change which
filers should
review prior to completing Part I, Information For Automatic Change Request, on page 1 of Form 3115.
-
Commodity Credit Corporation loans (section 77)—for loans received from the Commodity Credit Corporation, from
including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Scope
limitations do not apply to this change. This change is made on a cut-off basis. See section 1.01 in the Appendix of Rev. Proc.
2002-9.
-
Lawyers handling cases on a contingent fee basis (section 162)—from treating advances of money to their clients
for litigation costs as deductible business expenses to treating those advances as loans. See section 1A.01 in the Appendix of Rev.
Proc. 2002-9.
-
ISO 9000 costs (section 162)—to treating the costs as deductible, except to the extent they result in the
creation or acquisition of an asset having a useful life substantially beyond the tax year. Scope limitations do not apply
to this change. See
section 1A.04 in the Appendix of Rev. Proc. 2002-9.
-
Restaurant smallwares costs (section 162)—to the smallwares method described in Rev. Proc. 2002-12, 2002-3
I.R.B. 374 (i.e., as materials and supplies that are not incidental under Regulations section 1.162-3). Scope limitations
do not apply to this change.
The entire section 481(a) adjustment must be taken into account in the year of change. See section 1A.06 in the Appendix of Rev. Proc.
2002-9.
-
Bad debts (section 166)—for an applicant other than a bank, from accounting for bad debts using a reserve or
other improper method to a specific charge-off method that complies with section 166. See section 1B.01 in the Appendix of Rev. Proc.
2002-9.
-
Bad debt conformity for banks (section 166)—for banks other than new banks, to the method that conforms to
Regulations section 1.166-2(d)(3) for the first time the bank makes this change, or to involuntarily revoke this method. This change does
not fall under the procedures of Rev. Proc. 2002-9. Instead, see Regulations section 1.166-2(d)(3).
-
Depreciation or amortization (impermissible) (sections 56, 167, 168, 197, 1400I, 1400L, and former section
168)—from an impermissible method to a permissible method. Complete Schedule E of Form 3115. Attach the statements
required by section 2.01(2)(b) in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2004-11, 2004-3 I.R.B. 311.
Certain scope limitations
do not apply. See section 2.01 in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2003-50, 2003-29 I.R.B. 119, and Rev. Proc.
2004-11.
-
Depreciation (permissible) (sections 56 and 167)—from a permissible method to another permissible
method. Complete Schedule E of Form 3115. For public utility property, attach the statement required by section 2.02(4)(d)
in the Appendix of Rev.
Proc. 2002-9. Certain scope limitations do not apply. See section 2.02 in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2004-11,
2004-3 I.R.B. 311.
-
Post-disposition depreciation or amortization (sections 56, 167, 168, 197, 1400I and 1400L, and former section 168)—for an
item of depreciable or amortizable property disposed of by the taxpayer during the year of change for which the taxpayer deducted
less than the
depreciation allowable, from an impermissible method of accounting for depreciation or amortization to a permissible method of
accounting for depreciation or amortization. Complete Schedule E of Form 3115. Scope limitations do not apply. Attach the
original Form 3115 to the
filer's timely filed amended income tax return for the year of change and file the IRS National Office copy no later than
when the original Form 3115
is filed with that amended return. The amended income tax return must include the adjustments to taxable income and any collateral
adjustments to
taxable income or tax liability (e.g., adjustments to the amount or character of the gain or loss) resulting from this change
in method of accounting.
See Rev. Proc. 2004-11, 2004-3 I.R.B. 311.
-
Sale or lease transactions (sections 61, 162, 167, 168, and 1012)—from treating property as sold to
treating property as leased, and vice versa, and from treating property as purchased to treating property as leased, and vice
versa. Audit protection does not apply to this change. This change is made on a cut-off basis. See section 2.03 in the Appendix of Rev. Proc.
2002-9.
-
Modern golf course greens (sections 167, 168, and former section 168)—either to capitalization of land
preparation costs undertaken in the construction of modern greens that are closely associated with depreciable assets or to the addition to
basis of land for earthmoving costs inextricably associated with the land. Complete Schedule E of Form 3115. See section 2.04 in the Appendix of
Rev. Proc. 2002-9.
-
Original and replacement tire costs (section 168)—for qualifying vehicles, to the original tire capitalization
method. Complete Schedule E of Form 3115. Audit protection and scope limitations do not apply in certain cases. This change
is made on a cut-off
basis. See Rev. Proc. 2002-27, 2002-17 I.R.B. 802.
-
Depreciation of gas pump canopies (sections 167, 168, and former section 168)—for depreciation of certain stand-alone
gasoline pump canopies and their supporting concrete footings, to classifying the gasoline pump canopies in asset class 57.0 of Rev. Proc.
87-56, 1987-2 C.B. 674, and to classifying the supporting concrete footings in asset class 00.3 of Rev. Proc. 87-56. Complete Schedule E of
Form 3115. Scope limitations do not apply in certain cases. See Rev. Rul. 2003-54, 2003-23 I.R.B. 982.
-
Depreciation of utility assets (sections 167, 168, and former section 168)—for depreciation of assets owned by a utility
used in general business operations, from classifying assets under the present method to classifying assets under Rev. Proc.
87-56,1987-2 C.B. 674. Complete Schedule E of Form 3115. Scope limitations do not apply in certain cases. See Rev. Rul. 2003-81, 2003-30 I.R.B.
126.
-
Depreciation of cable TV fiber optics (section 168)— for depreciation of fiber optic node and trunk line of a cable
television distribution system, to classifying the unit of property either as providing one-way communication services or two-way
communication services. Scope limitations do not apply in certain cases. See Rev. Proc. 2003-63, 2003-32 I.R.B. 304.
-
Amortizable bond premium (section 171)—from amortizing bond premium to not amortizing the premium
(revoking the section 171(c) election). Attach the statement required by section 1C.01(4) in the Appendix of Rev. Proc. 2002-9.
This change is made on
a cut-off basis. See section 1C.01 in the Appendix of Rev. Proc. 2002-9.
-
Research and experimental expenditures (section 174)—from the capitalization method to another
permissible method, from the expense method to another permissible method, from the deferred expense method
to another permissible method, or from the current period of amortization to a different period of amortization under
the deferred expense method. Attach the statement required by section 2A.01(4) in the Appendix of Rev. Proc. 2002-9. Audit
protection does not apply
to this change. This change is made on a cut-off basis. See section 2A in the Appendix of Rev. Proc. 2002-9.
-
Computer software expenditures (sections 162 and 167)—for costs of developed, acquired, or leased or licensed computer
software, to deductible expenses or capital expenditures and amortization (for developed software), to capital expenditures and
depreciation or amortization (for acquired computer software), or to deductible expenses under Regulations section 1.162-11 (for leased or
licensed computer software). Complete Schedule E of Form 3115 for changes relating to acquired computer software or developed
computer software if the
change is to capital expenditures and amortization. If applicable, attach the statement required by section 2B.03 in the Appendix
of Rev. Proc.
2002-9, as modified by Rev. Proc. 2004-11, 2004-3 I.R.B. 311. See section 2B in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc.
2004-11.
-
Package design costs (section 263)—to the capitalization method, to the design-by-design
capitalization and 60-month amortization method, or to the pool-of-cost capitalization and 48-month amortization method. For changes to the
capitalization method or to the design-by-design capitalization and 60-month amortization method, attach the statement required
by section 3.01(2) in
the Appendix of Rev. Proc. 2002-9. See section 3.01 in the Appendix of Rev. Proc. 2002-9.
-
Line pack gas or cushion gas costs (section 263)—to treating the costs as capital expenditures, the costs of
recoverable amounts as not depreciable, and the costs of unrecoverable amounts as depreciable. A taxpayer that changes its
method for the costs of
unrecoverable amounts also must change to a permissible method of depreciation for those costs. See section 3.02 in the Appendix of Rev. Proc.
2002-9.
-
Removal costs (section 263)—for certain costs incurred in the retirement and removal of depreciable assets, to a
method that conforms with Rev. Rul. 2000-7, 2000-9 I.R.B. 712. For public utility property, attach the statement required
by section 3.03(2)(b) in the
Appendix of Rev. Proc. 2002-9. Scope limitations do not apply to this change. See section 3.03 in the Appendix of Rev. Proc.
2002-9.
-
Certain uniform capitalization methods used by small resellers, formerly small resellers, and reseller-producers (section
263A)—for qualifying applicants, to a qualifying method or methods. Complete Schedule D, Parts II and III, of Form 3115. Scope
limitations do not apply in certain cases. See sections 6.01 and 6.02 of Rev. Proc. 2002-54, and section 4.01(5) in the Appendix of Rev. Proc.
2002-9.
-
Certain uniform capitalization methods used by producers and reseller-producers (section 263A)—for qualifying
applicants, to a qualifying method or methods. Complete Schedule D, Parts II and III, of Form 3115. See section 6.03 of Rev. Proc.
2002-54.
-
Research and experimental expenditures under uniform capitalization methods (section 263A)—from capitalizing
research and experimental expenditures to inventory to no longer capitalizing these costs to inventory. Complete Schedule D, Part II, of
Form 3115, as applicable. Attach the statement required by section 4.04(2) in the Appendix of Rev. Proc. 2002-9. Audit protection
does not apply to
this change. See section 4.04 in the Appendix of Rev. Proc. 2002-9.
-
Impact fees (section 263A)—for impact fees incurred in connection with the new construction or expansion of a residential
building, to treating the costs as capital expenditures allocable to the building. Complete Schedule E of Form 3115 if the building is
depreciable. Scope limitations do not apply in certain cases. See Rev. Rul. 2002-9, 2002-10 I.R.B. 614.
-
Related party transactions (section 267)—for losses, expenses, and qualified stated interest incurred in transactions
between related parties, to disallowing or deferring certain deductions attributable to such transactions in accordance with section 267.
See section 4A.01 in the Appendix of Rev. Proc. 2002-9.
-
Deferred compensation determination (section 404)—for determining whether an item of compensation is deferred compensation
or when the item is paid, from making the determination by reference to when the item is secured to making the determination by
reference to when the item is actually received. Audit protection and scope limitations do not apply to this change. The section
481(a) adjustment
must be taken into account ratably over three tax years. See section 4B.01 in the Appendix of Rev. Proc. 2002-9.
-
Bonus or vacation pay deferred compensation (section 404)—for bonuses that are deferred compensation, from
treating as deductible or capitalizable when accrued, to treating as deductible or capitalizable in the year in which includible in the
employee's income, and for vacation pay that is deferred compensation, from treating as deductible or capitalizable when accrued
to treating as deductible or capitalizable in the year in which paid to the employee. See section 4B.02 in the Appendix of Rev. Proc.
2002-9.
-
Grace period contributions (section 404)—for contributions made to a section 401(k) qualified cash or deferred arrangement
or matching contributions under section 401(m), from treating contributions made after the end of the tax year but before the due date of
the tax return as being “on account of” the tax year without regard to when the underlying compensation is earned to treating such
contributions as not being “on account of” the tax year if they are attributable to compensation earned after the end of that tax year. Scope
limitations do not apply in certain cases. See Rev. Rul. 2002-46, 2002-29 I.R.B. 117, as modified by Rev. Rul. 2002-73, 2002-45 I.R.B.
805.
-
Overall accrual method (section 446)—for a qualifying applicant, from a cash receipts and disbursements or a
hybrid method to an overall accrual method, or to an overall accrual method in conjunction with the recurring item exception
under section 461(h)(3), or to an overall accrual method for an applicant required to change to an overall accrual method under section
448, but who is ineligible to make the change under Regulations section 1.448-1(h)(2) (relating to the “first section 448 year”). Complete
Schedule A, Part I, of Form 3115. Also complete Schedule D, Parts II and III, of Form 3115, as applicable. See section 5.01 in the Appendix of
Rev. Proc. 2002-9.
-
Multi-year insurance policies for multi-year service warranty contracts (section 446)—for a manufacturer, wholesaler, or
retailer of motor vehicles or other durable consumer goods accounting for multi-year insurance policies for multi-year service
warranty contracts,
to capitalizing and amortizing the costs. See section 5.03 in the Appendix of Rev. Proc. 2002-9.
-
Overall cash method ($1 million) (section 446)—for qualifying applicants changing to the overall cash method.
Complete Schedule A, Part I, of Form 3115. Also, complete Schedule D, Parts II and III, of Form 3115, as applicable. Scope
limitations do not apply to
this change. The applicant may request this change and designated automatic accounting method change number 50 (small taxpayer ($1 million)
inventory exception) on a single Form 3115. See section 5.05 in the Appendix of Rev. Proc. 2002-9.
-
Overall cash method ($10 million) (section 446)—for qualifying applicants changing to the overall cash method.
Complete Schedule A, Part I, of Form 3115. Also, complete Schedule D, Parts II and III, of Form 3115, as applicable. Scope
limitations do not apply to
this change. The applicant may request this change and designated automatic accounting method change number 51 (small taxpayer ($10
million) inventory exception) on a single Form 3115. See Rev. Proc. 2002-28, 2002-18 I.R.B. 815.
-
Overall accrual method (section 448)—to an overall accrual method for the applicant's first tax year it is
required to change from the cash method by section 448. Complete Schedule A, Part I, of Form 3115. Also, complete Schedule
D, Parts II and III, of
Form 3115, as applicable. This change does not fall under the procedures of Rev. Proc. 2002-9. Instead, see Regulations section
1.448-1.
-
Nonaccrual-experience method (section 448)—for an applicant changing its method of accounting for amounts received for the
performance of services in fields described in section 448(d)(2)(A) (i.e., health, law, engineering, architecture, accounting,
actuarial science,
performing arts, or consulting), from an overall accrual method to a nonaccrual-experience method, from one
nonaccrual-experience method to another nonaccrual-experience method, and/or from the present method to a periodic
system under Notice 88-51, 1988-1 C.B. 535. Scope limitations do not apply to this change in certain cases. See Temporary Regulations section
1.448-2T(g) and (h) and Notice 88-51.
-
Interest accrual on non-performing loans (section 451)—for an accrual method bank accounting for qualified stated interest
on non-performing loans, to the method whereby interest is accrued until either the loan is worthless under section 166 and is charged off
as a bad debt or the interest is determined to be uncollectible. See section 5A.01 in the Appendix of Rev. Proc. 2002-9.
-
Advance rentals (section 451)—for advance rentals other than advance rentals subject to section 467, to
inclusion in gross income in the tax year received. See section 5A.03 in the Appendix of Rev. Proc. 2002-9.
-
State tax refunds (section 451)—for an accrual method applicant with state or local income or franchise tax refunds,
to accrue these items in the tax year the applicant receives payments or notice of approval of its refund claim (whichever is
earlier), in
accordance with Rev. Rul. 2003-3, 2003-2 I.R.B. 252. Scope limitations do not apply in certain cases. See Rev. Rul. 2003-3.
-
Capital cost reduction (CCR) payments (section 451)—for CCR payments (as defined in Rev. Proc. 2002-36, 2002-21 I.R.B. 993)
made by vehicle lessees, to the method that excludes these payments from the applicant's gross income and from the applicant's bases in the
purchased vehicles. Scope limitations do not apply in certain cases. See Rev. Proc. 2002-36.
-
Exclusion for certain returned magazines, paperbacks, or records (section 458)—for an accrual method applicant electing to
exclude from gross income some or all of the income attributable to qualified sales during the tax year of magazines, paperbacks,
or records that are
returned before the close of the applicable merchandise return period for that tax year. The applicant's Form 3115 need contain
only the information
listed in Regulations section 1.458-2(d). This election does not fall under the procedures of Rev. Proc. 2002-9. Instead,
see Regulations section
1.458-2.
-
Percentage-of-completion (section 460)—for an applicant not required by section 460 to use the percentage-of-completion
method to account for its long-term contracts, from an exempt-contract method to the percentage-of-completion method. Complete
Schedule D, Parts I and III, of Form 3115. Audit protection does not apply to this change. This change is made on a cut-off
basis. See section
7A.02 in the Appendix of Rev. Proc. 2002-9.
-
Timing of incurring employee medical benefits liabilities (section 461)—for an applicant with an obligation to pay an
employee's medical expenses that is neither insured nor paid from a welfare benefit fund, to treatment as a liability incurred in the tax
year in which the applicant's employee files the claim with the applicant. See section 8.01 in the Appendix of Rev. Proc.
2002-9.
-
Timing of incurring real property, personal property, and state income tax liabilities (section 461)—for a qualifying
applicant, to treating these taxes as incurred in the tax year in which the taxes are paid, or to account for these taxes under
the recurring item exception to the economic performance rules, or to revoke the ratable accrual election under section 461(c). See
section 8.02 in the Appendix of Rev. Proc. 2002-9.
-
Timing of incurring workers' compensation act, tort, breach of contract, or violation of law liabilities (section 461)—for
a qualifying applicant accounting for self-insured liabilities arising under any workers' compensation act or out of any tort,
breach of contract, or
violation of law, to treating the liability as incurred in the tax year in which (a) all the events have occurred establishing
the fact of the liability, (b) the amount of the liability can be determined with reasonable accuracy, and (c) payment is made
to the person to which the liability is owed. See section 8.03 in the Appendix of Rev. Proc. 2002-9.
-
Timing of incurring payroll tax liabilities (section 461)—for FICA and FUTA taxes, state unemployment taxes, and railroad
retirement taxes, to the method under which the applicant may deduct in Year 1 its otherwise deductible FICA and FUTA taxes, state
unemployment taxes, and railroad retirement 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, or, for state unemployment taxes and railroad retirement taxes, to the method stated
above where the applicant already uses that method of accounting for FICA and FUTA taxes. See section 8.04 in the Appendix of Rev. Proc.
2002-9.
-
Cooperative advertising (section 461)—to incurring a liability in the tax year in which these services are
performed, provided the manufacturer is able to reasonably estimate this liability even though the retailer does not submit
the required claim form
until the following year. See section 8.05 in the Appendix of Rev. Proc. 2002-9.
-
Distributor commissions (section 461)—from deducting distributor commissions to capitalizing and
amortizing distributor commissions using the distribution fee period method, the 5-year method, or the useful life method.
This change is made on a
cut-off basis. See section 8.06(2) in the Appendix of Rev. Proc. 2002-9.
-
Cash discounts (section 471)—for cash discounts granted for timely payment, when such discounts 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 to a method of reducing the cost of the goods by the cash discounts and deducting as an expense any
discounts not taken, or vice versa. Complete Schedule D, Parts II and III, of Form 3115, as applicable. See section 9.01 in the Appendix of Rev.
Proc. 2002-9.
-
Estimating inventory shrinkage (section 471)—from the present method of estimating inventory shrinkage in
computing ending inventory to the “retail safe harbor method” in section 4 of Rev. Proc. 98-29, 1998-15 I.R.B. 22, or to a
method other than the retail safe harbor method, provided
(a) the applicant's present method of accounting does not estimate inventory shrinkage and (b) the applicant's new method of
accounting (that estimates inventory shrinkage) clearly reflects income under section 446(b). Complete Schedule D, Parts II
and III, of Form 3115, as
applicable. If changing to a method other than the “retail safe harbor method,” attach the statement required by section 9.02(3) in the Appendix
of Rev. Proc. 2002-9. Scope limitations do not apply to this change. Audit protection does not apply in certain cases. See section 9.02 in the
Appendix of Rev. Proc. 2002-9.
-
Small taxpayer ($1 million) inventory exception (section 471)—for a qualifying applicant, from the present
method of accounting for inventoriable items (including, if applicable, the method of capitalizing costs under section 263A)
to treating
inventoriable items in the same manner as materials and supplies that are not incidental under Regulations section 1.162-3.
Complete Schedule A, Part
I, and Schedule D, Parts II and III, of Form 3115, as applicable. Scope limitations do not apply to this change. The applicant
may request this change
and designated automatic accounting method change number 32 (overall cash method ($1 million)) on a single Form 3115. See section 9.03
in the Appendix of Rev. Proc. 2002-9.
-
Small taxpayer ($10 million) inventory exception (section 471)—for a qualifying applicant, from the present
method of accounting for inventoriable items (including, if applicable, the method of capitalizing costs under section 263A)
to treating
inventoriable items in the same manner as materials and supplies that are not incidental under Regulations section 1.162-3.
Complete Schedule D, Parts
II and III, of Form 3115, as applicable. Scope limitations do not apply to this change. The applicant may request this change
and designated automatic
accounting method change number 33 (overall cash method ($10 million)) on a single Form 3115. See Rev. Proc. 2002-28, 2002-18 I.R.B.
815.
-
“Floor stocks” (section 471)—for payments made or received with respect to “floor stocks,” to conform
with the holding of Rev. Rul. 2001-8, 2001-9 I.R.B. 726, or to elect the simplifying assumption regarding goods on hand described in Rev.
Rul. 2001-8. Complete Schedule D, Parts II and III, of Form 3115, as applicable. If electing the simplifying assumption, provide
the statement
described in section 9.04(4)(b) in the Appendix of Rev. Proc. 2002-9. Scope limitations do not apply to this change. This
change is made on a cut-off
basis. See section 9.04 in the Appendix of Rev. Proc. 2002-9.
-
Qualifying volume-related trade discounts (section 471)—to treating qualifying volume-related trade discounts as
a reduction in the cost of merchandise purchased at the time the discount is recognized in accordance with Regulations section
1.471-3(b). Complete
Schedule D, Parts II and III, of Form 3115, as applicable. See section 9.05 in the Appendix of Rev. Proc. 2002-9.
-
Impermissible methods of inventory valuation (section 471)—to restore an inventory writedown or to
discontinue maintaining a reserve specifically described within Regulations section 1.471-2(f). Complete Schedule D, Parts
II and III, of Form 3115,
as applicable. See section 9.06 in the Appendix of Rev. Proc. 2002-9.
-
Valuation of remanufactured cores (section 471)— for remanufacturers and rebuilders of motor vehicle parts and resellers of
remanufactured and rebuilt motor vehicle parts that use the lower of cost or market method to value their inventory of cores,
to the safe
harbor method of accounting (the “Core Alternative Valuation” method) to value inventories of cores as provided for in Rev. Proc. 2003-20, 2003-6
I.R.B. 445. Complete Schedule D, Parts II and III, of Form 3115, as applicable. See Rev. Proc. 2003-20.
-
Change from LIFO inventory method (section 472)—for an applicant changing from the LIFO inventory method for its
entire LIFO inventory, or for a pool or pools within its LIFO inventory, to the permitted method as determined in section 10.01(1)(b) in
the Appendix of Rev. Proc. 2002-9. Complete Schedule D, Parts II and III, of Form 3115, as applicable. Attach the statements
required by section
10.01(4) in the Appendix of Rev. Proc. 2002-9. See section 10.01 in the Appendix of Rev. Proc. 2002-9.
-
Determining current-year cost (section 472)—to determining current-year cost: (a) by reference to the
actual cost of the goods most recently purchased or produced; (b) by reference to the actual cost of the goods purchased or produced during
the tax year in the order of acquisition; or
(c) by application of an average unit cost equal to the aggregate actual cost of all the goods purchased or produced throughout
the tax
year divided by the total number of units so purchased or produced. Complete Schedule C, Part I, of Form 3115. This change
is made on a cut-off basis.
See section 10.02 in the Appendix of Rev. Proc. 2002-9.
-
Alternative LIFO inventory method (section 472)—for a qualifying applicant that sells new automobiles or new light-duty
trucks, to the “Alternative LIFO Method” described in Rev. Proc. 97-36, 1997-33 I.R.B. 450. Complete Schedule C of Form 3115, as
applicable. Attach the statement required by section 10.03(2)(c)(ii) in the Appendix of Rev. Proc. 2002-9 and the Form 970
required by reference in
section 10.03(2)(c)(i) in the Appendix of Rev. Proc. 2002-9. This change is made on a cut-off basis. See section 10.03 in the Appendix of Rev.
Proc. 2002-9.
-
Used vehicle alternative LIFO method (section 472)—for a qualifying applicant that sells used automobiles and used
light-duty trucks, to the “Used Vehicle Alternative LIFO Method,” as described in Rev. Proc. 2001-23, 2001-10 I.R.B. 784. Complete
Schedule C, Part I, of Form 3115. Scope limitations do not apply to this change in certain cases. In general, this change
is made on a cut-off basis.
See section 10.04 in the Appendix of Rev. Proc. 2002-9.
-
Determining the cost of used vehicles purchased or taken as a trade-in (section 472)—for a qualifying applicant,
to a method of (a) determining the cost of used vehicles acquired by trade-in using the average wholesale price listed by a
consistently used official used car guide on the date of the trade-in; (b) determining the cost of used vehicles purchased for cash using
the actual purchase price of the vehicle; or
(c) reconstructing the beginning-of-the-year cost of used vehicles purchased for cash using values computed by national auto
auction
companies based on vehicles purchased for cash, where the national auto auction company selected is consistently used. Complete
Schedule C, Part I, of
Form 3115. This change is made on a cut-off basis. See section 10.05 in the Appendix of Rev. Proc. 2002-9.
-
Change to IPIC inventory method (section 472)—for a qualifying applicant, from a non-inventory price index
computation (IPIC) LIFO inventory method to the IPIC method in accordance with all relevant provisions of Regulations section
1.472-8(e)(3). The applicant may request this change and designated automatic accounting method change number 57 (determining current-year
cost), or this change and designated automatic accounting method change number 62 (changes within IPIC inventory method) on a single Form
3115. Complete Schedule C of Form 3115, as applicable. This change is made on a cut-off basis. See section 10.06 in the Appendix of Rev. Proc.
2002-9.
-
Changes within IPIC inventory method (section 472)—to one or more of the following methods within IPIC:
(a) from the double-extension IPIC method to the link-chain IPIC method, or vice versa; (b) to or from the 10 percent method;
(c) to a pooling method described in Regulations section 1.472-8(b)(4) or Regulations section 1.472-8(c)(2), including a change
to begin or
discontinue applying one or both of the 5 percent pooling rules; (d) combine or separate pools as a result of the application of a 5
percent pooling rule described in Regulations section 1.472-8(b)(4) or Regulations section 1.472-8(c)(2); (e) change the selection of BLS
tables 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 and percent changes for commodity groupings and individual items, not seasonally
adjusted) of the
monthly PPI Detailed Report, or vice versa; or (f) change the representative month when necessitated because of a change in tax year or a
change in method of determining current-year cost made pursuant to section 10.02 in the Appendix of Rev. Proc. 2002-9. The
applicant may request the
change described in (f) above and designated automatic accounting method change number 57 (determining current-year cost) on a
single Form 3115. Complete Schedule C of Form 3115, as applicable. This change is made on a cut-off basis. See section 10.07 in the Appendix of
Rev. Proc. 2002-9, as modified by Rev. Proc. 2003-45, 2003-27 I.R.B. 11.
-
Replacement cost method for automobile dealers' parts inventory (section 472)—to the replacement cost method for
automobile dealers' parts inventory described in Rev. Proc. 2002-17, 2002-13 I.R.B. 676. Complete Schedule D, Parts II and
III, of Form 3115, as
applicable. Audit protection and scope limitations do not apply in certain cases. See Rev. Proc. 2002-17.
-
Mark-to-market (section 475)—for accounting for securities or commodities by commodities dealers, securities traders, and
commodities traders, to the mark-to-market method. An election statement must be filed earlier than the due date of Form 3115. See Rev.
Proc. 99-17, 1999-7 I.R.B. 52, for rules relating to this statement. Scope limitations do not apply to this change. See section 10A.02 in the
Appendix of Rev. Proc. 2002-9.
-
Dealer status changes (section 475)—for an applicant electing out of certain exemptions from securities dealer status,
to the mark-to-market method. Attach the statement(s) required by Rev. Proc. 97-43, 1997-39 I.R.B. 12. For a special cut-off
rule, see
section 5.02 of Rev. Proc. 97-43. This change does not fall under the procedures of Rev. Proc. 2002-9. Instead, see Rev. Proc.
97-43.
-
Bank reserves for bad debts (section 585)—from the section 585 reserve method to the section 166
specific charge-off method. Scope limitations do not apply in certain cases. See section 11.01 in the Appendix of Rev. Proc.
2002-9.
-
Insurance company premium acquisition expenses (section 832)—for certain insurance companies, to a safe harbor
method of accounting for premium acquisition expenses. Scope limitations do not apply to this change. See Rev. Proc. 2002-46, 2002-28 I.R.B.
105.
-
Discounted unpaid losses (section 846)—for insurance companies other than life insurance companies computing discounted
unpaid losses, to the composite method or to alternative methods. Scope limitations do not apply in certain cases. See Rev.
Proc. 2002-74, 2002-51 I.R.B. 980.
-
Income from sources within the United States (section 861)—for certain transactions involving computer programs,
to a method that conforms with Regulations section 1.861-18. See section 11A.01 in the Appendix of Rev. Proc.
2002-9.
-
Functional currency (section 985)—to the use of another functional currency for the applicant or its qualified
business unit. See section 11B.01 in the Appendix of Rev. Proc. 2002-9.
-
Rule of 78s (section 1272)—for stated interest on certain short-term consumer loans, from the Rule of 78s method
to the constant yield method. See section 5.04 in the Appendix of Rev. Proc. 2002-9.
-
Original issue discount (sections 1272 and 1273)—to the principal-reduction method for de minimis original issue
discount (OID). Attach the statement required by section 12.01(3) in the Appendix of Rev. Proc. 2002-9. Audit protection and
scope limitations do not
apply to this change. This change is made on a cut-off basis. See section 12.01 in the Appendix of Rev. Proc. 2002-9.
-
Market discount bonds (section 1278)—from including market discount currently in income for the tax year to
which the discount is attributable to including market discount in income for the tax year of disposition or partial principal payment
(revoking the section 1278(b) election). Attach the statement required by section 12A.01(4) in the Appendix of Rev. Proc.
2002-9. This change is made
on a cut-off basis. See section 12A.01 in the Appendix of Rev. Proc. 2002-9.
-
Interest income on short-term obligations (section 1281)—to currently including accrued interest and discount in
income (to comply with section 1281). The entire section 481(a) adjustment must be taken into account in the year of change.
See section 13.01 in
the Appendix of Rev. Proc. 2002-9.
-
Stated interest on short-term loans (section 1281)—for a bank using the cash receipts and disbursements method of
accounting, from accruing stated interest on short-term loans made in the ordinary course of business to using the cash method
to report such interest. Scope limitations do not apply to this change. The entire section 481(a) adjustment must be taken
into account in the year of
change. See section 13.02 in the Appendix of Rev. Proc. 2002-9.
-
Sales of mortgage loans (section 1286)—for accounting for certain sales of mortgage loans in which the seller also enters
into a contract to service the mortgages in consideration for amounts received from interest payments, from a method that is inconsistent
with Rev. Rul. 91-46, 1991-2 C.B. 358, to a method that is consistent with Rev. Rul. 91-46. However, the change is only an automatic
accounting method change for certain taxpayers who are under examination. This change does not fall under the procedures of
Rev. Proc. 2002-9.
Instead, see Rev. Proc. 91-51, 1991-2 C.B. 779.
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