Rev. Proc. 2025-23 — Rev. Proc. 2025-23

# preamble

26 CFR 601.204: Changes in accounting periods and in methods of accounting.

(Also Part I, §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 195,
197, 248, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467, 471,
472, 475, 481, 585, 709, 807, 816, 832, 833, 846, 860A-860G, 861, 904, 953, 985,
1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61-1, 1.61-4, 1.61-8, 1.77-1,
1.77-2, 1.118-2, 1.162-1, 1.162-3, 1.162-4, 1.162-11, 1.162-12, 1.166-1, 1.166-2, 1.166-
4, 1.167(a)-2, 1.167(a)-3(b), 1.167(a)-4, 1.167(a)-7, 1.167(a)-8, 1.167(a)-11, 1.167(a)-
14, 1.167(e)-1, 1.168(d)-1, 1.168(i)-1, 1.168(i)-4, 1.168(i)-6, 1.168(i)-7, 1.168(i)-8,
1.168(k)-1, 1.168(k)-2, 1.171-4, 1.174-1, 1.174-3, 1.174-4, 1.179-5, 1.194-1, 1.195-1,
1.197-2, 1.248-1, 1.263(a)-1, 1.263(a)-2, 1.263(a)-3, 1.263(a)-4, 1.263(a)-5, 1.263A-1,
1.263A-2, 1.263A-3, 1.263A-4, 1.263A-7, 1.267(a)-1, 1.280F-6, 1.404(b)-1T, 1.446-1,
1.446-1T, 1.446-2, 1.446-5, 1.446-6, 1.446-7, 1.448-1, 1.448-2, 1.451-1, 1.451-3, 1.451-
8, 1.454-1, 1.455-6, 1.460-1, 1.460-3, 1.460-4, 1.461-1, 1.461-4, 1.461-5, 1.467-1,
1.471-1, 1.471-2, 1.471-3, 1.471-4, 1.471-5, 1.471-8, 1.472-1, 1.472-2, 1.472-6, 1.472-
8, 1.481-1, 1.481-4, 1.709-1, 1.709-2, 1.832-4, 1.832-5, 1.860A-6, 1.861-18, 1.985-5,
1.985-8, 1.1016-3, 1.1245-3, 1.1272-1, 1.1273-1, 1.1273-2, 1.1275-2, 1.1363-2, 1.1374-
4, 1.1400L(b)-1, 1.1502-68.)

Rev. Proc. 2025-23

LIST OF AUTOMATIC CHANGES .................................................................................. 7
SECTION 1. GROSS INCOME (§ 61) ............................................................................. 7
.01 Up-front Payments for Network Upgrades received by Utilities ............................. 7
SECTION 2. COMMODITY CREDIT LOANS (§ 77) ....................................................... 8
.01 Treating amounts received as loans ...................................................................... 8
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162) ............................................. 9
.01 Advances made by a lawyer on behalf of clients ................................................... 9
.02 ISO 9000 Costs ..................................................................................................... 9
.03 Restaurant or tavern smallwares packages ......................................................... 10
.04 Timber grower fertilization costs .......................................................................... 10
.05 Materials and supplies ......................................................................................... 11
.06 Repair and maintenance costs ............................................................................ 11

.07 Wireline network asset maintenance allowance and units of property methods of
accounting under Rev. Proc. 2011-27 ....................................................................... 11
.08 Wireless network asset maintenance allowance and units of property methods of
accounting under Rev. Proc. 2011-28 ....................................................................... 12
.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business of
transporting, delivering, or selling electricity .............................................................. 12
.10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business of
generating steam or electric power. ........................................................................... 13

.11 Cable network asset capitalization methods of accounting under Rev. Proc. 2015-
12 ............................................................................................................................... 14
.12 Natural gas transmission and distribution property method of accounting under
Rev. Proc. 2023-15 .................................................................................................... 16
SECTION 4. BAD DEBTS (§ 166) ................................................................................. 34
.01 Change from reserve method to specific charge-off method ............................... 34
.02 Conformity election by bank after previous election automatically revoked ......... 35
.03 Change to the allowance charge-off method ....................................................... 36
SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM
(§ 171) ........................................................................................................................... 37
.01 Revocation of § 171(c) election ........................................................................... 37
.02 Change to comply with § 163(e)(3) ...................................................................... 39
SECTION 6. DEPRECIATION OR AMORTIZATION (§§ 56(a)(1), 167, 168, 197,
280F(a), or 1502, OR FORMER §§ 56(g)(4)(A), 168, 1400I, 1400L, or 1400N(d)) ....... 40
.01 Impermissible to permissible method of accounting for depreciation or
amortization ............................................................................................................... 40
.02 Permissible to permissible method of accounting for depreciation ...................... 58
.03 Sale, lease, or financing transactions .................................................................. 66
.04 Change in general asset account treatment due to a change in the use of MACRS
property ..................................................................................................................... 68
.05 Change in method of accounting for depreciation due to a change in the use of
MACRS property........................................................................................................ 71
.06 Depreciation of qualified non-personal use vans and light trucks ........................ 74
.07 Impermissible to permissible method of accounting for depreciation or
amortization for disposed depreciable or amortizable property ................................. 76
.08 Tenant construction allowances........................................................................... 80
.09 Safe harbor method of accounting for determining the depreciation of certain
tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-
22 ............................................................................................................................... 83
.10 Partial dispositions of tangible depreciable assets to which the IRS's adjustment
pertains (§ 168; § 1.168(i)-8) ..................................................................................... 84
.11 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-4) .. 87
.12 Permissible to permissible method of accounting for depreciation of MACRS
property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8) ......................................... 90
.13 Disposition of a building or structural component (§ 168; § 1.168(i)-8) .............. 100
.14 Dispositions of tangible depreciable assets (other than a building or its structural
components) (§ 168; § 1.168(i)-8) ........................................................................... 112
.15 Dispositions of tangible depreciable assets in a general asset account
(§ 168(i)(4); § 1.168(i)-1) ......................................................................................... 121
.16 Summary of certain changes in methods of accounting related to dispositions of
MACRS property...................................................................................................... 128
.17 Depreciation of fiber optic transfer node and fiber optic cable used by a cable
system operator (§§ 167 and 168) ........................................................................... 133
.18 Qualified improvement property placed in service after December 31, 2017
(§ 168) ..................................................................................................................... 135

.19 Certain late elections under §§ 168 and 1502 or revocation of certain elections
under § 168 (§ 168(g)(7), (k)(5), (k)(7), and (k)(10); §§ 1.168(k)-2 and 1.1502-68) . 138

.20 Change in depreciation as a result of applying the additional first year
depreciation regulations (§ 168(k); §§ 1.168(k)-2 and 1.1502-68) ........................... 141
.21 Depreciation of tangible property under § 168(g) by controlled foreign
corporations. ............................................................................................................ 147
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174) ............. 150
.01 Change in Method of Accounting for SRE Expenditures ................................... 150
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D) .................................. 155
.01 Deduction for Energy Efficient Commercial Buildings (§ 179D) ......................... 155
SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197) .... 157
.01 Computer software expenditures ....................................................................... 157
SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§§ 195,
248 AND 709) ............................................................................................................. 158
.01 Start-up expenditures ........................................................................................ 158
.02 Organizational expenditures under § 248 .......................................................... 160
.03 Organization fees under § 709........................................................................... 162
SECTION 11. CAPITAL EXPENDITURES (§ 263) ..................................................... 163
.01 Package design costs ........................................................................................ 163
.02 Line pack gas or cushion gas ............................................................................ 164
.03 Removal costs ................................................................................................... 165
.04 Distributor commissions ..................................................................................... 167
.05 Intangibles ......................................................................................................... 168
.06 Rotable spare parts safe harbor method. .......................................................... 168
.07 Repairable and reusable spare parts ................................................................. 169
.08 Tangible property ............................................................................................... 173
.09 Railroad track structure expenditures ................................................................ 182
.10 Remodel-refresh safe harbor method ................................................................ 183
SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) ............ 189
.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-
producers ................................................................................................................. 189
.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-
producers ................................................................................................................. 200
.03 Impact fees ........................................................................................................ 204
.04 Change to capitalizing environmental remediation costs under § 263A ............. 205
.05 Change in allocating environmental remediation costs under § 263A ............... 206
.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles ... 206
.07 Change to not apply § 263A to one or more plants removed from the list of plants
that have a preproductive period in excess of 2 years. ............................................ 208
.08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for self-
constructed assets ................................................................................................... 209
.09 Real property acquired through foreclosure ....................................................... 211
.10 Sales-Based Royalties ....................................................................................... 211
.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method .... 213
.12 U.S. ratio method ............................................................................................... 215
.13 Depletion ........................................................................................................... 220
.14 Interest capitalization ......................................................................................... 222
.15 Change to not apply § 263A to replanting costs for lost or damaged citrus plants
pursuant to § 263A(d)(2)(C) ..................................................................................... 224

.16 Small business taxpayer exception from requirement to capitalize costs under
§ 263A ..................................................................................................................... 225
.17 Recharacterizing costs under the simplified resale method, simplified production
method, or the modified simplified production method............................................. 227

# SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO

TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267) ................................. 229
.01 Change to comply with § 267 ............................................................................ 229
SECTION 14. DEFERRED COMPENSATION (§ 404) ............................................... 230
.01 Deferred compensation ..................................................................................... 230
.02 Grace period contributions ................................................................................. 232
SECTION 15. METHODS OF ACCOUNTING (§ 446) ................................................ 233
.01 Change in overall method from the cash method, or from an accrual method with
regard to purchases and sales of inventories and the cash method for all other items,
to an accrual method ............................................................................................... 233
.02 Multi-year insurance policies for multi-year service warranty contracts ............. 242
.03 Nonaccrual-experience method ......................................................................... 243
.04 Interest accruals on short-term consumer loans—Rule of 78's method ............. 245
.05 Film producer's treatment of certain creative property costs ............................. 246
.06 Deduction of incentive payments to health care providers ................................. 247
.07 Change by bank for uncollected interest. ........................................................... 248
.08 Change from the cash method to an accrual method for specific items............. 250
.09 Multi-year service warranty contracts ................................................................ 253
.10 Overall cash method for specified transportation industry taxpayers ................. 254
.11 Change to overall cash/hybrid method for certain banks ................................... 258
.12 Change to overall cash method for farmers ....................................................... 262
.13 Nonshareholder contributions to capital under § 118 ......................................... 263
.14 Debt issuance costs ........................................................................................... 264
.15 Transfers of interties under the safe harbor described in Notice 2016-36 (§ 118).
................................................................................................................................. 265
.16 Change to or from the net asset value (NAV) method. ...................................... 266
.17 Small business taxpayer changing the overall method of accounting to the cash
method, or to a method of accounting in which a small business taxpayer uses an
accrual method for purchases and sales of inventories and uses the cash method for
computing all other items of income and expense ................................................... 270
SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451) ............................................ 274
.01 Accrual of interest on nonperforming loans ....................................................... 274
.02 Advance rentals ................................................................................................. 275
.03 State or local income or franchise tax refunds ................................................... 276
.04 Capital Cost Reduction Payments ..................................................................... 276
.05 Credit card annual fees ...................................................................................... 277
.06 Retainages ........................................................................................................ 278

.07 Change in applicable financial statements (AFS) for purposes of applying certain
revenue recognition methods of accounting. ........................................................... 279
.08 Changes in the timing of income recognition under § 451(b) and (c)................. 285
SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454) ................................. 304
.01 Series E, EE or I U.S. savings bonds ................................................................ 304
SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455) ...................................... 305

.01 Prepaid subscription income .............................................................................. 305
SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460) ............... 307
.01 Small business taxpayer exceptions from requirement to account for certain long-
term contracts under § 460 or to capitalize costs under § 263A for certain home
construction contracts .............................................................................................. 307
.02 Change to rely on the interim guidance provided in section 8 of Notice 2023-63,
2023-39 I.R.B. 919................................................................................................... 309
SECTION 20. TAXABLE YEAR INCURRED (§ 461) .................................................. 311
.01 Timing of incurring liabilities for employee compensation .................................. 312
(1) Self-insured employee medical benefits ......................................................... 312
(2) Bonuses .......................................................................................................... 313
(3) Vacation pay, sick pay, and severance pay .................................................... 315
(4) Commissions .................................................................................................. 316
.02 Timing of incurring liabilities for real property taxes, personal property taxes, state
income taxes, and state franchise taxes .................................................................. 318
.03 Timing of incurring liabilities under a workers' compensation act, tort, breach of
contract, or violation of law ...................................................................................... 320
.04 Timing of incurring certain liabilities for payroll taxes ......................................... 321
.05 Cooperative advertising ..................................................................................... 324
.06 Timing of incurring certain liabilities for services or insurance ........................... 325
.07 Rebates and allowances .................................................................................... 325
.08 Ratable accrual of real property taxes ............................................................... 326
.09 California Franchise Taxes ................................................................................ 327
.10 Gift cards issued as a refund for returned goods ............................................... 328
.11 Timing of incurring liabilities under the recurring item exception to the economic
performance rules .................................................................................................... 329
.12 Economic performance safe harbor for ratable service contracts ...................... 329
.13 Alternative Cost Method .................................................................................... 330
SECTION 21. RENT (§ 467) ....................................................................................... 335
.01 Change from an improper method of inclusion of rental income or expense to
inclusion in accordance with the rent allocation ....................................................... 335
SECTION 22. INVENTORIES (§ 471) ......................................................................... 336
.01 Cash discounts .................................................................................................. 336
.02 Estimating inventory "shrinkage." ....................................................................... 339
.03 Qualifying volume-related trade discounts ......................................................... 340
.04 Impermissible methods of identification and valuation of inventories. ................ 341
.05 Core Alternative Valuation Method .................................................................... 343
.06 Replacement cost for automobile dealers' parts inventory ................................ 345
.07 Replacement cost for heavy equipment dealers' parts inventory ....................... 345

.08 Rotable spare parts ........................................................................................... 347
.09 Advance Trade Discount Method ....................................................................... 347
.10 Permissible methods of identification and valuation of inventories. ................... 348
.11 Change in the official used vehicle guide utilized in valuing used vehicles ........ 350
.12 Invoiced advertising association costs for new vehicle retail dealerships .......... 351
.13 Rolling-average method of accounting for inventories ....................................... 352
.14 Sales-Based Vendor Chargebacks .................................................................... 353
.15 Certain changes to the cost complement of the retail inventory method ............ 354

.16 Certain changes within the retail inventory method ........................................... 355
.17 Change from currently deducting inventories to permissible methods of
identification and valuation of inventories. ............................................................... 356
.18 Small business taxpayer § 471(c) inventory methods. ....................................... 357
.19 Changes within a § 471(c) inventory method. .................................................... 360
.20 Change from a small business taxpayer § 471(c) inventory method to an inventory
method under § 471(a). ........................................................................................... 363
SECTION 23. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472) .......................... 364
.01 Change from the LIFO inventory method ........................................................... 364
.02 Determining current-year cost under the LIFO inventory method ...................... 367
.03 Alternative LIFO inventory method for retail automobile dealers ....................... 369
.04 Used vehicle alternative LIFO method ............................................................... 371
.05 Determining the cost of used vehicles purchased or taken as a trade-in ........... 374
.06 Change to the inventory price index computation (IPIC) method ....................... 375
.07 Changes within the inventory price index computation (IPIC) method ............... 377
.08 Changes to the Vehicle-Pool Method ................................................................ 380
.09 Changes within the used vehicle alternative LIFO method ................................ 381
.10 Changes to dollar-value pools of manufacturers................................................ 382
SECTION 24. MARK-TO-MARKET ACCOUNTING METHOD (Including § 475) ........ 383
.01 Commodities dealers, securities traders, and commodities traders electing to use
the mark-to-market method of accounting under § 475(e) or (f) .............................. 383
.02 Taxpayers requesting to change their method of accounting from the mark-to-
market method of accounting described in § 475 to a realization method ............... 387
SECTION 25. BANK RESERVES FOR BAD DEBTS (§ 585) ..................................... 393
.01 Changing from the § 585 reserve method to the § 166 specific charge-off method
................................................................................................................................. 393
SECTION 26. INSURANCE COMPANIES (§§ 807, 816, 832, 833) ............................ 397
.01 Safe harbor method of accounting for premium acquisition expenses ............... 397
.02 Certain changes in method of accounting for organizations to which § 833 applies
................................................................................................................................. 398
.03 Change in qualification as life/nonlife insurance company under § 816 ............. 399
.04 Changes in basis of computing reserves under § 807(f) .................................... 400
SECTION 27. DISCOUNTED UNPAID LOSSES (§ 846) ............................................ 406
.01 Composite method for discounting unpaid losses .............................................. 406
SECTION 28. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC)
(§§ 860A-860G) .......................................................................................................... 407
.01 REMIC Inducement Fees .................................................................................. 407
SECTION 29. FUNCTIONAL CURRENCY (§ 985) ..................................................... 408

.01 Change in functional currency ........................................................................... 408
SECTION 30. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273) ................................... 409
.01 De minimis original issue discount (OID) ........................................................... 409
.02 Proportional method of accounting for OID on a pool of credit card receivables 410
SECTION 31. MARKET DISCOUNT BONDS (§ 1278) ............................................... 412
.01 Revocation of § 1278(b) election ....................................................................... 412
SECTION 32. SHORT-TERM OBLIGATIONS (§ 1281) .............................................. 414
.01 Interest income on short-term obligations .......................................................... 414
.02 Stated interest on short-term loans of cash method banks ................................ 415

EFFECTIVE DATE ...................................................................................................... 416
EFFECT ON OTHER DOCUMENTS .......................................................................... 421
PAPERWORK REDUCTION ACT............................................................................... 425
SIGNIFICANT CHANGES ........................................................................................... 425
DRAFTING INFORMATION ........................................................................................ 432
LIST OF AUTOMATIC CHANGES CONTACT LIST ................................................... 433

This revenue procedure provides the List of Automatic Changes to which the
automatic change procedures in Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and
modified by Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc.
2021-34, 2021-35 I.R.B. 337, by Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, by Rev.
Proc. 2017-59, 2017-48 I.R.B. 543, and by section 17.02(b) and (c) of Rev. Proc. 2016-
1, 2016-1 I.R.B. 1, apply. The definitions in section 3 of Rev. Proc. 2015-13 apply to
this revenue procedure.
LIST OF AUTOMATIC CHANGES
SECTION 1. GROSS INCOME (§ 61)
.01 Up-front Payments for Network Upgrades received by Utilities.
(1) Description of change. This change applies to a Utility that wants to
change its method of accounting for Up-front Payments to the safe harbor method
described in Rev. Proc. 2005-35, 2005-2 C.B. 76. In general, this change applies to a
Utility that receives an Up-front Payment from a Generator to finance Network Upgrades
to the Utility's Transmission System. For federal income tax purposes, if an Up-front
Payment is made pursuant to an Interconnection Agreement that satisfies all of the
conditions of section 5.02 of Rev. Proc. 2005-35, a Utility may treat that Up-front
Payment as not being taxable income under § 61 when received (the safe harbor
method). In addition, a Utility that uses the safe harbor method is not entitled to any
deduction for its reimbursements of the Up-front Payment. To the extent that Federal

Energy Regulatory Commission (FERC) interest is deductible, it must be properly
allocated to the periods in which it accrues. A Utility using the safe harbor method must
comply with all other applicable provisions of Rev. Proc. 2005-35. See Rev. Proc.
2005-35 for the definitions of certain terms for purposes of this change.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 1.01 is "91."
(3) Contact information. For further information regarding a change under
this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).
SECTION 2. COMMODITY CREDIT LOANS (§ 77)
.01 Treating amounts received as loans.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for loans received from the Commodity Credit
Corporation from including the loan amount in gross income for the taxable year in
which each loan is received to treating each loan amount as a loan.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.
(3) Manner of making change. This change is made on a cut-off basis and
applies only to loans received from the Commodity Credit Corporation on or after the
beginning of the year of change. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 2.01 is "1."

(5) Contact information. For further information regarding a change under
this section, contact Michael Finn at (202) 317-4718 (not a toll-free number).
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)
.01 Advances made by a lawyer on behalf of clients.
(1) Description of change. This change applies to a lawyer who advances
money to pay for costs of litigation or for other expenses on behalf of clients, and who
wants to change the method of accounting for such advances from treating them as
deductible business expenses to treating them as loans to clients. This change applies
to cases handled either on a non-contingent or a contingent fee basis. See Pelton &
Gunther, P.C. v. Commissioner, T.C. Memo. 1999-339 (non-contingent fee); Canelo v.
Commissioner, 53 T.C. 217 (1969), aff'd per curiam, 447 F.2d 484 (9th Cir. 1971)
(contingent fee).
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.01 is "2."
(3) Contact information. For further information regarding a change under
this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).
.02 ISO 9000 costs.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for costs incurred to obtain, maintain, and renew ISO
9000 certification to conform with Rev. Rul. 2000-4, 2000-1 C.B. 331, as modified by
this revenue procedure.

(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.02 is "3."
(3) Contact information. For further information regarding a change under
this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).
.03 Restaurant or tavern smallwares packages.
(1) Description of change. This change applies to a taxpayer engaged in the
trade or business of operating a restaurant or tavern (within the meaning of section 4.01
of Rev. Proc. 2002-12, 2002-1 C.B. 374) that wants to change its method of accounting
for the costs of smallwares to the smallwares method described in Rev. Proc. 2002-12,
as modified by this revenue procedure.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.03 is "4."
(3) Contact information. For further information regarding a change under
this section, contact Benjamin Masselli at (202) 317-7003 (not a toll-free number).
.04 Timber grower fertilization costs.
(1) Description of change. This change applies to a timber grower that wants
to change its method of accounting to treat post-establishment fertilization costs of an
established timber stand as ordinary and necessary business expenses deductible
under § 162. See Rev. Rul. 2004-62, 2004-1 C.B. 1072, as modified by this revenue
procedure.

(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.04 is "86."
(3) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).
.05 Materials and supplies. See section 11.08 of this revenue procedure.
.06 Repair and maintenance costs. See section 11.08 of this revenue procedure.
.07 Wireline network asset maintenance allowance and units of property methods
of accounting under Rev. Proc. 2011-27.
(1) Description of change. This change applies to a wireline
telecommunications carrier that is within the scope of Rev. Proc. 2011-27, 2011-18
I.R.B. 740, and wants to change its treatment of wireline network asset expenditures to
use either (a) the wireline network asset maintenance allowance method of accounting,
or (b) all or some of the units of property described in Rev. Proc. 2011-27.
(2) Section 481(a) adjustment. In general, a change to the wireline network
asset maintenance allowance method of accounting or to use all or some of the units of
property specified in Rev. Proc. 2011-27 requires an adjustment under § 481(a). The
§ 481(a) adjustment shall not include any amount attributable to property for which the
taxpayer elected to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable
year in which the election was made.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.07 is "158."

(4) Contact information. For further information regarding a change under
this section, contact Ian Heminsley at (202) 317-5100 (not a toll-free number).
.08 Wireless network asset maintenance allowance and units of property
methods of accounting under Rev. Proc. 2011-28.
(1) Description of change. This change applies to a wireless
telecommunications carrier that is within the scope of Rev. Proc. 2011-28, 2011-18
I.R.B. 743, and wants to change its treatment of wireless network asset expenditures to
use either (a) the wireless network asset maintenance allowance method of accounting,
or (b) all or some of the units of property described in Rev. Proc. 2011-28.
(2) Section 481(a) adjustment. In general, a change to the wireless network
asset maintenance allowance method of accounting or to use all or some of the units of
property specified in Rev. Proc. 2011-28 requires an adjustment under § 481(a). The
§ 481(a) adjustment does not include any amount attributable to property for which the
taxpayer elected to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable
year in which the election was made.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.08 is "159."
(4) Contact information. For further information regarding a change under
this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).
.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business
of transporting, delivering, or selling electricity.
(1) Description of change. This change applies to a taxpayer that is within
the scope of Rev. Proc. 2011-43, 2011-37 I.R.B. 326, and wants to change its treatment

of transmission and distribution property expenditures to use the method of accounting
described in Rev. Proc. 2011-43.
(2) Section 481(a) adjustment. A taxpayer must take the entire net § 481(a)
adjustment into account (whether positive or negative) in computing taxable income for
the year of change. The § 481(a) adjustment does not include any amount attributable
to property for which the taxpayer elected to apply the repair allowance under
§ 1.167(a)-11(d)(2) for any taxable year in which the election was made. For guidance
regarding permissible § 481(a) calculation methodologies, see section 7.02 and
Appendix A of Rev. Proc. 2011-43.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.09 is "160."
(4) Contact information. For further information regarding a change under this
section, contact Riston Escher at (202) 317-5100 (not a toll-free number).
.10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business
of generating steam or electric power.
(1) Description of change. This change applies to a taxpayer that is within
the scope of Rev. Proc. 2013-24, 2013-22 I.R.B. 1142, and wants to change its
treatment of generation property expenditures to use all or some of the unit of property
definitions and the corresponding major component definitions described in Rev. Proc.
2013-24.
(2) Section 481(a) adjustment.
(a) A taxpayer must take the entire net § 481(a) adjustment into account
(whether positive or negative) in computing taxable income for the year of change. For

guidance regarding the use of extrapolation in computing a § 481(a) adjustment, see
section 6.02 and Appendix B of Rev. Proc. 2013-24.
(b) A taxpayer changing to this method of accounting must not include in
the § 481(a) adjustment any amount attributable to property for which the taxpayer
elected to apply the repair allowance under § 1.167(a)–11(d)(2) for any taxable year in
which the repair allowance election was made.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 3.10 is "182."
(4) Contact information. For further information regarding a change under
this section, contact Morgan Lawrence at (202) 317-7011 (not a toll-free number).
.11 Cable network asset capitalization methods of accounting under Rev. Proc.
2015-12.
(1) Description of change. This change applies to a cable system operator
that is within the scope of Rev. Proc. 2015-12, 2015-2 I.R.B. 266, and wants to make
one or more of the following changes in method of accounting:
(a) Change its treatment of cable network asset expenditures to the
cable network asset maintenance allowance method of accounting provided in section 5
of Rev. Proc. 2015-12;
(b) Change to use any of the unit of property definitions provided in
section 6 of Rev. Proc. 2015-12;
(c) Change to use the specific identification method for installations and
customer drop costs described in section 7.01(1) of Rev. Proc. 2015-12;

(d) Change to use the safe harbor allocation method for installations and
customer drop costs described in section 7.01(2) of Rev. Proc. 2015-12; or
(e) Change to deduct the labor costs associated with installing customer
premises equipment under section 7.02 of Rev. Proc. 2015-12.
(2) Concurrent automatic change. A taxpayer that wants to make one or
more changes in method of accounting pursuant to this section 3.11 and a change to a
UNICAP method under section 12 of this revenue procedure for the same year of
change should file a single Form 3115 that includes all of these changes and must enter
the designated automatic accounting method change numbers for all of these changes
on the appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent changes.
(3) Section 481(a) adjustment.
(a) In general, a change to one or more of the changes in method of
accounting described in section 3.11(1) of this revenue procedure requires an
adjustment under § 481(a). The § 481(a) adjustment shall not include any amount
attributable to property for which the taxpayer elected to apply the repair allowance
under § 1.167(a)-11(d)(2) for any taxable year in which the election was made.
(b) Itemized listing on Form 3115. The taxpayer must include on Form
3115 (Rev. December 2022), Part IV, line 26, the total § 481(a) adjustment for all
changes in methods of accounting being made. If the taxpayer is making more than
one change in method of accounting under Rev. Proc. 2015-12, the taxpayer must
include on an attachment to Form 3115:
(i) the information required by Part IV, line 26 for each change in
method of accounting (including the amount of the § 481(a) adjustment for each change

in method of accounting, which includes the portion of the § 481(a) adjustment
attributable to UNICAP);
(ii) the information required by Part II, line 14 of Form 3115 that is
associated with each change; and
(iii) the citation to the paragraph of Rev. Proc. 2015-12 that provides
for each proposed method of accounting.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to a method of
accounting provided in section 5 or 6 of Rev. Proc. 2015-12 is "208." The designated
automatic accounting method change number for a change to a method of accounting
provided in section 7 of Rev. Proc. 2015-12 is "209."
(5) Contact information. For further information regarding a change under
this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).
.12 Natural gas transmission and distribution property method of accounting
under Rev. Proc. 2023-15.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that is within the
scope of Rev. Proc. 2023-15 and wants to change its treatment of natural gas
transmission and distribution property costs to use the natural gas transmission and
distribution property safe harbor method of accounting (NGSH Method) described in
Rev. Proc. 2023-15. Specifically, this change applies to a taxpayer that wants to
change to "the safe harbor method for linear property" or "the safe harbor method for
non-linear property" and other applicable rules in accordance with Rev. Proc. 2023-15,
including the making of a late general asset account election as required under section

5.08(2) of Rev. Proc. 2023-15. This change also applies to a taxpayer that previously
changed to the safe harbor method for linear property and wants to change to the safe
harbor method for non-linear property for a subsequent taxable year.
(b) Inapplicability. This change does not apply to the making of a late
general asset account election other than in accordance with section 5.08(2) of Rev.
Proc. 2023-15.
(2) Certain eligibility rules temporarily inapplicable.
(a) In general. The eligibility rules in section 5.01(1)(d) and (f) of Rev.
Proc. 2015-13 do not apply to a taxpayer that changes to the NGSH Method provided in
Rev. Proc. 2015-13 for its first, second, or third taxable year ending after May 1, 2023.
(b) Concurrent automatic change.
(i) If a taxpayer makes both a change under this section 3.12 and a
change under section 6.12(3)(b) and/or section 6.15 of this revenue procedure for linear
property and/or non-linear property for its first, second, or third taxable year ending after
May 1, 2023, on a single Form 3115 for the same asset for the same year of change in
accordance with section 3.12(6)(b) of this revenue procedure, the eligibility rules in
section 5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to the taxpayer for these
changes.
(ii) If a taxpayer makes both a change under this section 3.12 and a
change under section 11.08, 12.01, 12.02, 12.08, and/or 12.12 of this revenue
procedure, as applicable, for its linear property or non-linear property costs in its first,
second, or third taxable year ending after May 1, 2023, on a single Form 3115 for the
same year of change in accordance with section 3.12(6)(c) of this revenue procedure,

the eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to the
taxpayer for these changes.
(3) Manner of making change.
(a) Late general asset account election.
(i) The late general asset account election change described in
section 5.08(2) of Rev. Proc. 2023-15 is made using a modified cut-off method under
which the unadjusted depreciable basis and the depreciation reserve of the asset as of
the beginning of the year of change are accounted for using the proposed method of
accounting. The late general asset account election change requires each general
asset account to include a beginning balance for both the unadjusted depreciable basis
and the depreciation reserve. The beginning balance for the unadjusted depreciable
basis of each general asset account is equal to the sum of the unadjusted depreciable
bases as of the beginning of the year of change for all assets included in that general
asset account. The beginning balance of the depreciation reserve of each general
asset account is equal to the sum of the greater of the depreciation allowed or allowable
as of the beginning of the year of change for all assets included in that general asset
account.
(ii) For the late general asset account election change described in
section 5.08(2) of Rev. Proc. 2023-15, the taxpayer must attach to its Form 3115 a
statement providing that the taxpayer agrees to the following additional terms and
conditions:
(A) The taxpayer consents to, and agrees to apply, all the
provisions of § 1.168(i)-1 to the assets that are subject to the election specified in
section 5.08(2) of Rev. Proc. 2023-15; and

(B) Except as provided in § 1.168(i)-1(c)(1)(ii)(A), (e)(3), (g), or
(h), the election made by the taxpayer under section 5.08(2) of Rev. Proc. 2023-15 is
irrevocable and will be binding on the taxpayer for computing taxable income for the
year of change and for all subsequent taxable years with respect to the assets that are
subject to this election.
(b) Cut-off basis for certain changes. Except for changes to make a late
general asset account election described in section 3.12(3)(a) of this revenue
procedure, a change to the NGSH Method described in Rev. Proc. 2023-15 is made on
a cut-off basis and applies only to natural gas transmission and distribution property
costs paid or incurred beginning in or after the year of change if-
(i) Sections 5.08(2)(a)(ii) and 6.04 of Rev. Proc. 2023-15 apply (the
taxpayer changes to the NGSH Method described in Rev. Proc. 2023-15 for the first,
second, or third taxable year ending after May 1, 2023, on a cut-off basis); or
(ii) Section 5.08(2)(a)(iii) of Rev. Proc. 2023-15 applies (the taxpayer
changes to the NGSH Method described in Rev. Proc. 2023-15 for the fourth taxable
year ending after May 1, 2023, or for any subsequent taxable year).
(c) Public Utility Property. If the taxpayer's change to the NGSH Method
described in Rev. Proc. 2023-15 applies to any asset that is public utility property within
the meaning of § 168(i)(10), the taxpayer must attach a statement to its Form 3115
agreeing to the following additional terms and conditions:
(i) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the Form 3115;
(ii) As of the beginning of the year of change, the taxpayer will adjust
its deferred tax reserve account or similar account in the taxpayer's regulatory books of

account by the amount of the deferral of federal income tax liability associated with the
§ 481(a) adjustment applicable to the public utility property subject to the Form 3115 if
such amount is no longer being normalized for regulatory purposes by the taxpayer; and
(iii) Within 30 calendar days of filing the federal income tax return for
the year of change, the taxpayer will provide a copy of the completed Form 3115 to any
regulatory body having jurisdiction over the public utility property subject to the Form
3115.
(4) Section 481(a) adjustment.
(a) In general. Except as provided in section 3.12(3)(b) of this revenue
procedure, a taxpayer changing its methods of accounting under this section 3.12 must
take the entire net § 481(a) adjustment into account, whether positive or negative, in
computing taxable income for the year of change in the manner provided in section 7.03
of Rev. Proc. 2015-13. The entire net § 481(a) adjustment includes all aspects of the
NGSH Method described in Rev. Proc. 2023-15, including a change to the methods of
accounting permitted under § 1.168(i)-1 pursuant to section 5.08(2) of Rev. Proc. 2023-
15. However, a § 481(a) adjustment is neither required nor permitted for the late
general asset account election described in section 5.08(2) of Rev. Proc. 2023-15.
Further, a § 481(a) adjustment is neither required nor permitted if the taxpayer chooses
to change to the NGSH Method on a cut-off basis under section 6.04 of Rev. Proc.
2023-15 or if the taxpayer changes to this method during the time described in section
5.08(2)(a)(iii) of Rev. Proc. 2023-15.
(b) Repair allowance property. A taxpayer changing its method of
accounting under this section 3.12 must not include in the § 481(a) adjustment any
amount attributable to property for which the taxpayer elected to apply the repair

allowance under § 1.167(a)-11(d)(2) for any taxable year in which the repair allowance
election was made.
(c) Property subject to the election to capitalize repair and maintenance
costs. A taxpayer changing its method of accounting under this section 3.12 must not
include in the § 481(a) adjustment any amount attributable to property for which the
taxpayer elected to capitalize repair and maintenance costs under § 1.263(a)-3(n) for
any taxable year in which this election was made.
(d) Statistical sampling. A taxpayer changing to the NGSH Method
under this section 3.12 may use statistical sampling in determining the § 481(a)
adjustment amount attributable to any single taxable year by following the guidance
provided in Rev. Proc. 2011-42, 2011-37 I.R.B. 318.
(e) Extrapolation. A taxpayer changing to the NGSH Method under this
section 3.12 may use the extrapolation methodology provided in Appendix B to Rev.
Proc. 2023-15 (Appendix B) in determining the § 481(a) adjustment amount if the
taxpayer is within the scope of section 1.02 of Appendix B. Extrapolation
methodologies not permitted in Appendix B are not permitted under the NGSH Method.
(5) No audit protection for certain taxpayers. If a taxpayer chooses to
change to the NGSH Method described in Rev. Proc. 2023-15 on a cut-off basis as
permitted under section 6.04 of Rev. Proc. 2023-15 or is required to change on a cut-off
basis under section 5.08(3)(b)(i) of Rev. Proc. 2023-15, the taxpayer does not receive
audit protection under section 8.01 of Rev. Proc. 2015-13 in connection with this
change.
(6) Concurrent automatic changes.

(a) A taxpayer making changes under this section 3.12 for more than one
asset for the same year of change must file a single Form 3115 for all such assets. The
single Form 3115 must provide a single net § 481(a) adjustment for all such changes.
(b) A taxpayer making changes under this section 3.12 and changes
under section 6.12(3)(b) and/or section 6.15 of this revenue procedure for linear
property or non-linear property costs for the same year of change must file a single
Form 3115 for all changes and must enter the designated automatic accounting method
change numbers for all changes on the appropriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.
(c) A taxpayer making changes under this section 3.12 and also making
a coordinating change to its linear property or non-linear property costs under section
11.08, 12.01, 12.02, 12.08, and/or 12.12 of this revenue procedure, as applicable, must
file a single Form 3115 for the same year of change for all these changes, provided that
the taxpayer is not prohibited from filing an automatic change under the eligibility rules
under section 5 of Rev. Proc. 2015-13. For changes required to be filed on a single
Form 3115 under this section, the taxpayer must enter the designated automatic
accounting method change numbers for all changes on the appropriate line on the Form
3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes.
(d) A taxpayer that changes to a method of accounting under this section
3.12 for taxable years ending after the third taxable year ending after May 1, 2023 and
is also required to change its method of accounting to properly capitalize its linear
property or non-linear property costs under § 263(a) and/or § 263A under section
5.08(3)(b)(ii) of Rev. Proc. 2023-15, must file a single Form 3115 for the same year of

change for all these changes, provided that the taxpayer is not prohibited from filing an
automatic change under the eligibility rules set out in section 5 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419. For changes required to be filed on a single Form 3115 under this
paragraph, the taxpayer must enter the designated automatic accounting method
change numbers for all changes on the appropriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.
(7) Examples. The following examples illustrate this section 3.12. In each
example, it is assumed that the taxpayer (a) is a C corporation, on an accrual method of
accounting and using a calendar taxable year, (b) is within the scope of Rev. Proc.
2023-15, (c) placed in service natural gas transmission property or distribution property
that is described in section 4 of Rev. Proc. 2023-15 and is MACRS property, (d) did not
make a general asset account election for any natural gas transmission property or
distribution property placed in service by the taxpayer in any taxable year before the first
taxable year that the taxpayer uses the NGSH Method, (e) is changing its methods of
accounting for both linear property and non-linear property under the NGSH Method for
the same taxable year, and (f) is not changing to the NGSH Method on a cut-off basis
under section 6.04 of Rev. Proc. 2023-15. Unless otherwise stated, it also is assumed
that (a) the cost of the replacements before Year 1 were not capitalized under § 263(a),
(b) the cost of the replacements before Year 1 would not have been capitalized if the
taxpayer used the NGSH Method provided under sections 5.02, 5.03, 5.04, 5.06, and
5.07 of Rev. Proc. 2023-15 for such prior taxable years, and (c) the taxpayer's natural
gas transmission and distribution property expenditures are not per se capital
expenditures under section 5.05(1)(a)-(f), (i), or (j) of Rev. Proc. 2023-15. Further, it is
assumed that § 1.168(i)-1(e)(3) (special rules for certain dispositions of assets in

general asset accounts) does not apply for the first taxable year that the taxpayer uses
the NGSH Method. Moreover, for purposes of these examples, "Year 1" refers to the
taxpayer's first taxable year ending after May 1, 2023, "Year 2" refers to the taxpayer's
second taxable year ending after May 1, 2023, and "Year 4" refers to the taxpayer's
fourth taxable year ending after May 1, 2023.
(a) Example 1. (i) X is a local natural gas distribution company. Before
Year 1, X owned and placed in service natural gas distribution property at a cost of
$120 million before any dispositions or additions. Before Year 1, X replaced parts of
such property that had an original cost of $10 million and incurred $12 million for the
cost of such replacements. On its Federal income tax returns before Year 1, X
recognized losses upon the dispositions of that $10 million of property, capitalized $12
million for the cost of the replacements of that property under § 263(a), and deducted
depreciation of $800,000 on such $12 million. X files a Form 3115 with its Federal
income tax return for Year 1 to change its methods of accounting to use the NGSH
Method described in Rev. Proc. 2023-15.
(ii) Because Year 1 is X's first taxable year ending after May 1, 2023,
section 5.08(2)(a)(i) and (3)(a) of Rev. Proc. 2023-15 apply. Pursuant to section
5.08(3)(a) of Rev. Proc. 2023-15, the per se capital expenditure rules in section
5.05(1)(g) and (h) of Rev. Proc. 2023-15 do not apply to the replacement cost of $12
million that X capitalized under § 263(a) on its Federal income tax returns before Year
1. Accordingly, this $12 million cost of the replacements is not treated as a per se
capital expenditure under the NGSH Method. Therefore, at the beginning of Year 1, X
is treated under Rev. Proc. 2023-15 as owning natural gas distribution property at a cost
of $110 million ($120 million - $10 million). Under section 5.08(2)(a)(i) of Rev. Proc.

2023-15, X must make a late general asset account election on its Form 3115 to include
in general asset accounts all of the $110 million of natural gas distribution property that
X owns at the beginning of Year 1. These general asset accounts also must include the
total depreciation allowed or allowable before the beginning of Year 1 for such property
as the beginning balances of the depreciation reserves. The late general asset account
election change is made on a modified cut-off method and, therefore, a § 481(a)
adjustment is neither required nor permitted for the late general asset account election
change.
(iii) On its Form 3115 to change to the NGSH Method provided under
Rev. Proc. 2023-15, the net negative § 481(a) adjustment for this change is
$11,200,000 (deduction of $12 million for the cost of the replacements before Year 1
less depreciation of $800,000 for such replacement assets before Year 1) and is
deducted in computing X's taxable income for Year 1.
(b) Example 2. (i) The facts are the same as in Example 1, except that
X files a Form 3115 with its Federal income tax return for Year 2 to change its method
of accounting to use the NGSH Method described in Rev. Proc. 2023-15, and, before
Year 2, X deducted depreciation of $1,000,000 on the replacement cost of $12 million.
(ii) Because X filed its method change in Year 2, the special rule
under section 5.08(3)(a) of Rev. Proc. 2023-15 does not apply to the replacement cost
of $12 million that X capitalized under § 263(a) on its Federal income tax returns before
Year 1. Accordingly, section 5.05(1)(g) and (h) of Rev. Proc. 2023-15 apply to the
replacement cost of $12 million that X capitalized on its Federal income tax returns
before Year 2. The total cost of $12 million for this replacement is a per se capital
expenditure, and must be capitalized, under the NGSH Method.

(iii) At the beginning of Year 2, X is treated under the NGSH Method
as owning natural gas distribution property at a cost of $122 million ($120 million - $10
million + $12 million). Under section 5.08(2)(a)(i) of Rev. Proc. 2023-15, X must make a
late general asset account election on its Form 3115 to include in general asset
accounts all of the $122 million of natural gas distribution property that X owns at the
beginning of Year 2. These general asset accounts also must include the total
depreciation allowed or allowable before the beginning of Year 2 for such property as
the beginning balances of the depreciation reserves. The late general asset account
election change is made on a modified cut-off method and, therefore, a § 481(a)
adjustment is neither required nor permitted for the late general asset account election.
(iv) On its Form 3115 to change to the NGSH Method under Rev.
Proc. 2023-15, the net § 481(a) adjustment for this change is zero. Under its present
method of accounting and under the NGSH Method (proposed method of accounting), X
properly capitalized the $12 million for the cost of the replacements before Year 1 and
claimed depreciation for such replacement assets before Year 2.
(c) Example 3. (i) Y is a local natural gas distribution company. Before
Year 1, Y owned and placed in service natural gas distribution property at a cost of
$120 million before any dispositions or additions. Before Year 1, Y replaced parts of
such property that had an original cost of $10 million and incurred $12 million for the
cost of such replacements. On its Federal income tax returns before Year 1, Y
recognized losses upon the dispositions of that $10 million of property and deducted
$12 million for the cost of the replacements of such property under § 162(a). During
Year 1, Y replaced a part of the natural gas distribution property that had an original
cost of $2 million and incurred $3 million for the cost of such replacements. If Y had

capitalized the $15 million for the cost of the replacements, the total depreciation
allowed or allowable for these assets would have been $1 million before Year 2. On its
Federal income tax return for Year 1, Y recognized a loss upon the disposition of that $2
million of property and deducted $3 million for the cost of the replacements under
§ 162(a). Y files a Form 3115 with its Federal income tax return for Year 2 to change its
method of accounting to use the NGSH Method described in Rev. Proc. 2013-15.
(ii) Because Y filed its method change for Year 2, section
5.08(2)(a)(i) of Rev. Proc. 2023-15 applies to this change. However, the special rule
under section 5.08(3)(a) of Rev. Proc. 2023-15 would apply only if Y had filed its
method change for Year 1. Accordingly, section 5.05(1)(g) and (h) of Rev. Proc. 2023-
15 apply to the replacement cost of $12 million that Y deducted under § 162(a) on its
Federal income tax returns before Year 1, and to the replacement cost of $3 million that
Y deducted under § 162(a) on its Federal income tax return for Year 1. Therefore, the
total cost of $15 million for these replacements is a per se capital expenditure, and must
be capitalized, under the NGSH Method.
(iii) At the beginning of Year 2, Y is treated under Rev. Proc. 2023-15
as owning natural gas distribution property at a cost of $123 million ($120 million - $10
million + $12 million - $2 million + $3 million). Under section 5.08(2)(a)(i) of Rev. Proc.
2023-15, Y must make a late general asset account election on its Form 3115 to include
in general asset accounts all of the $123 million of natural gas distribution property that
Y owns at the beginning of Year 2. These general asset accounts also must include the
total depreciation allowed or allowable before the beginning of Year 2 for such property
as the beginning balances of the depreciation reserves. The late general asset account

election change is made on a modified cut-off method and, therefore, a § 481(a)
adjustment is neither required nor permitted for the late general asset account election.
(iv) On its Form 3115 to change to the NGSH Method of Rev. Proc.
2023-15, the net positive § 481(a) adjustment for this change is $14 million ($15 million
for the cost of the replacements before Year 2 less depreciation allowed or allowable of
$1 million for such replacement assets before Year 2) and is taken into account in
computing Y's income in the manner provided in section 3.12(4)(a) of this revenue
procedure.
(d) Example 4. (i) Z is a local natural gas distribution company. Before
Year 4, Z owned and placed in service natural gas distribution property at a cost of $150
million before any dispositions or additions. Before Year 4, Z replaced parts of such
property that had an original cost of $30 million and incurred $45 million for the cost of
such replacements. On its Federal income tax returns before Year 4, Z recognized
losses upon the dispositions of that $30 million of property, capitalized $45 million for
the cost of the replacements under § 263(a), and deducted depreciation of $15 million
on such $45 million. Z files a Form 3115 with its Federal income tax return for Year 4 to
change its method of accounting to use the NGSH Method described in Rev. Proc.
2013-15. Assume Z is eligible to file Form 3115 for Year 4 under the automatic change
procedures in Rev. Proc. 2015-13.
(ii) At the beginning of Year 4, Z owns natural gas distribution
property at a cost of $165 million ($150 million - $30 million + $45 million). Because
Year 4 is Z's fourth taxable year ending after May 1, 2023, sections 5.08(2)(a)(iii) and
5.08(3)(b) of Rev. Proc. 2023-15 apply. Accordingly, under section 5.08(2)(a)(iii) of
Rev. Proc. 2023-15, Z must make a late general asset account election on its Form

3115 to include in general asset accounts all of the $165 million of natural gas
distribution property that Z owns at the beginning of Year 4. These general asset
accounts also must include the total depreciation allowed or allowable before the
beginning of Year 4 for such property as the beginning balances of the depreciation
reserves. The late general asset account election change is made using a modified cut-
off method and, therefore, a § 481(a) adjustment is neither permitted nor required for
the late general asset account election.
(iii) Because sections 5.08(2)(a)(iii) and 5.08(3)(b) of Rev. Proc.
2023-15 apply, Z's change to the NGSH Method described in Rev. Proc. 2023-15,
applies only to natural gas transmission and distribution property expenditures paid or
incurred by Z beginning in Year 4 and is made on a cut-off basis. Therefore, a § 481(a)
adjustment is neither required nor permitted for the change to the NGSH Method
described in Rev. Proc. 2023-15.
(e) Example 5. (i) The facts are the same as in Example 4, except that,
on its Federal income tax returns before Year 4, Z improperly deducted $45 million for
the cost of the replacements under § 162(a). Such $45 million of replacement costs
should have been capitalized under § 263(a). If Z had capitalized the $45 million for the
cost of the replacements, the total depreciation allowed or allowable for such assets
would have been $15 million before Year 4.
(ii) Because Year 4 is Z's fourth taxable year ending after May 1,
2023, sections 5.08(2)(a)(iii) and 5.08(3)(b) of Rev. Proc. 2023-15 apply. Pursuant to
section 5.08(3)(b) of Rev. Proc. 2023-15, Z must also change its method of accounting
to capitalize under § 263(a) the $45 million for the cost of the replacements incurred
before Year 4. The net positive § 481(a) adjustment for this coordinating change is $30

million ($45 million for the cost of the replacements before Year 4 less depreciation
allowed or allowable of $15 million for such replacement assets before Year 4). Z takes
this net positive § 481(a) adjustment of $30 million into account in computing Z's taxable
income in the manner provided in section 3.12(4)(a) of this revenue procedure.
(iii) Z owns natural gas distribution property at a cost of $165 million
($150 million - $30 million + $45 million) at the beginning of Year 4. Accordingly, Z must
make a late general asset account election on its Form 3115 to include in general asset
accounts all of the $165 million of natural gas distribution property that Z owns at the
beginning of Year 4. These general asset accounts also must include the total
depreciation allowed or allowable before the beginning of Year 4 for such property as
the beginning balances of the depreciation reserves. The late general asset account
election change is made using a modified cut-off method and, therefore, a § 481(a)
adjustment is neither permitted nor required for the late general asset account election.
(iv) Because sections 5.08(2)(a)(iii) and 5.08(3)(b) of Rev. Proc.
2023-15 apply, Z's change to the NGSH Method provided under sections 5.02, 5.03,
5.04, 5.06, and 5.07 of Rev. Proc. 2023-15, applies only to natural gas transmission and
distribution property expenditures paid or incurred by Z beginning in Year 4 and is made
on a cut-off basis. Therefore, a § 481(a) adjustment is neither required nor permitted for
the change to the NGSH Method described in Rev. Proc. 2023-15.
(v) Pursuant to section 3.12(6)(c) and section 5.08(3)(b) of Rev.
Proc. 2023-15 the change to capitalize the replacement costs of $45 million, the late
general asset account election change, and the change to use the NGSH Method
provided under Rev. Proc. 2023-15 must be included on the same Form 3115 filed by Z
for Year 4.

(8) Option to treat method changes filed for Year 2 as filed for Year 1 for
purposes of section 5.08(3)(a) of Rev. Proc. 2023-15.
(a) In general. A taxpayer may choose to treat a method change filed for
the taxpayer's second taxable year ending after May 1, 2023 (Year 2), as filed for the
taxpayer's first taxable year ending after May 1, 2023 (Year 1), solely for purposes of
applying the special rule under section 5.08(3)(a) of Rev. Proc. 2023-15. Specifically, a
taxpayer changing to the safe harbor method for linear property or for both linear
property and non-linear property, as applicable, for the taxpayer's second taxable year
ending after May 1, 2023, with a § 481(a) adjustment may choose not to apply the per
se capital expenditure rules under section 5.05(1)(g) and (h) of Rev. Proc. 2023-15 to
amounts paid or incurred to replace or repair linear property or both linear property and
non-linear property, as applicable, in taxable years ending on or before May 1, 2023. A
taxpayer choosing to treat a method change filed for Year 2 as filed for Year 1 under
this section 3.12(8) must otherwise comply with all the provisions of Rev. Proc. 2023-15.
(b) Application. A taxpayer that changed to the safe harbor method for
linear property or both linear property and non-linear property, as applicable, for Year 1,
may not choose to treat a method change filed for Year 2 as filed for Year 1 under
paragraph 3.12(8) of this revenue procedure. Further, if a taxpayer chooses to treat a
method change filed for Year 2 as filed for Year 1 under paragraph 3.12(8) of this
revenue procedure, the taxpayer must do so for all members of a consolidated group
changing to the NGSH Method.
(c) Example. The examples in section 3.12(7)(a) through (e) of this
revenue procedure address taxpayers that do not choose to treat a method change filed
for Year 2 as filed for Year 1 under this section 3.12(8). The following example

illustrates this section 3.12(8). The assumptions set out in 3.12(7) of this revenue
procedure apply to this example.
(i) A is a local natural gas distribution company. Before Year 1, A
owned and placed in service natural gas distribution property at a cost of $120 million
before any dispositions or additions. Before Year 1, A replaced parts of such property
that had an aggregate original cost of $10 million and incurred $12 million for the cost of
the replacements. On its Federal income tax returns for taxable years before Year 1, A
recognized losses upon the disposition of that $10 million of property, capitalized $12
million of the replacement costs of such property under § 263(a), and deducted
depreciation of $800,000 on the $12 million of replacement costs. During Year 1, A
replaced a part of the natural gas distribution property that had an original cost of $2
million and incurred $3 million for the cost of such replacements. On its Federal income
tax return for Year 1, A recognized a loss upon the disposition of that $2 million of
property, capitalized $3 million for the cost of such replacements under § 263(a), and
deducted depreciation of $200,000 on the $3 million of replacement costs. A files a
Form 3115 with its Federal income tax return for Year 2 to change its method of
accounting to use the NGSH Method described in Rev. Proc. 2023-15 and chooses to
treat its method change filed for Year 2 as filed for Year 1 under section 3.12(8) of this
revenue procedure. Accordingly, A does not apply the per se capitalization rules of
section 5.05(1)(g) and (h) of Rev. Proc. 2023-15 to amounts paid or incurred to replace
or repair linear property or both linear property and non-linear property, as applicable, in
taxable years ending on or before May 1, 2023.
(ii) Because A chooses to treat its method change filed for Year 2 as
filed for Year 1 under paragraph 3.12(8)(a) of this revenue procedure, the special

transition rule under section 5.08(3)(a) applies to amounts paid or incurred by A to
replace or repair linear natural gas distribution or both linear property and non-linear
property distribution property, as applicable, in taxable years ending on or before May 1,
2023. Accordingly, the per se capital expenditure rules under section 5.05(1)(g) and (h)
of Rev. Proc. 2023-15 do not apply to the replacement cost of $12 million that A
capitalized under § 263(a) on its Federal income tax returns for taxable years ending on
or before May 1, 2023. As a result, the replacement cost of $12 million is not required
to be capitalized under the NGSH Method. However, the per se capital expenditure
rules under section 5.05(1)(g) and (h) of Rev. Proc. 2023-15 do apply to the
replacement cost of $3 million that A capitalized on its Federal income tax return for
Year 1. The total cost of $3 million for this replacement is a per se capital expenditure
and must be capitalized under the NGSH Method.
(iii) Therefore, at the beginning of Year 2, A is treated under Rev.
Proc. 2023-15 as owning natural gas distribution property with an original cost of $111
million ($120 million - $10 million - $2 million + $3 million). Under section 5.08(2)(a)(i) of
Rev. Proc. 2023-15, A must make a late general asset account election on its Form
3115 to include in general asset accounts all of the $111 million of natural gas
distribution property that A owns at the beginning of Year 2. These general asset
accounts also must include the total depreciation allowed or allowable before the
beginning of Year 2 for such property as the beginning balances of the depreciation
reserves. The late general asset account election change is made on a modified cut-off
method and, therefore, a § 481(a) adjustment is neither required nor permitted for the
late general asset account election change.

(iv) On its Form 3115 to change to the NGSH Method provided under
Rev. Proc. 2023-15 for Year 2, the net negative § 481(a) adjustment for this change is
$11,200,000 (deduction of $12 million for the cost of the replacements before Year 1
less depreciation of $800,000 for such replacement assets before Year 1). Because A
property capitalized the $3 million for the cost of the replacements in Year 1 as per se
capital expenditures under section 5.05(1)(g) and (h) of Rev. Proc. 2023-15 and
properly claimed depreciation in Year 1 for such replacement assets, A does not include
in its § 481(a) adjustment any amounts related to the cost of replacements in Year 1.
Accordingly, A deducts $11,200,000 in computing A's taxable income for Year 2.
(9) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the methods
of accounting under this section 3.12 is "269."
(10) Contact information. For further information regarding a change under
this section, contact Riston Escher at (202) 317-5100 (not a toll-free number).
SECTION 4. BAD DEBTS (§ 166)
.01 Change from reserve method to specific charge-off method.
(1) Description of change. This change applies to a taxpayer (other than a
bank as defined in § 585(a)(2)) that wants to change its method of accounting for bad
debts from a reserve method (or other improper method) to a specific charge-off method
that complies with § 166. For procedures applicable to banks, see § 585(c) and the
regulations thereunder and section 25 of this revenue procedure.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 4.01 is "5."

(3) Contact information. For further information regarding a change under
this section, contact Benjamin Masselli at (202) 317-7003 (not a toll-free number).
.02 Conformity election by bank after previous election automatically revoked.
(1) Description of change. This change applies to a bank that wants to
change its method of accounting for bad debts by making the conformity election under
§ 1.166-2(d)(3)(iii)(C)(3).
(2) Applicability. This change only applies to a bank (as defined in
§ 1.166-2(d)(4)(i)) that:
(a) is subject to supervision by Federal authorities, or by state authorities
maintaining substantially equivalent standards;
(b) has previously adopted or elected to change to the method of accounting
for bad debts described in § 1.166-2(d)(3);
(c) has had that previous election automatically revoked under
§ 1.166-2(d)(3)(iv)(C);
(d) meets the express determination requirement of § 1.166-2(d)(3)(iii)(D) for
the year of change; and
(e) now seeks the consent of the Commissioner to make an election under
§ 1.166-2(d)(3)(iii)(C)(3).
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 4.02 is "211."

(5) Contact information. For further information regarding a change under
this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).
.03 Change to the allowance charge-off method.
(1) Description of change.
(a) Applicability. This change applies to a regulated financial company
(as defined in proposed § 1.166-2(d)(4)(ii)) or a member of a regulated financial group
(as defined in proposed § 1.166-2(d)(4)(iii)) that wants to change its method of
accounting to the Allowance Charge-off Method described in proposed § 1.166-2(d)(1).
See Bad Debt Deductions for Regulated Financial Companies and Members of
Regulated Financial Groups, 88 FR 89636 (Dec. 28, 2023).
(b) Inapplicability. This change does not apply to a bank (as defined in
§ 581) that wants to change its method of accounting for bad debts from the § 585
reserve method to the Allowance Charge-off Method described in proposed § 1.166-
2(d)(1). Any change to the Allowance Charge-off Method requested by such a bank
must be made under the non-automatic change procedures in Rev. Proc. 2015-13.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13 does not apply to a change described in section 4.03(1)(a) of this
revenue procedure for the taxpayer's first or second taxable year ending on or after
December 28, 2023.
(3) Manner of making change.
(a) Charge-offs on or after beginning of the year of change. This change
is made on a cut-off basis and only applies to charge-offs (as defined in proposed
§ 1.166-2(d)(4)(i)) made by a regulated financial company or a member of a regulated
financial group on its applicable financial statement (as defined in proposed § 1.166-

2(d)(4)(viii)) that occur on or after the beginning of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted nor required.
(b) Charge-offs prior to the year of change. Any charge-offs that
occurred prior to the year of change are accounted for under the taxpayer's former
method of accounting, and any charge-offs that occur in the year of change and in
subsequent taxable years are accounted for under the taxpayer's method of accounting
for which consent is granted. In no event may a taxpayer take a deduction under its
new method of accounting for any amount of debt previously deducted as worthless
under its former method of accounting.
(4) Revocation of conformity election under existing § 1.166-2(d)(3). A
regulated financial company or a member of a regulated financial group that previously
made a conformity election under § 1.166-2(d)(3) and that changes its method of
accounting under this section 4.03 is treated as having revoked its conformity election
pursuant to § 1.166-2(d)(3)(iv).
(5) Contact information. For further information regarding a change under
this section, contact Jason Kristall at (202) 317-6945 (not a toll-free number).
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 4.03 is "272."
SECTION 5. INTEREST EXPENSE (§163) AND AMORTIZABLE BOND PREMIUM
(§ 171)
.01 Revocation of § 171(c) election.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for amortizable bond premium by revoking its § 171(c)

election. Under § 171(c), a taxpayer that holds certain taxable bonds may elect to
amortize any bond premium on the bonds in accordance with regulations prescribed by
the Secretary. Sections 1.171-1 through 1.171-5 provide rules relating to the
amortization of bond premium by a taxpayer. Section 1.171-4 provides the procedures
to make a § 171(c) election to amortize bond premium.
(2) Revocation of election. The revocation of a § 171(c) election applies to
all taxable bonds that are held by the taxpayer on the first day of the first taxable year
for which the revocation is effective (year of change), and to all taxable bonds that are
subsequently acquired by the taxpayer.
(3) Manner of making change. This change is made using a cut-off basis
and applies only to taxable bonds held on or after the beginning of the year of change.
Accordingly, a § 481(a) adjustment is neither permitted nor required.
Under the cut-off basis, for taxable bonds held at the beginning of the year of
change, the taxpayer may not amortize any remaining bond premium on the bonds.
Because the cut-off basis is prescribed for this change, the basis of any bond, adjusted
for amounts previously amortized during the period of the election, is not affected by the
revocation.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 5.01 is "16."
(5) Additional requirements. On a statement attached to the Form 3115, the
taxpayer must provide:
(a) the reason(s) for revoking the election; and

(b) a description of the method by which, and the date on which, the
taxpayer made the § 171(c) election that is proposed to be revoked.
(6) Audit protection. Any audit protection applicable to this change under
section 8 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not preclude the
Commissioner from examining the method used by the taxpayer to determine the
amount of amortizable bond premium under § 171(b) for a taxable year prior to the year
of change.
(7) Contact information. For further information regarding a change under
this section, contact Steven Harrison at (202) 317-6842 (not a toll-free number).
.02 Change to comply with § 163(e)(3).
(1) Description of change. This change applies to a taxpayer that wants to
change its method or methods of accounting to comply with the requirements of
§ 163(e)(3), which defers certain deductions attributable to original issue discount debt
instruments held by related foreign persons. Any portion of the original issue discount
will not be allowable as a deduction to the U.S. person issuer until paid.
(2) Accelerated § 481(a) adjustment period in certain situations. In addition
to the circumstances set forth in section 7.03(4) of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, the § 481 adjustment period provided in section 7.03 of Rev. Proc. 2015-13 will be
accelerated for a U.S. person with a remaining balance of a § 481(a) adjustment that
arose by reason of a change in method of accounting described in this section 5.02 if a
debt instrument subject to the change is paid off, retired, or significantly modified within
the meaning of § 1.1001-3 prior to the end of the § 481(a) adjustment period. The
portion of the remaining § 481(a) adjustment attributable to the debt instrument must be

taken into account in the taxable year the debt instrument is paid off, retired, or
significantly modified within the meaning of § 1.1001-3.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 5.02 is "212."
(4) Contact information. For further information regarding a change under
this section, contact Dylan Steiner at (202) 317-6934 (not a toll-free number).
SECTION 6. DEPRECIATION OR AMORTIZATION (§§ 56(a)(1), 167, 168, 197,
280F(a), or 1502, OR FORMER §§ 56(g)(4)(A), 168, 1400I, 1400L, or 1400N(d))
.01 Impermissible to permissible method of accounting for depreciation or
amortization.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
from an impermissible to a permissible method of accounting for depreciation or
amortization (depreciation) for any item of depreciable or amortizable property under the
taxpayer's present or proposed method of accounting:
(i) for which the taxpayer used the impermissible method of
accounting in at least two taxable years immediately preceding the year of change (but
see section 6.01(1)(b) of this revenue procedure for property placed in service in the
taxable year immediately preceding the year of change);
(ii) for which the taxpayer is making a change in method of
accounting under § 1.446-1(e)(2)(ii)(d);
(iii) for which depreciation is determined under § 56(a)(1),
§ 56(g)(4)(A) (as in effect on the day before the date of enactment of Public Law 115-

97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act
(TCJA)), § 167, § 168, § 197, § 1400I, or § 1400L(c), under § 168 prior to its
amendment in 1986 (former § 168), or under any additional first year depreciation
deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)); and
(iv) that is owned by the taxpayer at the beginning of the year of
change (but see section 6.07 of this revenue procedure for property disposed of before
the year of change).
(b) Taxpayer has not adopted a method of accounting for the item of
property. If a taxpayer does not satisfy section 6.01(1)(a)(i) of this revenue procedure
for an item of depreciable or amortizable property because this item of property is
placed in service by the taxpayer in the taxable year immediately preceding the year of
change ("1-year depreciable property"), the taxpayer may change from the
impermissible method of determining depreciation to the permissible method of
determining depreciation for the 1-year depreciable property by filing a Form 3115 for
this change, provided the § 481(a) adjustment reported on the Form 3115 includes the
amount of any adjustment that is attributable to all property (including the 1-year
depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change
from the impermissible method of determining depreciation to the permissible method of
determining depreciation for a 1-year depreciable property by filing an amended federal
income tax return, or an administrative adjustment request under § 6227 (AAR), as
applicable, for the property's placed-in-service year prior to the date the taxpayer files
its federal income tax return for the taxable year succeeding the placed-in-service year.
(c) Inapplicability. This change does not apply to:

(i) any property to which § 1016(a)(3) (regarding property held by a
tax-exempt organization) applies;
(ii) a taxpayer that is required under § 263A and the regulations
thereunder to capitalize the costs with respect to which the taxpayer wants to change its
method of accounting under this section 6.01 if the taxpayer is not capitalizing these
costs, unless the taxpayer concurrently changes its method to capitalize these costs in
conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or
12.12 of this revenue procedure (as applicable);
(iii) any property for which a taxpayer is making a change in
depreciation under § 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);
(iv) any property subject to § 167(g) regarding property depreciated
under the income forecast method;
(v) any § 1250 property that a taxpayer is reclassifying to an asset
class of Rev. Proc. 87-56, 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785), or Rev. Proc. 83-35, 1983-1 C.B. 745, as appropriate, that does
not explicitly include § 1250 property (for example, asset class 57.0, Distributive Trades
and Services);
(vi) any property for which a taxpayer is revoking a timely valid
election, or making a late election, under § 167, § 168, § 179, § 1400I, § 1400L(c),
former § 168, § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993
Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles), or any additional
first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d)). A taxpayer may request consent to revoke or make the
election by submitting a request for a letter ruling under Rev. Proc. 2025-1, 2025-1

I.R.B. 1 (or successor). However, if a taxpayer is revoking or making an election under
§ 179, see § 179(c) and § 1.179-5. See § 1.446-1(e)(2)(ii)(d)(3)(iii);
(vii) any property for which depreciation is determined under
§ 56(g)(4)(A) (as in effect on the day before the date of enactment of the TCJA) or
§ 167 (other than under § 168, § 1400I, § 1400L(c), former § 168, or any additional first
year depreciation deduction provision of the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d)) and a taxpayer is changing the useful life of the property. A
change in the useful life of property is corrected by adjustments in the applicable
taxable year provided under § 1.446-1(e)(2)(ii)(d)(5)(iv). However, this section
6.01(1)(c)(vii) does not apply if the taxpayer is changing to or from a useful life, recovery
period, or amortization period that is specifically assigned by the Code (for example,
§ 167(f)(1), § 168(c)), the regulations thereunder, or other guidance published in the
Internal Revenue Bulletin and, therefore, this change is a change in method of
accounting (unless section 6.01(1)(c)(xv) of this revenue procedure applies). See
§ 1.446-1(e)(2)(ii)(d)(3)(i);
(viii) any depreciable property for which the use changes in the
hands of the same taxpayer. See § 1.446-1(e)(2)(ii)(d)(3)(ii). But see sections 6.04 and
6.05 of this revenue procedure for changing to the methods of accounting provided in
§ 1.168(i)-1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2), and § 1.168(i)-4, respectively;
(ix) any property for which depreciation is determined in accordance
with § 1.167(a)-11 (regarding the Class Life Asset Depreciation Range System (ADR));
(x) any change in method of accounting involving a change from
deducting the cost or other basis of any property as an expense to capitalizing and
depreciating the cost or other basis, or vice versa (but see section 11.08 of this revenue

procedure for making such a change in method of accounting under the final tangible
property regulations);
(xi) any change in method of accounting involving a change from one
permissible method of accounting for the property to another permissible method of
accounting for the property. For example:
(A) a change from the straight-line method of depreciation to the
income forecast method of depreciating for videocassettes. See Rev. Rul. 89-62, 1989-
1 C.B. 78; or
(B) a change from charging the depreciation reserve with costs
of removal and crediting the depreciation reserve with salvage proceeds to deducting
costs of removal as an expense (provided the costs of removal are not required to be
capitalized under any provision of the Code, such as § 263(a)) and including salvage
proceeds in taxable income (see section 6.02 of this revenue procedure for making this
change for property for which depreciation is determined under § 167);
(xii) any change in method of accounting involving both a change
from treating the cost or other basis of the property as nondepreciable or
nonamortizable property to treating the cost or other basis of the property as
depreciable or amortizable property and the adoption of a method of accounting for
depreciation requiring an election under § 167, § 168, § 1400I, § 1400L(c), former
§ 168, § 13261(g)(2) or (3) of the 1993 Act, or any additional first year depreciation
deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)) (for example, a change in the treatment of the space consumed in landfills
placed in service in 2006 from nondepreciable to depreciable property (assuming
section 6.01(1)(c)(xiii) of this revenue procedure does not apply) and the making of an

election under § 168(f)(1) to depreciate this property under the unit-of-production
method of depreciation under § 167);
(xiii) any change in method of accounting for any item of income or
deduction other than depreciation, even if the change results in a change in computing
depreciation under § 1.446-1(e)(2)(ii)(d)(2)(i), (ii), (iii), (iv), (v), (vi), (vii), or (viii). For
example, a change in method of accounting involving:
(A) a change in inventory costs (for example, when property is
reclassified from inventory property to depreciable property, or vice versa) (but see
section 11.02 of this revenue procedure for making a change in method of accounting
from inventory property to depreciable property for unrecoverable line pack gas or
unrecoverable cushion gas, and section 11.06 of this revenue procedure for making a
change in method of accounting from inventory property to depreciable property for
rotable spare parts); or
(B) a change in the character of a transaction from sale to lease,
or vice versa (but see section 6.03 of this revenue procedure for making this change);
(xiv) a change from determining depreciation under § 168 to
determining depreciation under former § 168 for any property subject to the transition
rules in § 203(b) or § 204(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1, 60-
80;
(xv) any change in the placed-in-service date of a depreciable or
amortizable property. This change is corrected by adjustments in the applicable taxable
year provided under § 1.446-1(e)(2)(ii)(d)(5)(v);

(xvi) any property for which the taxpayer has claimed a federal
income tax credit (e.g., the rehabilitation credit under § 47), unless the change does not
alter the amount of the federal income tax credit;
(xvii) any qualified improvement property, as defined in § 168(e)(6),
placed in service by the taxpayer after December 31, 2017, to which section 6.18 of this
revenue procedure applies;
(xviii) any property to which section 4 or 5 of Rev. Proc. 2020-22,
2020-18 I.R.B. 745, applies. (See sections 4.02 and 4.03, or 5.02 of Rev. Proc. 2020-
22, as applicable, for making any changes to depreciation for such property.);
(xix) any change in method of accounting to which section 6.20 of
this revenue procedure applies; or
(xx) the change in method of accounting specified in section 6.21 of
this revenue procedure.
(2) Certain eligibility rules inapplicable. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change. If
during any of the five taxable years ending with the year of change, a taxpayer
requested or made a change in method of accounting from expensing to capitalizing, or
vice versa, the cost or other basis of an asset, the eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 is not applicable to a change under this section 6.01 for that same
asset.
(3) Additional requirements. A taxpayer also must comply with the following:
(a) Permissible method of accounting for depreciation. A taxpayer must
change to a permissible method of accounting for depreciation for the item of
depreciable or amortizable property. The permissible method of accounting is the same

method that determines the depreciation allowable for the item of property (as provided
in section 6.01(7) of this revenue procedure).
(b) Statements required. A taxpayer (including a qualified small taxpayer
as defined in section 6.01(4)(b) of this revenue procedure) must provide the following
statements, if applicable, and attach them to the completed Form 3115:
(i) a detailed description of the present and proposed methods of
accounting. A general description of these methods of accounting is unacceptable (for
example, MACRS to MACRS, erroneous method to proper method, claiming less than
the depreciation allowable to claiming the depreciation allowable);
(ii) to the extent not provided elsewhere on the Form 3115, a
statement describing the taxpayer's business or income-producing activities. Also, if the
taxpayer has more than one business or income-producing activity, a statement
describing the taxpayer's business or income-producing activity in which the item of
property at issue is primarily used by the taxpayer;
(iii) to the extent not provided elsewhere on the Form 3115, a
statement of the facts and law supporting the proposed method of accounting, new
classification of the item of property, and new asset class in, as appropriate, Rev. Proc.
87-56 or Rev. Proc. 83-35. If the taxpayer is the owner and lessor of the item of
property at issue, the statement of the facts and law supporting the new asset class also
must describe the business or income-producing activity in which that item of property is
primarily used by the lessee;
(iv) to the extent not provided elsewhere on the Form 3115, a
statement identifying the year in which the item of property was placed in service by the
taxpayer;

(v) if any item of property is public utility property within the meaning
of § 168(i)(10) or former § 167(l)(3)(A), as applicable, a statement providing that the
taxpayer agrees to the following additional terms and conditions:
(A) a normalization method of accounting (within the meaning of
former § 167(l)(3)(G), former § 168(e)(3)(B), or § 168(i)(9), as applicable) will be used
for the public utility property subject to the Form 3115;
(B) as of the beginning of the year of change, the taxpayer will
adjust its deferred tax reserve account or similar reserve account in the taxpayer's
regulatory books of account by the amount of the deferral of federal income tax liability
associated with the § 481(a) adjustment applicable to the public utility property subject
to the Form 3115; and
(C) within 30 calendar days of filing the federal income tax return
for the year of change, the taxpayer will provide a copy of the completed Form 3115 to
any regulatory body having jurisdiction over the public utility property subject to the
Form 3115;
(vi) if the taxpayer is changing the classification of an item of § 1250
property placed in service after August 19, 1996, to a retail motor fuels outlet under
§ 168(e)(3)(E)(iii), a statement containing the following representation: "For purposes of
§ 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents that (A) 50
percent or more of the gross revenue generated from the item of § 1250 property is
from the sale of petroleum products (not including gross revenue from related services,
such as the labor cost of oil changes and gross revenue from the sale of nonpetroleum
products such as tires and oil filters), (B) 50 percent or more of the floor space in the
item of property is devoted to the sale of petroleum products (not including floor space

devoted to related services, such as oil changes and floor space devoted to
nonpetroleum products such as tires and oil filters), or (C) the item of § 1250 property is
1,400 square feet or less."; and
(vii) if the taxpayer is changing the classification of an item of
property from § 1250 property to § 1245 property under § 168 or former § 168, a
statement of the facts and law supporting the new § 1245 property classification, and a
statement containing the following representation: "Each item of depreciable property
that is the subject of the Form 3115 filed under section 6.01 of Rev. Proc. 2025-23 for
the year of change beginning [Insert the date], and that is reclassified from [Insert, as
appropriate: nonresidential real property, residential rental property, qualified leasehold
improvement property, qualified restaurant property, qualified retail improvement
property, qualified improvement property as defined in § 168(e)(6) (as amended by
§ 13204 of the TCJA), 19-year real property, 18-year real property, or 15-year real
property] to an asset class of [Insert, as appropriate, either: Rev. Proc. 87-56, 1987-2
C.B. 674, or Rev. Proc. 83-35, 1983-1 C.B. 745] that does not explicitly include § 1250
property, is § 1245 property for depreciation purposes."
(4) Reduced filing requirement for qualified small taxpayers.
(a) In general. A qualified small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is required to complete only the following
information on Form 3115 (Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16c, 17, and 19;

(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) Definition of qualified small taxpayer. A "qualified small taxpayer" is a
taxpayer whose average annual gross receipts, as determined under § 1.263(a)-3(h)(3),
for the three preceding taxable years is less than or equal to $10,000,000.
(5) Section 481(a) adjustment. Because the adjusted basis of the property is
changed as a result of a method change made under this section 6.01 (see section
6.01(6) of this revenue procedure), items are duplicated or omitted. Accordingly, this
change is made with a § 481(a) adjustment. This adjustment may result in either a
negative § 481(a) adjustment (a decrease in taxable income) or a positive § 481(a)
adjustment (an increase in taxable income) and may be a different amount for regular
tax, alternative minimum tax, and adjusted current earnings purposes. This § 481(a)
adjustment equals the difference between the total amount of depreciation taken into
account in computing taxable income for the property under the taxpayer's present
method of accounting (including the amount attributable to any property described in
section 6.01(1)(b) of this revenue procedure that is included in the taxpayer's Form
3115), and the total amount of depreciation allowable for the property under the
taxpayer's proposed method of accounting (as determined under section 6.01(7) of this
revenue procedure, and including the amount attributable to any property described in
section 6.01(1)(b) of this revenue procedure that is included in the taxpayer's Form
3115), for open and closed years prior to the year of change. However, the amount of
the § 481(a) adjustment must be adjusted to account for the proper amount of the
depreciation allowable that is required to be capitalized under any provision of the Code
(for example, § 263A) at the beginning of the year of change.

(6) Basis adjustment. As of the beginning of the year of change, the basis of
depreciable property to which this section 6.01 applies must reflect the reductions
required by § 1016(a)(2) for the depreciation allowable for the property (as determined
under section 6.01(7) of this revenue procedure).
(7) Meaning of depreciation allowable.
(a) In general. Section 6.01(7) of this revenue procedure provides the
amount of the depreciation allowable determined under § 56(a)(1), § 56(g)(4)(A) (as in
effect on the day before the date of enactment of the TCJA), § 167, § 168, or § 197, or
former § 168, § 1400I, or § 1400L(c). This amount, however, may be limited by other
provisions of the Code (for example, § 280F).
(b) Section 56(a)(1) property. The depreciation allowable for any taxable
year for property for which depreciation is determined under § 56(a)(1) is determined by
using the depreciation method, recovery period, and convention provided for under
§ 56(a)(1) that applies for the property's placed-in-service date.
(c) Section 56(g)(4)(A) property. The depreciation allowable for any
taxable year for property for which depreciation is determined under § 56(g)(4)(A) (as in
effect on the day before the date of enactment of the TCJA) is determined by using the
depreciation method, recovery period or useful life, as applicable, and convention
provided for under § 56(g)(4)(A) (as in effect on the day before the date of enactment of
the TCJA) that applies for the property's placed-in-service date.
(d) Section 167 property. Generally, for any taxable year, the
depreciation allowable for property for which depreciation is determined under § 167, is
determined either:

(i) under the depreciation method adopted by the taxpayer for the
property; or
(ii) if that depreciation method does not result in a reasonable
allowance for depreciation or the taxpayer has not adopted a depreciation method for
the property, under the straight-line depreciation method.
For determining the estimated useful life and salvage value of the property, see
§ 1.167(a)-1(b) and (c), respectively.
The depreciation allowable for any taxable year for property subject to § 167(f)
(regarding certain property excluded from § 197) is determined by using the
depreciation method and useful life prescribed in § 167(f). If computer software is
depreciated under § 167(f)(1) and is qualified property (as defined in § 168(k)(2) as
amended by the TCJA and § 1.168(k)-2), qualified property (as defined in § 168(k)(2) as
in effect on the day before the date of enactment of the TCJA and § 1.168(k)-1), 50-
percent bonus depreciation property (as defined in § 168(k)(4) (as in effect on the day
before the date of enactment of the Economic Stimulus Act of 2008, Pub. L. No. 110-
185, 122 Stat. 613 (February 13, 2008)) and § 1.168(k)-1), qualified disaster assistance
property (as defined in § 168(n)(2) (as in effect on the day before the date of enactment
of the Tax Technical Corrections Act of 2018, Pub. L. No. 115-141, Division U, 132 Stat.
1211 (March 23, 2018)), qualified New York Liberty Zone (Liberty Zone) property (as
defined in § 1400L(b)(2) (as in effect on the day before the date of enactment of the Tax
Technical Corrections Act of 2018) and § 1.1400L(b)-1), qualified Gulf Opportunity Zone
(GO Zone) property (as defined in § 1400N(d)(2) (as in effect on the day before the date
of enactment of the Tax Technical Corrections Act of 2018) and sections 2.02 and 2.03
of Notice 2006-77, 2006-2 C.B. 590, as clarified, modified, and amplified by Notice

2007-36, 2007-1 C.B. 1000), specified Gulf Opportunity Zone extension property (GO
Zone extension property) (as defined in § 1400N(d)(6) (as in effect on the day before
the date of enactment of the Tax Technical Corrections Act of 2018) and section 4 of
Notice 2007-36), or qualified Recovery Assistance (RA) property (as defined in sections
2.02 and 2.03 of Notice 2008-67, 2008-32 I.R.B. 307), the depreciation allowable for
that computer software under § 167(f)(1) is also determined by taking into account the
additional first year depreciation deduction provided by § 168(k), § 168(n) (as in effect
on the day before the date of enactment of the Tax Technical Corrections Act of 2018),
§ 1400L(b) (as in effect on the day before the date of enactment of the Tax Technical
Corrections Act of 2018), or § 1400N(d) (as in effect on the day before the date of
enactment of the Tax Technical Corrections Act of 2018), or by § 15345(a)(1) and (d)(1)
of the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat.
1651 (June 18, 2008), as applicable, unless the taxpayer made a timely valid election
not to deduct any additional first year depreciation for the computer software.
(e) Section 168 property. The depreciation allowable for any taxable
year for property for which depreciation is determined under § 168, is determined as
follows:
(i) by using either:
(A) the general depreciation system in § 168(a); or
(B) the alternative depreciation system in § 168(g) if the property
is required to be depreciated under the alternative depreciation system pursuant to
§ 168(g)(1) or other provisions of the Code (for example, property described in
§ 263A(e)(2)(A) or § 280F(b)(1)). Property required to be depreciated under the
alternative depreciation system pursuant to § 168(g)(1) includes property in a class (as

set out in § 168(e)) for which the taxpayer made a timely valid election under
§ 168(g)(7);
(ii) if the property is qualified property, 50-percent bonus depreciation
property, qualified disaster assistance property, Liberty Zone property, GO Zone
property, GO Zone extension property, or RA property, by also taking into account the
additional first year depreciation deduction provided by § 168(k), § 168(n) (as in effect
on the day before the date of enactment of the Tax Technical Corrections Act of 2018),
§ 1400L(b) (as in effect on the day before the date of enactment of the Tax Technical
Corrections Act of 2018), or § 1400N(d) (as in effect on the day before the date of
enactment of the Tax Technical Corrections Act of 2018), or by § 15345(a)(1) and (d)(1)
of the Food, Conservation, and Energy Act of 2008, as applicable, unless the taxpayer
made a timely valid election not to deduct the additional first year depreciation (or made
a deemed election not to deduct the additional first year depreciation; for further
guidance, see, for example, Rev. Proc. 2002-33, 2002-1 C.B. 963, Rev. Proc. 2003-50,
2003-2 C.B. 119, Notice 2006-77, Notice 2008-67, section 5 of Rev. Proc. 2011-26,
2011-16 I.R.B. 664, Rev. Proc. 2015-48, 2015-40 I.R.B. 469, or Rev. Proc. 2019-33,
2019-34 I.R.B. 662) for the class of property (as defined in § 1.168(k)-2(f)(1)(ii),
§ 1.168(k)-1(e)(2), § 1.1400L(b)-1(e)(2), or section 4.02 of Notice 2006-77, as
applicable) in which that property is included;
(iii) if the property is qualified second generation biofuel plant
property (as defined in § 168(l)(2) and (3)) or qualified cellulosic biofuel plant property
(as defined in former § 168(l)(2) and (3)), by also taking into account the additional first
year depreciation deduction provided by § 168(l)(1), unless the taxpayer made a timely
valid election not to deduct the additional first year depreciation for the property; and

(iv) if the property is qualified reuse and recycling property (as
defined in § 168(m)(2)), by also taking into account the additional first year depreciation
deduction provided by § 168(m)(1), unless the taxpayer made a timely valid election not
to deduct the additional first year depreciation for the property.
(f) Section 197 property. The amortization allowable for any taxable year
for an amortizable § 197 intangible (including any property for which a timely election
under § 13261(g)(2) of the 1993 Act was made) is determined in accordance with
§ 1.197-2(f).
(g) Former § 168 property. The depreciation allowable for any taxable
year for property subject to former § 168 is determined by using either:
(i) the accelerated method of cost recovery applicable to the property
(for example, for 5-year property, the recovery method under former § 168(b)(1)); or
(ii) the straight-line method applicable to the property if the property
is required to be depreciated under the straight-line method (for example, property
described in former § 168(f)(2) or former § 280F(b)(2)) or if the taxpayer elected to
determine the depreciation allowance under the optional straight-line percentage (for
example, the straight-line method in former § 168(b)(3)).
(h) Qualified revitalization building. The depreciation allowable for any
taxable year for any qualified revitalization building (as defined in § 1400I(b)(1) (as in
effect on the day before the date of enactment of the Tax Technical Corrections Act of
2018)) for which the taxpayer has made a timely valid election under § 1400I(a) is
determined as follows:
(i) if the taxpayer elected to deduct one-half of any qualified
revitalization expenditures (as defined in § 1400I(b)(2) and as limited by § 1400I(c) (as

in effect on the day before the date of enactment of the Tax Technical Corrections Act
of 2018)) chargeable to a capital account with respect to the qualified revitalization
building for the taxable year in which the building is placed in service by the taxpayer,
the depreciation allowable for the qualified revitalization building's placed-in-service
year is equal to one-half of the qualified revitalization expenditures for the building and
the depreciation allowable for the remaining depreciable basis of the qualified
revitalization building for its placed-in-service year and subsequent taxable years is
determined using the general depreciation system of § 168(a) or the alternative
depreciation system of § 168(g), as applicable; or
(ii) if the taxpayer elected to amortize all of the qualified revitalization
expenditures chargeable to a capital account with respect to the qualified revitalization
building ratably over the 120-month period beginning with the month in which the
building is placed in service, the depreciation allowable for the qualified revitalization
expenditures is determined in accordance with this election and the depreciation
allowable for the remaining depreciable basis of the qualified revitalization building is
determined using the general depreciation system of § 168(a) or the alternative
depreciation system of § 168(g), as applicable.
(i) Qualified New York Liberty Zone leasehold improvement property.
The depreciation allowable for any taxable year for qualified New York Liberty Zone
leasehold improvement property (as defined in § 1400L(c)(2) (as in effect on the day
before the date of enactment of the Tax Technical Corrections Act of 2018)) is
determined by using the depreciation method and recovery period prescribed in
§ 1400L(c) (as in effect on the day before the date of enactment of the Tax Technical
Corrections Act of 2018) unless the taxpayer made a timely valid election under

§ 1400L(c)(5) (as in effect on the day before the date of enactment of the Tax Technical
Corrections Act of 2018) not to use that recovery period.
(8) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are
included in that Form 3115 generating such adjustment and a single positive § 481(a)
adjustment for all the changes that are included in that Form 3115 generating such
adjustment. For example, a taxpayer files a single Form 3115 to change the
depreciation methods, recovery periods, and/or conventions under § 168(a) resulting
from the reclassification of two computers from nonresidential real property to 5-year
property, one office desk from nonresidential real property to 7-year property, and two
office desks from 5-year property to 7-year property. On that Form 3115, the taxpayer
must provide either (i) a single net § 481(a) adjustment that covers all the changes
resulting from all of these reclassifications, or (ii) a single negative § 481(a) adjustment
that covers the changes resulting from the reclassifications of the two computers and
one office desk from nonresidential real property to 5-year property and 7-year property,
respectively, and a single positive § 481(a) adjustment that covers the changes
resulting from the reclassifications of the two office desks from 5-year property to 7-year
property.

(b) A taxpayer making both this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes. For example, a qualified small taxpayer must include on the single Form 3115
the information required by section 6.01(4)(a) of this revenue procedure for this change
and the information required by the lines on Form 3115 applicable to the UNICAP
method change, including Part II lines 14 and 15, Part IV, and Schedule D, and must
include a separate response to each line on Form 3115 that is applicable to both
changes (such as Part II, lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)
for which the taxpayer's response is different for this change and the change to a
UNICAP method.
(9) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.01 is "7."
(10) Contact information. For further information regarding a change under
this section, contact James Liechty at (202) 317-7005 (not a toll-free number).
.02 Permissible to permissible method of accounting for depreciation.
(1) Description of change. This change applies to a taxpayer that wants to
change from a permissible method of accounting for depreciation under § 56(g)(4)(A)(iv)
(as in effect on the day before the date of enactment of Public Law 115-97, 131 Stat.
2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA)) or

§ 167 to another permissible method of accounting for depreciation under
§ 56(g)(4)(A)(iv) (as in effect on the day before the date of enactment of the TCJA) or
§ 167. Pursuant to § 1.167(a)-7(a) and (c), a taxpayer may account for depreciable
property either by treating each individual asset as an account or by combining two or
more assets in a single account and, for each account, depreciation allowances are
computed separately.
(2) Applicability.
(a) In general. This change applies to any taxpayer wanting to make a
change in method of accounting for depreciation specified in section 6.02(4) of this
revenue procedure for the property in an account:
(i) for which the present and proposed methods of accounting for
depreciation specified in section 6.02(4) of this revenue procedure are permissible
methods for the property under § 56(g)(4)(A)(iv) (as in effect on the day before the date
of enactment of the TCJA) or § 167; and
(ii) that is owned by the taxpayer at the beginning of the year of
change.
(b) Inapplicability. This change does not apply to:
(i) a taxpayer that is required under § 263A and the regulations
thereunder to capitalize the costs with respect to which the taxpayer wants to change its
method of accounting under this section 6.02 if the taxpayer is not capitalizing these
costs, unless the taxpayer concurrently changes its method to capitalize these costs in
conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or
12.12 of this revenue procedure (as applicable);

(ii) any property to which § 1016(a)(3) (regarding property held by a
tax-exempt organization) applies;
(iii) any property described in § 167(f) (regarding certain property
excluded from § 197);
(iv) any property subject to § 167(g) (regarding property depreciated
under the income forecast method);
(v) any property for which depreciation is determined under
§ 56(a)(1), § 56(g)(4)(A)(i), (ii), (iii), or (v) (as in effect on the day before the date of
enactment of the TCJA), § 168, § 1400I (as in effect on the day before the date of
enactment of the Tax Technical Corrections Act of 2018, Pub. L. No. 115-141, Division
U, 132 Stat. 1211 (March 23, 2018)), § 1400L(c) (as in effect on the day before the date
of enactment of the Tax Technical Corrections Act of 2018), § 168 prior to its
amendment in 1986 (former § 168), or any additional first year depreciation deduction
provision of the Code (for example, § 168(k), § 168(l), § 1400L(b) (as in effect on the
day before the date of enactment of the Tax Technical Corrections Act of 2018), or
§ 1400N(d) (as in effect on the day before the date of enactment of the Tax Technical
Corrections Act of 2018));
(vi) any property that the taxpayer elected under § 168(f)(1) or former
§ 168(e)(2) to exclude from the application of, respectively, § 168 or former § 168;
(vii) any property for which depreciation is determined in accordance
with § 1.167(a)-11 (ADR);
(viii) any depreciable property for which the taxpayer is changing the
depreciation method pursuant to § 1.167(e)-1(b) (change from declining-balance
method to straight-line method), § 1.167(e)-1(c) (certain changes for § 1245 property),

or § 1.167(e)-1(d) (certain changes for § 1250 property). These changes must be made
prospectively and are not permitted under the cited regulations for property for which
the depreciation is determined under § 168, § 1400I (as in effect on the day before the
date of enactment of the Tax Technical Corrections Act of 2018), § 1400L(c) (as in
effect on the day before the date of enactment of the Tax Technical Corrections Act of
2018), former § 168, or any additional first year depreciation deduction provision of the
Code (for example, § 168(k), § 168(l), § 1400L(b) (as in effect on the day before the
date of enactment of the Tax Technical Corrections Act of 2018), or § 1400N(d) (as in
effect on the day before the date of enactment of the Tax Technical Corrections Act of
2018)); or
(ix) any distributor commissions (as defined by section 2 of Rev.
Proc. 2000-38, 2000-2 C.B. 310, as modified by Rev. Proc. 2007-16, 2007-1 C.B. 358)
for which the taxpayer is changing the useful life under the distribution fee period
method or the useful life method (both described in Rev. Proc. 2000-38). A change in
this useful life is corrected by adjustments in the applicable taxable year provided under
§ 1.446-1(e)(2)(ii)(d)(5)(iv).
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.
(4) Changes covered. This section 6.02 only applies to the following
changes in methods of accounting for depreciation:
(a) a change from the straight-line method to the sum-of-the-years-digits
method, the sinking fund method, the unit-of-production method, or the declining-
balance method using any proper percentage of the straight-line rate;

(b) a change from the declining-balance method using any percentage of
the straight-line rate to the sum-of-the-years-digits method, the sinking fund method, or
the declining-balance method using a different proper percentage of the straight-line
rate;
(c) a change from the sum-of-the-years-digits method to the sinking fund
method, the declining-balance method using any proper percentage of the straight-line
rate, or the straight-line method;
(d) a change from the unit-of-production method to the straight-line
method;
(e) a change from the sinking fund method to the straight-line method,
the unit-of-production method, the sum-of-the-years-digits method, or the declining-
balance method using any proper percentage of the straight-line rate;
(f) a change in the interest factor used in connection with a compound
interest method or sinking fund method;
(g) a change in averaging convention as set forth in § 1.167(a)-10(b).
However, as specifically provided in § 1.167(a)-10(b), in any taxable year in which an
averaging convention substantially distorts the depreciation allowance for the taxable
year, it may not be used (see Rev. Rul. 73-202, 1973-1 C.B. 81);
(h) a change from charging the depreciation reserve with costs of
removal and crediting the depreciation reserve with salvage proceeds to deducting
costs of removal as an expense and including salvage proceeds in taxable income as
set forth in § 1.167(a)-8(e)(2). See Rev. Rul. 74-455, 1974-2 C.B. 63. This section 6.02
applies to this change, however, only if:

(i) the change is applied to all items in the account for which the
change is being made; and
(ii) the removal costs are not required to be capitalized under any
provision of the Code (for example, § 263(a), § 263A, or § 280B);
(i) a change from crediting the depreciation reserve with the salvage
proceeds realized on normal retirement sales to computing and recognizing gains and
losses on the sales (see Rev. Rul. 70-165, 1970-1 C.B. 43);
(j) a change from crediting ordinary income (including the combination
method of crediting the lesser of estimated salvage value or actual salvage proceeds to
the depreciation reserve, with any excess of salvage proceeds over estimated salvage
value credited to ordinary income) with the salvage proceeds realized on normal
retirement sales, to computing and recognizing gains and losses on the sales (see Rev.
Rul. 70-166, 1970-1 C.B. 44);
(k) a change from item accounting for specific assets to multiple asset
accounting (pooling) for the same assets, or vice versa;
(l) a change from one type of multiple asset accounting (pooling) for
specific assets to a different type of multiple asset accounting (pooling) for the same
assets;
(m) a change from one method described in Rev. Proc. 2000-38 for
amortizing distributor commissions (as defined by section 2 of Rev. Proc. 2000-38) to
another method described in Rev. Proc. 2000-38 for amortizing distributor commissions;
or
(n) a change from pooling to a single asset, or vice versa, for distributor
commissions (as defined by section 2 of Rev. Proc. 2000-38) for which the taxpayer is

using the distribution fee period method or the useful life method (both described in
Rev. Proc. 2000-38).
(5) Additional requirements. A taxpayer also must comply with the following:
(a) Basis for depreciation. At the beginning of the year of change, the
basis for depreciation of property to which this change applies is the adjusted basis of
the property as provided in § 1011 at the end of the taxable year immediately preceding
the year of change (determined under taxpayer's present method of accounting for
depreciation). If applicable under the taxpayer's proposed method of accounting for
depreciation, this adjusted basis is reduced by the estimated salvage value of the
property (for example, a change to the straight-line method).
(b) Rate of depreciation. The rate of depreciation for property changed
to:
(i) the straight-line or the sum-of-the-years-digits method of
depreciation must be based on the remaining useful life of the property as of the
beginning of the year of change; or
(ii) the declining-balance method of depreciation must be based on
the useful life of the property measured from the placed-in-service date, and not the
expected remaining life from the date the change becomes effective.
(c) Regulatory requirements. For changes in method of depreciation to
the sum-of-the-years-digits or declining-balance method, the property must meet the
requirements of § 1.167(b)-0 or § 1.167(c)-1, as appropriate.
(d) Public utility property. If any item of property is public utility property
within the meaning of former § 167(l)(3)(A), the taxpayer (including a qualified small
taxpayer as defined in section 6.01(4)(b) of this revenue procedure) must attach to the

Form 3115 a statement providing that the taxpayer agrees to the following additional
terms and conditions:
(i) a normalization method of accounting within the meaning of
former § 167(l)(3)(G) will be used for the public utility property subject to the Form 3115;
and
(ii) within 30 calendar days of filing the federal income tax return for
the year of change, the taxpayer will provide a copy of the completed Form 3115 to any
regulatory body having jurisdiction over the public utility property subject to the Form
3115.
(6) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(e) Part IV, line 25; and
(f) Schedule E.
(7) Section 481(a) adjustment. Because the adjusted basis of the property is
not changed as a result of a method change made under this section 6.02, no items are
being duplicated or omitted. Accordingly, a § 481(a) adjustment is neither required nor
permitted.
(8) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets.
(b) A taxpayer making both this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes. For example, a qualified small taxpayer must include on the single Form 3115
the information required by section 6.02(6) of this revenue procedure for this change
and the information required by the lines on Form 3115 applicable to the UNICAP
method change, including Part II lines 14 and 15, Part IV, and Schedule D, and must
include a separate response to each line on Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)
for which the taxpayer's response is different for this change and the change to a
UNICAP method.
(9) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.02 is "8."
(10) Contact information. For further information regarding a change under
this section, contact Bruce Chang at (202) 317-7005 (not a toll-free number).
.03 Sale, lease, or financing transactions.
(1) Description of change and scope.

(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting from:
(i) improperly treating property as sold by the taxpayer to properly
treating property as leased or financed by the taxpayer;
(ii) improperly treating property as leased by the taxpayer to properly
treating property as sold or financed by the taxpayer;
(iii) improperly treating property as financed by the taxpayer to
properly treating property as sold or leased by the taxpayer;
(iv) improperly treating property as purchased by the taxpayer to
properly treating property as leased by the taxpayer; and
(v) improperly treating property as leased by the taxpayer to properly
treating property as purchased by the taxpayer.
(b) Inapplicability. This change does not apply to:
(i) a rent-to-own dealer that wants to change its method of
accounting for rent-to-own contracts described in section 3 of Rev. Proc. 95-38, 1995-2
C.B. 397; or
(ii) a taxpayer that holds assets for sale or lease, if any asset so held
is not the subject of a sale or lease transaction as of the beginning of the year of
change.
(2) Manner of making the change.
(a) Required statement. A taxpayer changing its method of accounting
under this section 6.03 must submit a statement with the Form 3115 that provides the
name of the counterparty to the sale, lease, or financing transactions as of the
beginning of the year of change.

(b) Section 481(a) adjustment. A change under this section 6.03 is
made with a § 481(a) adjustment.
(3) No ruling on the characterization of any transaction as a sale, lease, or
financing transaction. The consent granted under section 9 of Rev. Proc. 2015-13 for a
change specified in this section 6.03 is not a determination by the Commissioner that
the taxpayer has properly characterized any transaction as a sale, lease, or financing
transaction and does not create any presumption that the proposed characterization of
any transaction as a sale, lease, or financing transaction is permissible. The director
will ascertain whether the taxpayer's characterization of any transaction as a sale,
lease, or financing transaction is permissible.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.03 is "10."
(5) Contact information. For further information regarding a change under
this section, contact Edward Schwartz at (202) 317-7006 (not a toll-free number).
.04 Change in general asset account treatment due to a change in the use of
MACRS property.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
the method of accounting for general asset account treatment of MACRS property (as
defined in § 1.168(b)-1(a)(2)) to the method of accounting provided in § 1.168(i)-
1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2), which applies when there is a change in the use of
MACRS property pursuant to § 1.168(i)-4(d).

(b) Taxpayer has not adopted a method of accounting for the item of
property. If a taxpayer does not satisfy section 6.04(1)(a) of this revenue procedure for
an item of MACRS property because a change in the use of this item of MACRS
property occurred in the taxable year immediately preceding the year of change (1-year
change in use property), the taxpayer may change from the impermissible method for
general asset account treatment to the permissible method provided in § 1.168(i)-
1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2) for the 1-year change in use property by filing a
Form 3115. Alternatively, the taxpayer may change from the impermissible method for
general asset account treatment to the permissible method provided in § 1.168(i)-
1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2) for a 1-year change in use property by filing an
amended federal income tax return, or an administrative adjustment request under
§ 6227 (AAR), as applicable, for the year of change in the use of such property provided
such filing occurs prior to the date the taxpayer files its federal income tax return for the
taxable year succeeding the year of change in the use of such property.
(c) Inapplicability.
(i) The change described in section 6.04(1)(a) of this revenue procedure
does not apply to any property to which section 4.05 of Rev. Proc. 2020-22, 2020-18
I.R.B. 745, applies unless the taxpayer and property are within the scope of Rev. Proc.
2021-28, 2021-27 I.R.B. 5. (See sections 4.02 and 4.03 of Rev. Proc. 2020-22, as
applicable, for making such changes for such property.); and
(ii) The change described in section 6.04(1)(a) of this revenue procedure
does not apply to any property to which section 5.04 of Rev. Proc. 2020-22, 2020-18
I.R.B. 745, applies. (See section 5.02 of Rev. Proc. 2020-22 for making such change
for such property.).

(2) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change.
(3) Manner of making change.
(a) The change is made on a modified cut-off basis (as defined in § 1.446-
1(e)(2)(ii)(d)(5)(iii)) and, thus, the adjusted depreciable basis of the MACRS property as
of the beginning of the year of change is recovered using the proposed method of
accounting for general asset account treatment. Accordingly, a § 481(a) adjustment is
neither permitted nor required. See § 1.168(i)-1(h)(2)(ii) and (iii) for more information
regarding how to establish the general asset account when a change in the use of
MACRS property occurs pursuant to § 1.168(i)-4(d).
(b) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(v) Part IV, line 25; and
(vi) Schedule E, all lines except lines 1, 4c, 5, 6, 7b, and 7c.
(4) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets.

(b) A taxpayer making this change and a change under section 6.05,
section 6.12(3)(b), and/or section 6.15 of this revenue procedure for the same year of
change should file a single Form 3115 for all such changes and must enter the
designated automatic accounting method change numbers for the changes on the
appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.04 is "87."
(6) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.05 Change in method of accounting for depreciation due to a change in the use
of MACRS property.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to (i) change
the method of accounting for depreciation of MACRS property (as defined in § 1.168(b)-
1(a)(2)) to the method of accounting for depreciation provided in § 1.168(i)-4, which
applies when there is a change in the use of MACRS property, or (ii) revoke the election
provided in § 1.168(i)-4(d)(3)(ii) to disregard a change in the use of MACRS property.
See § 1.168(i)-4(g)(2).
(b) Taxpayer has not adopted a method of accounting for the item of
property. If a taxpayer does not satisfy section 6.05(1)(a)(i) of this revenue procedure
for an item of MACRS property because a change in the use of this item of MACRS
property occurred in the taxable year immediately preceding the year of change (1-year

change in use property), the taxpayer may change from the impermissible method of
determining depreciation to the permissible method of determining depreciation
provided in § 1.168(i)-4 for the 1-year change in use property by filing a Form 3115 for
this change, provided the § 481(a) adjustment reported on the Form 3115 includes the
amount of any adjustment that is attributable to all property (including the 1-year change
in use property) subject to the Form 3115. Alternatively, the taxpayer may change from
the impermissible method of determining depreciation to the permissible method of
determining depreciation provided in § 1.168(i)-4 for a 1-year change in use property by
filing an amended federal income tax return, or an administrative adjustment request
under § 6227 (AAR), as applicable, for the year of change in the use of such property
provided such filing occurs prior to the date the taxpayer files its federal income tax
return for the taxable year succeeding the year of change in the use of such property.
(c) Inapplicability.
(i) The change described in section 6.05(1)(a)(i) of this revenue
procedure does not apply to any property to which section 4.05 of Rev. Proc. 2020-22,
2020-18 I.R.B. 745, applies unless the taxpayer and property are within the scope of
Rev. Proc. 2021-28, 2021-27 I.R.B. 5. (See sections 4.02 and 4.03, or 5.02 of Rev.
Proc. 2020-22, as applicable, for making such change for such property.);
(ii) The change described in section 6.05(1)(a)(i) of this revenue
procedure does not apply to any property to which section 5.04 of Rev. Proc. 2020-22,
2020-18 I.R.B. 745, applies. (See section 5.02 of Rev. Proc. 2020-22 for making such
change for such property.); and
(iii) The change described in this section 6.05 does not apply to any
property that is not owned by the taxpayer at the beginning of the year of change.

(2) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change.
(3) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E, all lines except lines 1, 4c, 5, 6, 7b, and 7c.
(4) Section 481(a) adjustment. A taxpayer changing its method of
accounting under this section 6.05 is required to calculate a § 481(a) adjustment as of
the first day of the year of change as if the proposed method of accounting had always
been used by the taxpayer beginning with the taxable year in which the change in the
use of the MACRS property occurred by the taxpayer.
(5) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such adjustment and a single positive § 481(a)
adjustment for all the changes that are included in that Form 3115 generating such
adjustment.
(b) A taxpayer making this change and a change under section 6.04,
section 6.12(3)(b), and/or section 6.15 of this revenue procedure for the same year of
change should file a single Form 3115 for all such changes and must enter the
designated automatic accounting method change numbers for the changes on the
appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.05 is "88."
(7) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.06 Depreciation of qualified non-personal use vans and light trucks.
(1) Description of change. This change applies to a taxpayer that wants to
change the method of accounting for depreciation for certain vehicles in accordance
with § 1.280F-6(f)(2)(iv). Section 1.280F-6(f)(2)(iv) applies to a truck or van that is a
qualified nonpersonal use vehicle as defined under § 1.274-5T(k), was placed in service
by the taxpayer before July 7, 2003, and was treated by the taxpayer as a passenger
automobile under § 1.280F-6T as in effect prior to July 7, 2003. If the taxpayer files
Form 3115, in accordance with § 1.280F-6(f)(2)(iv), the treatment of the truck or van will
be changed from property to which § 280F(a) applies to property to which § 280F(a)
does not apply.

(2) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(3) Concurrent automatic change. A taxpayer making this change for more
than one asset for the same year of change should file a single Form 3115 for all such
assets and provide a single net § 481(a) adjustment for all the changes included in that
Form 3115. If one or more of the changes in that single Form 3115 generate a negative
§ 481(a) adjustment and other changes in that same Form 3115 generate a positive
§ 481(a) adjustment, the taxpayer may provide a single negative § 481(a) adjustment
for all the changes that are included in that Form 3115 generating such adjustment and
a single positive § 481(a) adjustment for all the changes that are included in that Form
3115 generating such adjustment.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.06 is "89."
(5) Contact information. For further information regarding a change under
this section, contact C. Dylan Durham at (202) 317-7005 (not a toll-free number).

.07 Impermissible to permissible method of accounting for depreciation or
amortization for disposed depreciable or amortizable property.
(1) Description of change. This change applies to a taxpayer that wants to
make the change in method of accounting for depreciation or amortization
(depreciation) provided under section 3 of Rev. Proc. 2007-16, 2007-1 C.B. 358, for an
item of depreciable or amortizable property that has been disposed of by the taxpayer.
Section 3 of Rev. Proc. 2007-16 allows a taxpayer to make a change in method of
accounting for depreciation for the disposed property if the taxpayer used an
impermissible method of accounting for depreciation for the property under which the
taxpayer did not take into account any depreciation allowance, or did take into account
some depreciation but less than the depreciation allowable, in the year of change (as
defined in section 6.07(4) of this revenue procedure) or any prior taxable year.
(2) Applicability.
(a) In general. Except as provided in section 6.07(2)(b) of this revenue
procedure, this section 6.07 applies to a taxpayer that is changing from an
impermissible method of accounting for depreciation to a permissible method of
accounting for depreciation for any item of depreciable or amortizable property subject
to §§ 167, 168, 197, 1400I, or 1400L(c), to former § 168, or to any additional first year
depreciation deduction provision of the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d)):
(i) that has been disposed of by the taxpayer during the year of
change (as defined in section 6.07(4) of this revenue procedure); and
(ii) for which the taxpayer did not take into account any depreciation
allowance, or did take into account some depreciation but less than the depreciation

allowable (hereinafter, both are referred to as "claimed less than the depreciation
allowable"), in the year of change (as defined in section 6.07(4) of this revenue
procedure) or any prior taxable year.
(b) Inapplicability. This section 6.07 does not apply to:
(i) any property to which § 1016(a)(3) (regarding property held by a
tax-exempt organization) applies;
(ii) any property for which a taxpayer is revoking a timely valid
depreciation election, or making a late depreciation election, under the Code or
regulations thereunder, or under other guidance published in the Internal Revenue
Bulletin (including under § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993
(1993 Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles));
(iii) any property for which the taxpayer deducted the cost or other
basis of the property as an expense; or
(iv) any property disposed of by the taxpayer in a transaction to
which a nonrecognition section of the Code applies (for example, § 1031, transactions
subject to § 168(i)(7)(B)). However, this section 6.07(2)(b)(iv) does not apply to
property disposed of by the taxpayer in a § 1031 or § 1033 transaction if the taxpayer
elects under § 1.168(i)-6(i) and (j) to treat the entire basis (that is, both the exchanged
and excess basis (as defined in § 1.168(i)-6(b)(7) and (8), respectively) of the
replacement MACRS property (as defined in § 1.168(i)-6(b)(1)) as property placed in
service by the taxpayer at the time of replacement and treat the adjusted depreciable
basis of the relinquished MACRS property (as defined in § 1.168(i)-6(b)(2)) as being
disposed of by the taxpayer at the time of disposition.
(3) Manner of making the change.

(a) Change made on an original return for the year of change. This
change may be made on a taxpayer's timely filed (including any extension) original
federal tax return for the year of change (as defined in section 6.07(4) of this revenue
procedure), provided the taxpayer files the original Form 3115 in accordance with
section 6.03(1)(a) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419.
(b) Change made on an amended return or an AAR for the year of
change. This change may also be made on an amended federal income tax return, or
administrative adjustment request under § 6227 (AAR), as applicable, for the year of
change (as defined in section 6.07(4) of this revenue procedure), provided:
(i)(A) the taxpayer files the original Form 3115 with the taxpayer's
amended federal income tax return for the year of change (as defined in section 6.07(4)
of this revenue procedure) prior to the expiration of the period of limitation for
assessment under § 6501(a) for the taxable year in which the item of depreciable or
amortizable property was disposed of by the taxpayer, or if applicable (B) the
partnership subject to the centralized partnership audit regime enacted as part of the
Bipartisan Budget Act of 2015 (BBA partnership) files the original Form 3115 with its
AAR for the year of change (as defined in section 6.07(4) of this revenue procedure)
prior to the expiration of the applicable period of limitations for making adjustments
under § 6235 for the reviewed year as defined in § 301.6241-1(a)(8) of the Procedure
and Administration Regulations; and
(ii) the taxpayer's amended federal income tax return, or AAR, as
applicable, for the year of change (as defined in section 6.07(4) of this revenue
procedure) includes the adjustments to taxable income and any collateral adjustments
to taxable income or tax liability (for example, adjustments to the amount or character of

the gain or loss of the disposed depreciable or amortizable property) resulting from the
change in method of accounting for depreciation made by the taxpayer under this
section 6.07.
(4) Year of change. The year of change for this change is the taxable year in
which the item of depreciable or amortizable property was disposed of by the taxpayer.
(5) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to this change.
(6) Filing requirements.
(a) Notwithstanding section 6.03(1)(a) of Rev. Proc. 2015-13, a taxpayer
making this change in accordance with section 6.07(3)(b) of this revenue procedure
must attach the original Form 3115 to the taxpayer's timely filed amended federal
income tax return, or AAR, as applicable, for the year of change and must file the
required duplicate copy (with signature) of the Form 3115 with the IRS in Ogden, UT, no
later than when the original Form 3115 is filed with the amended federal income tax
return, or AAR, as applicable, for the year of change. If a taxpayer is making this
change in accordance with section 6.07(3)(a) of this revenue procedure, the filing
requirements in section 6.03(1)(a) of Rev. Proc. 2015-13 apply.
(b) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(7) Section 481(a) adjustment period. A taxpayer must take the entire
§ 481(a) adjustment into account in computing taxable income for the year of change.
(8) Concurrent automatic change. A taxpayer making this change for more
than one asset for the same year of change should file a single Form 3115 for all such
assets.
(9) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.07 is "107."
(10) Contact information. For further information regarding a change under
this section, contact James Liechty at (202) 317-7005 (not a toll-free number).
.08 Tenant construction allowances.
(1) Description of change and scope.
(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting for tenant construction allowances:
(i) from improperly treating the taxpayer as having a depreciable
interest in the property subject to the tenant construction allowances for federal income
tax purposes to properly treating the taxpayer as not having a depreciable interest in
such property for federal income tax purposes; or
(ii) from improperly treating the taxpayer as not having a depreciable
interest in the property subject to the tenant construction allowances for federal income

tax purposes to properly treating the taxpayer as having a depreciable interest in such
property for federal income tax purposes.
(b) Inapplicability. This change does not apply to:
(i) any tenant construction allowance that qualifies under § 110;
(ii) any portion of a tenant construction allowance that is not
expended on depreciable property; or
(iii) any amount expended for depreciable property in excess of the
tenant construction allowance.
(2) Definition. For purposes of this section 6.08, the term "tenant
construction allowance(s)" means any amount received by a lessee from a lessor to
construct, acquire, or improve property for use by the lessee pursuant to a lease.
(3) Manner of making the change. A taxpayer changing its method of
accounting under this section 6.08 must submit the following information:
(a) If a lessee is filing the Form 3115, the lessee must submit a
statement with the Form 3115 that provides the amount of the tenant construction
allowance received by the lessee, the amount of such tenant construction allowance
expended by the lessee on property, and the name of the lessor that provided the
tenant construction allowance.
(b) If a lessor is filing the Form 3115, the lessor must submit a statement
with the Form 3115 that provides the amount of the tenant construction allowance
provided to the lessee and the name of the lessee that received such tenant
construction allowance.
(4) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2022) to make
this change in accordance with section 6.08(3)(a) of this revenue procedure:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(e) Part IV, line 25; and
(f) Schedule E.
(5) No ruling on which party has the depreciable interest in the property
subject to tenant construction allowances. The consent granted under section 9 of Rev.
Proc. 2015-13 for a change specified in this section 6.08 is not a determination by the
Commissioner that the taxpayer has properly determined that the taxpayer has, or does
not have, a depreciable interest in the property subject to the tenant construction
allowances for federal income tax purposes and does not create any presumption that
the proposed determination of which party has the depreciable interest in such property
is permissible. The director will ascertain whether the taxpayer's determination of which
party has the depreciable interest in the property subject to the tenant construction
allowances is permissible.
(6) Concurrent automatic change. A taxpayer making this change for more
than one asset for the same year of change should file a single Form 3115 for all such
assets.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.08 is "145."

(8) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.09 Safe harbor method of accounting for determining the depreciation of certain
tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-
22.
(1) Description of change. This change applies to a taxpayer that is within
the scope of Rev. Proc. 2011-22, 2011-18 I.R.B. 737, and wants to change to the
recovery periods described in section 5 of Rev. Proc. 2011-22 and any collateral
change to the depreciation methods for all, or some of, the assets listed in that section.
(2) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022) to make
this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(3) Concurrent automatic change. A taxpayer making this change for more
than one asset for the same year of change should file a single Form 3115 for all such
assets and provide a single net § 481(a) adjustment for all the changes included in that
Form 3115. If one or more of the changes in that single Form 3115 generate a negative
§ 481(a) adjustment and other changes in that same Form 3115 generate a positive

§ 481(a) adjustment, the taxpayer may provide a single negative § 481(a) adjustment
for all the changes that are included in that Form 3115 generating such adjustment and
a single positive § 481(a) adjustment for all the changes that are included in that Form
3115 generating such adjustment.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.09 is "157."
(5) Contact information. For further information regarding a change under
this section, contact Charles Magee at (202) 317-7005 (not a toll-free number).
.10 Partial dispositions of tangible depreciable assets to which the IRS's
adjustment pertains (§ 168; § 1.168(i)-8).
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that is described in
§ 1.168(i)-8(d)(2)(iii) and, pursuant to § 1.168(i)-8(d)(2)(iii), that wants to make the
partial disposition election specified in § 1.168(i)-8(d)(2)(i) to the disposition of a portion
of an asset to which the IRS's adjustment (as described in § 1.168(i)-8(d)(2)(iii))
pertains.
(b) Inapplicability. This change does not apply to:
(i) Any asset of which the disposed portion was a part that is not
owned by the taxpayer at the beginning of the year of change; or
(ii) Any partial disposition election specified in § 1.168(i)-8(d)(2)(i)
that is not made pursuant to § 1.168(i)-8(d)(2)(iii) (for example, this change does not
apply to the partial disposition election specified in § 1.168(i)-8(d)(2)(i) that is made
pursuant to § 1.168(i)-8(d)(2)(iv)).

(2) Change in method of accounting. The IRS will treat the making of the late
election specified in section 6.10(1) of this revenue procedure as a change in method of
accounting.
(3) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change.
(4) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) A taxpayer (including a qualified small taxpayer) making this change
must:
(i) Apply § 1.168(i)-8(h)(1) and (3) (accounting for asset disposed of);
(ii) If the asset (as determined under § 1.168(i)-8(c)(4)) of which the
disposed portion is a part is properly included in one of the asset classes 00.11 through
00.4 of Rev. Proc. 87-56, 1987-2 C.B. 674, classify the replacement portion of such
asset under the same asset class as the disposed portion of the asset in the taxable
year in which the replacement portion is placed in service by the taxpayer;

(iii) If the taxpayer's present method of accounting is not in accord
with § 1.168(i)-8(c)(4) (determination of asset disposed of), change to the appropriate
asset as determined under § 1.168(i)-8(c)(4);
(iv) If the taxpayer continues to deduct depreciation for the disposed
portion of the asset (as determined under § 1.168(i)-8(c)(4)) under the taxpayer's
present method of accounting, change from depreciating such disposed portion to
recognizing gain or loss for the disposed portion or, if § 280B and § 1.280B-1 apply to
the disposition, change from depreciating such disposed portion to capitalizing the loss
sustained on account of the demolition to the land on which the demolished structure
was located; and
(v) If any asset is public utility property within the meaning of
§ 168(i)(10), attach a statement to its Form 3115 providing that the taxpayer agrees to
the following additional terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the Form 3115;
(B) Within 30 calendar days of filing the federal income tax return
for the year of change, the taxpayer will provide a copy of the completed Form 3115 to
any regulatory body having jurisdiction over the public utility property subject to the
Form 3115; and
(C) As of the beginning of the year of change, the taxpayer will
adjust its deferred tax reserve account or similar account in the taxpayer's regulatory
books of account by the amount of the deferral of federal income tax liability associated
with the § 481(a) adjustment applicable to the public utility property subject to the Form
3115.

(5) Concurrent automatic change. A taxpayer making this change for more
than one asset for the same year of change should file a single Form 3115 for all such
assets. If the change for more than one asset included in that Form 3115 is specified in
section 6.10(1) of this revenue procedure, the single Form 3115 should provide a single
net § 481(a) adjustment for all such changes. If one or more of the changes specified in
section 6.10(1) of this revenue procedure in that single Form 3115 generate a negative
§ 481(a) adjustment and other changes specified in section 6.10(1) of this revenue
procedure in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all such changes that
are included in that Form 3115 generating such negative adjustment and a single
positive § 481(a) adjustment for all such changes that are included in that Form 3115
generating such positive adjustment.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.10 is "198."
(7) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.11 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-
4).
(1) Description of change. This change, as described in Rev. Proc. 2014-17,
2014-12 I.R.B. 661, applies to a taxpayer that wants to change its method of accounting
to comply with § 1.167(a)-4 for leasehold improvements in which the taxpayer has a
depreciable interest at the beginning of the year of change:

(a) From improperly depreciating the leasehold improvements to which
§ 168 applies over the term of the lease (including renewals, if applicable) to properly
depreciating these improvements under § 168;
(b) From improperly amortizing leasehold improvements to which § 197
applies over the term of the lease (including renewals, if applicable) to properly
amortizing these improvements under § 197; or
(c) From improperly amortizing leasehold improvements to which
§ 167(f)(1) applies over the term of the lease (including renewals, if applicable) to
properly amortizing these improvements under § 167(f)(1).
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this
change.
(3) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) If any leasehold improvement is public utility property within the
meaning of § 168(i)(10) or former § 167(l)(3)(A), a taxpayer (including a qualified small

taxpayer) making this change must attach to its Form 3115 a statement providing that
the taxpayer agrees to the following additional terms and conditions:
(i) A normalization method of accounting (within the meaning of
§ 168(i)(9) or former § 167(l)(3)(G)) will be used for the public utility property subject to
the change;
(ii) As of the beginning of the year of change, the taxpayer will adjust
its deferred tax reserve account or similar account in the taxpayer's regulatory books of
account by the amount of the deferral of federal income tax liability associated with the
§ 481(a) adjustment applicable to the public utility property subject to the change; and
(iii) Within 30 calendar days of filing the federal income tax return for
the year of change, the taxpayer will provide a copy of the completed Form 3115 to any
regulatory body having jurisdiction over the public utility property subject to the change.
(4) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are
included in that Form 3115 generating such adjustment and a single positive § 481(a)
adjustment for all the changes that are included in that Form 3115 generating such
adjustment.
(b) A taxpayer making both this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for all such
changes and must enter the designated automatic accounting method change numbers
for the changes on the appropriate line on the Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on making concurrent changes. For example, a
qualified small taxpayer must include on the single Form 3115 the information required
by section 6.11(3)(a) of this revenue procedure for this change and the information
required by the lines on Form 3115 applicable to the UNICAP method change, including
Part II lines 14 and 15, Part IV, and Schedule D, and must include a separate response
to each line on Form 3115 that is applicable to both changes (such as Part II lines 6b, 7,
8b, 14, and, as applicable for this change, Part IV) for which the taxpayer's response is
different for this change and the change to a UNICAP method.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to a method of
accounting under this section 6.11 is "199."
(6) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.12 Permissible to permissible method of accounting for depreciation of MACRS
property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-
41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of
accounting for depreciation that is specified in section 6.12(3) of this revenue procedure
for an asset:
(i) to which § 168 applies (MACRS property);

(ii) for which the present and proposed methods of accounting are
permissible methods of accounting under § 1.168(i)-1, § 1.168(i)-7, or § 1.168(i)-8, as
applicable; and
(iii) that is owned by the taxpayer at the beginning of the year of
change.
(b) Inapplicability. This change does not apply to any property that is not
depreciated under § 168 under the taxpayer's present and proposed methods of
accounting.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this
change.
(3) Changes covered. This section 6.12 only applies to the following
changes in methods of accounting for depreciation of MACRS property:
(a) For the items of MACRS property not subject to a general asset
account election under § 168(i)(4) and the regulations thereunder—
(i) a change from single asset accounts (or item accounts) for
specific items of MACRS property to multiple asset accounts (or pools) for the same
assets, or vice versa, in accordance with § 1.168(i)-7;
(ii) a change from grouping specific items of MACRS property in
multiple asset accounts to a different grouping of the same assets in multiple asset
accounts in accordance with § 1.168(i)-7(c);
(iii) a change in the method of identifying which assets in multiple
asset accounts or which portions of assets have been disposed of by the taxpayer from
the specific identification method under § 1.168(i)-8(g)(1) to the first-in, first-out (FIFO)

method of accounting under § 1.168(i)-8(g)(2)(i) or the modified FIFO method of
accounting under § 1.168(i)-8(g)(2)(ii);
(iv) a change in the method of identifying which assets in multiple
asset accounts or which portions of assets have been disposed of by the taxpayer from
the FIFO method of accounting under § 1.168(i)-8(g)(2)(i) or the modified FIFO method
of accounting under § 1.168(i)-8(g)(2)(ii) to the specific identification method under
§ 1.168(i)-8(g)(1);
(v) a change in the method of identifying which assets in multiple
asset accounts or which portions of assets have been disposed of by the taxpayer from
the FIFO method of accounting under § 1.168(i)-8(g)(2)(i) to the modified FIFO method
of accounting under § 1.168(i)-8(g)(2)(ii), or vice versa;
(vi) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass
assets have been disposed of by the taxpayer from the specific identification method
under § 1.168(i)-8(g)(1) to a mortality dispersion table in accordance with § 1.168(i)-
8(g)(2)(iii);
(vii) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass
assets have been disposed of by the taxpayer from the FIFO method of accounting
under § 1.168(i)-8(g)(2)(i) or the modified FIFO method of accounting under § 1.168(i)-
8(g)(2)(ii) to a mortality dispersion table in accordance with § 1.168(i)-8(g)(2)(iii);
(viii) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass
assets have been disposed of by the taxpayer from a mortality dispersion table in

accordance with § 1.168(i)-8(g)(2)(iii) to the specific identification method under
§ 1.168(i)-8(g)(1), the FIFO method of accounting under § 1.168(i)-8(g)(2)(i), or the
modified FIFO method of accounting under § 1.168(i)-8(g)(2)(ii);
(ix) if § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple
asset account) and it is impracticable from the taxpayer's records to determine the
unadjusted depreciable basis of the asset disposed of, a change in the method of
determining the unadjusted depreciable basis of all assets in the same multiple asset
account from one reasonable method to another reasonable method; or
(x) if § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset)
and it is impracticable from the taxpayer's records to determine the unadjusted
depreciable basis of the disposed portion of the asset, a change in the method of
determining the unadjusted depreciable basis of all disposed portions of the asset from
one reasonable method to another reasonable method; and
(b) For the items of MACRS property subject to a general asset account
election under § 168(i)(4) and the regulations thereunder—
(i) a change from grouping specific items of MACRS property in
general asset accounts to a different grouping of the same assets in general asset
accounts in accordance with § 1.168(i)-1(c);
(ii) a change in the method of identifying which assets or which
portions of assets have been disposed of by the taxpayer from the specific identification
method under § 1.168(i)-1(j)(2)(i)(A) to the FIFO method of accounting under § 1.168(i)-
1(j)(2)(i)(B) or the modified FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(C);
(iii) a change in the method of identifying which assets or which
portions of assets have been disposed of by the taxpayer from the FIFO method of

accounting under § 1.168(i)-1(j)(2)(i)(B) or the modified FIFO method of accounting
under § 1.168(i)-1(j)(2)(i)(C) to the specific identification method under § 1.168(i)-
1(j)(2)(i)(A);
(iv) a change in the method of identifying which assets or which
portions of assets have been disposed of by the taxpayer from the FIFO method of
accounting under § 1.168(i)-1(j)(2)(i)(B) to the modified FIFO method of accounting
under § 1.168(i)-1(j)(2)(i)(C), or vice versa;
(v) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-1(b)(6)) or which portions of mass assets that are in a separate
general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of
by the taxpayer from the specific identification method under § 1.168(i)-1(j)(2)(i)(A) to a
mortality dispersion table in accordance with § 1.168(i)-1(j)(2)(i)(D);
(vi) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-1(b)(6)) or which portions of mass assets that are in a separate
general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of
by the taxpayer from the FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(B) or the
modified FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(C) to a mortality
dispersion table in accordance with § 1.168(i)-1(j)(2)(i)(D);
(vii) a change in the method of identifying which mass assets (as
defined in § 1.168(i)-1(b)(6)), or which portions of mass assets that are in a separate
general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of
by the taxpayer from a mortality dispersion table in accordance with § 1.168(i)-
1(j)(2)(i)(D) to the specific identification method under § 1.168(i)-1(j)(2)(i)(A), the FIFO

method of accounting under § 1.168(i)-1(j)(2)(i)(B), or the modified FIFO method of
accounting under § 1.168(i)-1(j)(2)(i)(C); or
(viii) if § 1.168(i)-1(j)(3) applies (basis of a disposed asset or a
disposed portion of an asset in a general asset account) and it is impracticable from the
taxpayer's records to determine the unadjusted depreciable basis of the disposed asset
or the disposed portion of the asset, a change in the method of determining the
unadjusted depreciable basis of all assets in the same general asset account from one
reasonable method to another reasonable method.
(4) Manner of making change.
(a) The changes in methods of accounting specified in section
6.12(3)(a)(i) and (ii) and section 6.12(3)(b)(i) of this revenue procedure are made using
a modified cut-off method under which the unadjusted depreciable basis and the
depreciation reserve of the asset as of the beginning of the year of change are
accounted for using the proposed method of accounting.
(i) If the change specified in section 6.12(3)(a)(i) of this revenue
procedure is a change to a single asset account, the new single asset account must
include a beginning balance for both the unadjusted depreciable basis and the
depreciation reserve of the asset included in that single asset account.
(ii) If the change specified in section 6.12(3)(a)(i) or (ii) of this
revenue procedure is a change to a multiple asset account (either a new one or a
different grouping), the multiple asset account must include a beginning balance for
both the unadjusted depreciable basis and the depreciation reserve. The beginning
balance for the unadjusted depreciable basis of each multiple asset account is equal to
the sum of the unadjusted depreciable bases as of the beginning of the year of change

for all assets included in that multiple asset account. The beginning balance of the
depreciation reserve of each multiple asset account is equal to the sum of the greater of
the depreciation allowed or allowable as of the beginning of the year of change for all
assets included in that multiple asset account.
(iii) The change specified in section 6.12(3)(b)(i) of this revenue
procedure requires the general asset account to include a beginning balance for both
the unadjusted depreciable basis and the depreciation reserve. The beginning balance
for the unadjusted depreciable basis of each general asset account is equal to the sum
of the unadjusted depreciable bases as of the beginning of the year of change for all
assets included in that general asset account. The beginning balance of the
depreciation reserve of each general asset account is equal to the sum of the greater of
the depreciation allowed or allowable as of the beginning of the year of change for all
assets included in that general asset account.
(b) The changes in methods of accounting specified in section
6.12(3)(a)(iii), (vi), (ix), and (x) and section 6.12(3)(b)(ii), (v), and (viii) of this revenue
procedure are made using a cut-off method and apply to dispositions occurring on or
after the beginning of the year of change.
(c) Even though the changes in methods of accounting specified in
section 6.12(3)(a)(iv), (v), (vii), and (viii) and section 6.12(3)(b)(iii), (iv), (vi), and (vii) of
this revenue procedure are changes from one permissible method of accounting to
another permissible method of accounting, these changes are made with a § 481(a)
adjustment. However, see section 6.12(4)(f) of this revenue procedure for an exception.
For the changes in methods of accounting specified in section 6.12(3)(b)(iii), (iv), (vi),

and (vii) of this revenue procedure, the § 481(a) adjustment should be zero unless
§ 1.168(i)-1(e)(3) applies to the asset subject to the change.
(d) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the
qualified small taxpayer is not making a change in method of accounting specified in
section 6.12(3)(a)(ix) and (x) and section 6.12(3)(b)(viii) of this revenue procedure;
(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the
qualified small taxpayer is making a change in method of accounting specified in section
6.12(3)(a)(ix) or (x) or section 6.12(3)(b)(viii) of this revenue procedure;
(vi) Part IV; and
(vii) Schedule E.
(e) If any asset subject to this change is public utility property within the
meaning of § 168(i)(10), a taxpayer (including a qualified small taxpayer) making this
change must attach to its Form 3115 a statement providing that the taxpayer agrees to
the following additional terms and conditions:
(i) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the change;
(ii) As of the beginning of the year of change, the taxpayer will adjust
its deferred tax reserve account or similar account in the taxpayer's regulatory books of

account by the amount of the deferral of federal income tax liability associated with the
§ 481(a) adjustment applicable to a change in method of accounting specified in section
6.12(3)(a)(iv), (v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue
procedure made for the public utility property subject to the change; and
(iii) Within 30 calendar days of filing the federal income tax return for
the year of change, the taxpayer will provide a copy of the completed Form 3115 to any
regulatory body having jurisdiction over the public utility property subject to the change.
(f) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section
6.37(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of Rev. Proc. 2015-14 (which is now section
6.12(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of this revenue procedure) by following section 5
of Rev. Proc. 2015-20 is required to calculate a § 481(a) adjustment as of the first day
of the year of change that takes into account only dispositions in taxable years
beginning on or after January 1, 2014.
(5) No audit protection. A taxpayer calculating a § 481(a) adjustment under
section 6.12(4)(f) of this revenue procedure that takes into account only dispositions in
taxable years beginning on or after January 1, 2014, does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under
section 6.12(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of this revenue procedure in taxable
years beginning before January 1, 2014. See section 5.03 of Rev. Proc. 2015-20.
(6) Concurrent change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets. If the change for
more than one asset included in that Form 3115 is specified in section 6.12(3)(a)(iv),

(v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue procedure, the
single Form 3115 also should provide a single net § 481(a) adjustment for all such
changes. If one or more changes specified in section 6.12(3)(a)(iv), (v), (vii), or (viii) or
section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue procedure in that single Form
3115 generate a negative § 481(a) adjustment and other changes specified in section
6.12(3)(a)(iv), (v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue
procedure in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all such changes that
are included in that Form 3115 generating such negative adjustment and a single
positive § 481(a) adjustment for all such changes that are included in that Form 3115
generating such positive adjustment.
(b) A taxpayer making this change and any change listed in section
6.12(6)(b)(i)-(iv) of this revenue procedure for the same year of change should file a
single Form 3115 for all such changes and must enter the designated automatic
accounting method change numbers for the changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes. For example, a qualified small taxpayer must include on the single
Form 3115 the information required to be completed on Form 3115 by a qualified small
taxpayer under this revenue procedure for each change in method of accounting
included on that Form 3115. The listed changes are:
(i) A change under section 6.01 of this revenue procedure;
(ii) A change under section 6.13 of this revenue procedure;
(iii) A change under section 6.14 of this revenue procedure;
(iv) A change under section 6.15 of this revenue procedure; and

(v) A change under section 11.07(3)(c) of this revenue procedure.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to a method of
accounting under this section 6.12 is "200."
(8) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.13 Disposition of a building or structural component (§ 168; § 1.168(i)-8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-
41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of
accounting that is specified in section 6.13(3) of this revenue procedure for disposing of
a building or a structural component or disposing of a portion of a building (including its
structural components) to which the partial disposition rule in § 1.168(i)-8(d)(1) applies.
These specified changes are consistent with §§ 1.168(i)-8(b)(2), 1.168(i)-8(c)(4)(ii)(A),
(B), and (D), 1.168(i)-8(f), and 1.168(i)-8(g), as applicable. This change also affects the
determination of gain or loss from disposing of the building, the structural component, or
the portion of the building (including its structural components) and may affect whether
the taxpayer must capitalize amounts paid to restore a unit of property (as determined
under § 1.263(a)-3(e) or (f)) under § 1.263(a)-3(k).
(b) Inapplicability. This change does not apply to the following:
(i) Any asset (as determined under § 1.168(i)-8(c)(4)) that is not
depreciated under § 168 under the taxpayer's present method of accounting and, if
applicable, under the taxpayer's proposed method of accounting;

(ii) Any asset subject to a general asset account election under
§ 168(i)(4) and the regulations thereunder (but see section 6.15 of this revenue
procedure for making a change in method of accounting for dispositions of tangible
depreciable assets subject to a general asset account election);
(iii) Any multiple buildings, condominium units, or cooperative units
that are treated as a single building under the taxpayer's present method of accounting,
or will be treated as a single building under the taxpayer's proposed method of
accounting, pursuant to § 1.1250-1(a)(2)(ii);
(iv) Any disposition of a portion of an asset in a transaction described
in the last sentence in § 1.168(i)-8(d)(1) for which the taxpayer did not make a partial
disposition election in accordance with § 1.168(i)-8(d)(2)(ii), (iii), or (iv), as applicable
(but see section 6.10 of this revenue procedure for making a partial disposition election
pursuant to § 1.168(i)-8(d)(2)(iii)); or
(v) Any demolition of a structure to which § 280B and § 1.280B-1
apply.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this
change.
(3) Covered changes. This section 6.13 only applies to the following
changes in methods of accounting for a building (including its structural components),
condominium unit (including its structural components), cooperative unit (including its
structural components), or an improvement or addition (including its structural
components) thereto:

(a) For purposes of applying § 1.168(i)-8(c)(4) (determination of asset
disposed of), a change to the appropriate asset as determined under § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable;
(b) If the taxpayer makes the change specified in section 6.13(3)(a) of
this revenue procedure, and if the taxpayer disposed of the asset as determined under
section 6.13(3)(a) of this revenue procedure in a taxable year prior to the year of
change (including the taxable year immediately preceding the year of change) but under
its present method of accounting continues to deduct depreciation for such disposed
asset, a change from depreciating the disposed asset to recognizing gain or loss upon
disposition or, if § 280B and § 1.280B-1 apply to the disposition, change from
depreciating such disposed asset to capitalizing the loss sustained on account of the
demolition to the land on which the demolished structure was located;
(c) If the taxpayer makes the change specified in section 6.13(3)(a) of
this revenue procedure, and if the taxpayer disposed of a portion of the asset as
determined under section 6.13(3)(a) of this revenue procedure in a transaction
described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of
change (including the taxable year immediately preceding the year of change) but under
its present method of accounting continues to deduct depreciation for such disposed
portion, a change from depreciating the disposed portion to recognizing gain or loss
upon disposition or, if § 280B and § 1.280B-1 apply to the disposition, change from
depreciating such disposed portion to capitalizing the loss sustained on account of the
demolition to the land on which the demolished structure was located;
(d) If the taxpayer's present method of accounting for its buildings
(including their structural components), condominium units (including their structural

components), cooperative units (including their structural components), and
improvements or additions (including its structural components) thereto that are
depreciated under § 168 is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), and (D), and if the
taxpayer disposed of an asset as determined under § 1.168(i)-8(c)(4)(ii)(A), (B), or (D),
as applicable, in a taxable year prior to the year of change (including the taxable year
immediately preceding the year of change) but under its present method of accounting
continues to deduct depreciation for such disposed asset, a change from depreciating
the disposed asset to recognizing gain or loss upon disposition or, if § 280B and
§ 1.280B-1 apply to the disposition, change from depreciating such disposed asset to
capitalizing the loss sustained on account of the demolition to the land on which the
demolished structure was located;
(e) If the taxpayer's present method of accounting for its buildings
(including their structural components), condominium units (including their structural
components), cooperative units (including their structural components), and
improvements or additions (including its structural components) thereto that are
depreciated under § 168 is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), and (D), and if the
taxpayer disposed of a portion of an asset as determined under § 1.168(i)-8(c)(4)(ii)(A),
(B), or (D), as applicable, in a transaction described in the first sentence in § 1.168(i)-
8(d)(1) in a taxable year prior to the year of change (including the taxable year
immediately preceding the year of change) but under its present method of accounting
continues to deduct depreciation for such disposed portion, a change from depreciating
the disposed portion to recognizing gain or loss upon disposition or, if § 280B and
§ 1.280B-1 apply to the disposition, change from depreciating such disposed portion to

capitalizing the loss sustained on account of the demolition to the land on which the
demolished structure was located;
(f) A change in the method of identifying which assets in multiple asset
accounts or which portions of assets have been disposed of from a method of
accounting not specified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or (iii) (for example, the last-in,
first-out (LIFO) method of accounting) to a method of accounting specified in § 1.168(i)-
8(g)(1) or (2)(i), (ii), or (iii), as applicable;
(g) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset
account) and it is practicable from the taxpayer's records to determine the unadjusted
depreciable basis of the disposed asset, a change in the method of determining the
unadjusted depreciable basis of the disposed asset from a method of not using the
taxpayer's records to a method of using the taxpayer's records;
(h) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset
account) and it is impracticable from the taxpayer's records to determine the unadjusted
depreciable basis of the disposed asset, a change in the method of determining the
unadjusted depreciable basis of all assets in the same multiple asset account from an
unreasonable method (for example, discounting the cost of the replacement asset to its
placed-in-service year cost using the Consumer Price Index) to a reasonable method;
(i) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it
is practicable from the taxpayer's records to determine the unadjusted depreciable basis
of the disposed portion of the asset, a change in the method of determining the
unadjusted depreciable basis of the disposed portion of the asset from a method of not
using the taxpayer's records to a method of using the taxpayer's records;

(j) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it
is impracticable from the taxpayer's records to determine the unadjusted depreciable
basis of the disposed portion of the asset, a change in the method of determining the
unadjusted depreciable basis of the disposed portion of the asset from an unreasonable
method (for example, discounting the cost of the replacement portion of the asset to its
placed-in-service year cost using the Consumer Price Index) to a reasonable method; or
(k) A change from recognizing gain or loss under § 1.168(i)-8T upon the
disposition of an asset (as determined under § 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as
applicable) included in a general asset account to recognizing gain or loss upon the
disposition of the same asset under § 1.168(i)-8 if: (A) the taxpayer made the change
specified in section 6.11 of Rev. Proc. 2016-29, 2016-21 I.R.B. 880, section 6.34 of
Rev. Proc. 2015-14, 2015-5 I.R.B. 450, or section 6.34 of the APPENDIX to Rev. Proc.
2011-14, 2011-4 I.R.B. 330, as clarified and modified by Rev. Proc. 2012-39, 2012-41
I.R.B. 470, Rev. Proc. 2014-17, 2014-12 I.R.B. 661, and Rev. Proc. 2014-54, 2014-41
I.R.B. 675 (revocation of a general asset account election); (B) the taxpayer made a
qualifying disposition election under § 1.168(i)-1T(e)(3)(iii) in a taxable year prior to the
year of change for the disposition of such asset; (C) the taxpayer's present method of
accounting for such asset is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as
applicable; and (D) the taxpayer recognized a gain or loss under § 1.168(i)-8T upon the
disposition of such asset in a taxable year prior to the year of change.
(4) Examples. The following examples illustrate the covered changes
specified in section 6.13(3) of this revenue procedure.
(a) Example 1. X, a calendar-year taxpayer, acquired and placed in
service a building and its structural components in 2000. In 2005, X constructed and
placed in service an addition to this building. X depreciates the building, the addition,

and their structural components under § 168. A change by X to treat the original
building (including its structural components) as an asset and the addition to the
building (including the structural components of such addition) as a separate asset for
disposition purposes is a change described in section 6.13(3)(a) of this revenue
procedure solely for purposes of § 1.168(i)-8(c)(4).

(b) Example 2. Y, a calendar year taxpayer, acquired and placed in
service a building and its structural components in 1990. Y depreciates this building
and its structural components under § 168. In 2000, a tornado damaged the roof and,
as a result, Y replaced the entire roof of the building. Y did not recognize a loss on the
retirement of the original roof and continues to depreciate the original roof. Y also
capitalized the cost of the replacement roof and has been depreciating this roof under
§ 168 since 2000. Because the original roof was disposed of as a result of a casualty
event described in § 165, a change by Y from depreciating the original roof to
recognizing a loss upon its retirement is a covered change described in section
6.13(3)(e) of this revenue procedure solely for purposes of § 1.168(i)-8.

(c) Example 3. The facts are the same as in Example 2, except a
tornado did not occur, but Y still replaced the entire roof of the building in 2000.
Because the original roof was not disposed of as a result of any of the events described
in the first sentence in § 1.168(i)-8(d)(1) that require a partial disposition, a partial
disposition election must be made to change from depreciating the original roof to
recognizing a loss upon its retirement. Pursuant to section 6.13(1)(b)(iv) of this revenue
procedure, section 6.13 does not apply to the disposition of the original roof in 2000.

(5) Manner of making change.
(a) A taxpayer (including a qualified small taxpayer as defined in section
6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115
a statement with the following:
(i) A description of the assets to which this change applies;
(ii) If the taxpayer is making a change specified in section 6.13(3)(a)
of this revenue procedure, a description of the assets for disposition purposes under the
taxpayer's present and proposed methods of accounting;
(iii) If the taxpayer is making the change specified in section
6.13(3)(f) of this revenue procedure, a description of the methods of identifying which

assets have been disposed of under the taxpayer's present and proposed methods of
accounting;
(iv) If the taxpayer is making the change specified in section
6.13(3)(h) or (j) of this revenue procedure, a description of the methods of determining
the unadjusted depreciable basis of the disposed asset or disposed portion of the asset,
as applicable, under the taxpayer's present and proposed methods of accounting; and
(v) If any asset is public utility property within the meaning of
§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional
terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the application;
(B) As of the beginning of the year of change, the taxpayer will
adjust its deferred tax reserve account or similar account in the taxpayer's regulatory
books of account by the amount of the deferral of federal income tax liability associated
with the § 481(a) adjustment applicable to the public utility property subject to the
application; and
(C) Within 30 calendar days of filing the federal income tax return
for the year of change, the taxpayer will provide a copy of the completed application to
any regulatory body having jurisdiction over the public utility property subject to the
application.
(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the
qualified small taxpayer is not making a change in method of accounting specified in
section 6.13(3)(h) and (j) of this revenue procedure;
(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the
qualified small taxpayer is making a change in method of accounting specified in section
6.13(3)(h) or (j) of this revenue procedure;
(vi) Part IV, all lines except line 25; and
(vii) Schedule E.
(6) No ruling on asset. The consent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section 6.13(3)(a) of this revenue procedure is not a
determination by the Commissioner that the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining what asset is disposed of by the taxpayer and
does not create any presumption that the proposed asset is permissible under
§ 1.168(i)-8(c)(4). The director will ascertain whether the taxpayer's determination of its
asset under § 1.168(i)-8(c)(4) is permissible.
(7) Section 481(a) adjustment.
(a) A taxpayer changing its method of accounting under this section 6.13
may use statistical sampling in determining the § 481(a) adjustment by following the
guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B. 318.
(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section
6.38 of Rev. Proc. 2015-14 (which is now this section 6.13) by following section 5 of

Rev. Proc. 2015-20 is required to calculate a § 481(a) adjustment as of the first day of
the year of change that takes into account only dispositions in taxable years beginning
on or after January 1, 2014.
(8) Section 481(a) adjustment period.
(a) A taxpayer must take the entire amount of the § 481(a) adjustment
into account in computing taxable income for the year of change:
(i) If the taxpayer is making the change specified in section
6.13(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under
§ 1.168(i)-8T on the disposition of the asset (or if applicable, a portion thereof) in a
taxable year prior to the year of change;
(ii) If the taxpayer is making the change specified in section
6.13(3)(k) of this revenue procedure; or
(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01
of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and that is within the scope of section 3 of
Rev. Proc. 2015-56, and is making the change specified in section 5.02(5)(b) of Rev.
Proc. 2015-56 on or before the first taxable year that the qualified taxpayer uses the
remodel-refresh safe harbor provided in section 5.02 of Rev. Proc. 2015-56.
(b) If section 6.13(8)(a) of this revenue procedure does not apply, see
section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.
(c) Example. (i) Y, a fiscal year taxpayer with a taxable year beginning
December 1 and ending November 30, acquired and placed in service a building and its
structural components in 2000. Y depreciates this building and its structural
components under § 168. The roof is a structural component of the building. Y
replaced the entire roof in June 2010. On its federal tax return for the taxable year
ended November 30, 2010, Y did not recognize a loss on the retirement of the original
roof and continues to depreciate the original roof. Y also capitalized the cost of the
replacement roof and has been depreciating this roof under § 168 since June 2010.
The adjusted depreciable basis of the original roof at the time of its retirement in 2010

(taking into account the applicable convention) is $11,000, and Y claimed depreciation
of $1,000 for such roof after its retirement (taking into account the applicable
convention) and before the taxable year ended November 30, 2013 (2012 taxable year).
Also the 12-month allowable depreciation deduction for the original roof is $500 for the
2012 taxable year, $500 for the taxable year ended November 30, 2014 (2013 taxable
year), and $500 for the taxable year ended November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-8T(c)(4)(ii)(A) and (B) and section
6.29(3)(a) and (b) of the APPENDIX to Rev. Proc. 2011-14, as modified by Rev. Proc.
2012-20, 2012-14 I.R.B. 700, Y filed with its federal income tax return for the taxable
year ended November 30, 2013, a Form 3115 to treat the building as an asset and each
structural component of the building as a separate asset for disposition purposes and
also to change from depreciating the original roof to recognizing a loss upon its
retirement. The amount of the net negative § 481(a) adjustment on this Form 3115 is
$10,000 (adjusted depreciable basis of $11,000 for the original roof at the time of its
retirement (taking into account the applicable convention) less depreciation of $1,000
claimed for such roof after its retirement (taking into account the applicable convention)
and before the 2012 taxable year).

(iii) Y complies with § 1.168(i)-8 beginning with its taxable year
ended November 30, 2016 (2015 taxable year). For Y's 2015 taxable year, the late
partial disposition election under section 6.10 of Rev. Proc. 2016-29 does not apply. Y
also decides not to file a private letter ruling requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to make a partial
disposition election for the original roof. In accordance with section 6.13(3)(a) of this
revenue procedure, Y files a Form 3115 with its federal income tax return for the 2015
taxable year to change to treating the original building (including its original roof and
other original structural components) as an asset and the replacement roof as a
separate asset for disposition purposes. Because the late partial disposition election
under section 6.10 of Rev. Proc. 2016-29 does not apply for Y's 2015 taxable year and
Y did not receive a private letter ruling granting an extension of time under § 301.9100-3
to make a partial disposition election for the original roof, Y does not recognize the net
loss of $10,000 upon the retirement of the original roof under § 1.168(i)-8 and Y will
continue to depreciate the original roof. Thus, the net positive § 481(a) adjustment for
this change is $8,500 (net loss of $10,000 claimed on the 2012 return for the retirement
of the original roof less depreciation of $1,500 for the original roof for the 2012, 2013,
and 2014 taxable years) and is included in Y's taxable income for the 2015 taxable
year.

(9) No audit protection. A taxpayer calculating a § 481(a) adjustment under
section 6.13(7)(b) of this revenue procedure that takes into account only dispositions in
taxable years beginning on or after January 1, 2014, does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under this

section 6.13 in taxable years beginning before January 1, 2014. See section 5.04 of
Rev. Proc. 2015-20.
(10) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are
included in that Form 3115 generating such negative adjustment and a single positive
§ 481(a) adjustment for all the changes that are included in that Form 3115 generating
such positive adjustment.
(b) A taxpayer making this change and any change listed in section
6.13(10)(b)(i)-(iv) of this revenue procedure for the same year of change should file a
single Form 3115 for all of such changes and must enter the designated automatic
accounting method change numbers for the changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes. For example, a qualified small taxpayer must include on the single
Form 3115 the information required to be completed on Form 3115 by a qualified small
taxpayer under this revenue procedure for each change in method of accounting
included on that Form 3115. The listed changes are:
(i) A change under section 6.01 of this revenue procedure;
(ii) A change under section 6.12 of this revenue procedure;
(iii) A change under section 6.14 of this revenue procedure; and

(iv) A change under section 6.15 of this revenue procedure.
(11) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.13 is "205."
(12) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.14 Dispositions of tangible depreciable assets (other than a building or its
structural components) (§ 168; § 1.168(i)-8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-
41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of
accounting that is specified in section 6.14(3) of this revenue procedure for disposing of
§ 1245 property or a depreciable land improvement or disposing of a portion of § 1245
property or a depreciable land improvement to which the partial disposition rule in
§ 1.168(i)-8(d)(1) applies. These specified changes are consistent with §§ 1.168(i)-
8(c)(4)(i), 1.168(i)-8(c)(4)(ii)(C) and (D), 1.168(i)-8(f), and 1.168(i)-8(g), as applicable.
This change also affects the determination of gain or loss from disposing of the § 1245
property, the depreciable land improvement, or a portion of the § 1245 property or
depreciable land improvement, and may affect whether the taxpayer must capitalize
amounts paid to restore a unit of property (as determined under § 1.263(a)-3(e) or (f))
under § 1.263(a)-3(k).
(b) Inapplicability. This change does not apply to the following:

(i) Any asset (as determined under § 1.168(i)-8(c)(4)) that is not
depreciated under § 168 under the taxpayer's present method of accounting and, if
applicable, under the taxpayer's proposed method of accounting;
(ii) Any building (including its structural components), condominium
unit (including its structural components), cooperative unit (including its structural
components), or an improvement or addition (including its structural components)
thereto (but see section 6.13 of this revenue procedure for making this change);
(iii) Any asset subject to a general asset account election under
§ 168(i)(4) and the regulations thereunder (but see section 6.15 of this revenue
procedure for making a change for dispositions of tangible depreciable assets subject to
a general asset account election); or
(iv) Any disposition of a portion of an asset in a transaction described
in the last sentence in § 1.168(i)-8(d)(1) for which the taxpayer did not make a partial
disposition election in accordance with § 1.168(i)-8(d)(2)(ii), (iii), or (iv), as applicable
(but see section 6.10 of this revenue procedure for making a partial disposition election
pursuant to § 1.168(i)-8(d)(2)(iii)).
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this
change.
(3) Covered changes. This section 6.14 only applies to the following
changes in methods of accounting for a § 1245 property, a depreciable land
improvement, or an improvement or addition thereto:

(a) For purposes of applying § 1.168(i)-8(c)(4) (determination of asset
disposed of), a change to the appropriate asset as determined under § 1.168(i)-
8(c)(4)(i), (ii)(C), or (ii)(D), as applicable;
(b) If the taxpayer makes the change specified in section 6.14(3)(a) of
this revenue procedure, and if the taxpayer disposed of the asset as determined under
section 6.14(3)(a) of this revenue procedure in a taxable year prior to the year of
change (including the taxable year immediately preceding the year of change) but
continues to deduct depreciation for such disposed asset under the taxpayer's present
method of accounting, a change from depreciating the disposed asset to recognizing
gain or loss upon disposition;
(c) If the taxpayer makes the change specified in section 6.14(3)(a) of
this revenue procedure, and if the taxpayer disposed of a portion of the asset as
determined under section 6.14(3)(a) of this revenue procedure in a transaction
described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of
change (including the taxable year immediately preceding the year of change) but under
its present method of accounting continues to deduct depreciation for such disposed
portion, a change from depreciating the disposed portion to recognizing gain or loss
upon disposition;
(d) If the taxpayer's present method of accounting for its § 1245 property,
depreciable land improvements, or improvements or additions thereto is in accord with
§ 1.168(i)-8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of an asset as
determined under § 1.168(i)-8(c)(4)(i) or (ii), as applicable, in a taxable year prior to the
year of change (including the taxable year immediately preceding the year of change)
but under its present method of accounting continues to deduct depreciation for this

disposed asset, a change from depreciating the disposed asset to recognizing gain or
loss upon disposition;
(e) If the taxpayer's present method of accounting for its § 1245 property,
depreciable land improvements, or improvements or additions thereto is in accord with
§ 1.168(i)-8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of a portion of an
asset as determined under § 1.168(i)-8(c)(4)(i) or (ii), as applicable, in a transaction
described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of
change (including the taxable year immediately preceding the year of change) but under
its present method of accounting continues to deduct depreciation for such disposed
portion, a change from depreciating the disposed portion to recognizing gain or loss
upon disposition;
(f) A change in the method of identifying which assets in multiple asset
accounts or which portions of assets have been disposed of from a method of
accounting not specified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or (iii) (for example, the last-in,
first-out (LIFO) method of accounting) to a method of accounting specified in § 1.168(i)-
8(g)(1) or (2)(i), (ii), or (iii), as applicable;
(g) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset
account) and it is practicable from the taxpayer's records to determine the unadjusted
depreciable basis of the disposed asset, a change in the method of determining the
unadjusted depreciable basis of the disposed asset from a method of not using the
taxpayer's records to a method of using the taxpayer's records;
(h) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset
account) and it is impracticable from the taxpayer's records to determine the unadjusted
depreciable basis of the disposed asset, a change in the method of determining the

unadjusted depreciable basis of all assets in the same multiple asset account from an
unreasonable method (for example, discounting the cost of the replacement asset to its
placed-in-service year cost using the Consumer Price Index) to a reasonable method;
(i) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it
is practicable from the taxpayer's records to determine the unadjusted depreciable basis
of the disposed portion of the asset, a change in the method of determining the
unadjusted depreciable basis of the disposed portion of the asset from a method of not
using the taxpayer's records to a method of using the taxpayer's records;
(j) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it
is impracticable from the taxpayer's records to determine the unadjusted depreciable
basis of the disposed portion of the asset, a change in the method of determining the
unadjusted depreciable basis of the disposed portion of the asset from an unreasonable
method (for example, discounting the cost of the replacement portion of the asset to its
placed-in-service year cost using the Consumer Price Index) to a reasonable method; or
(k) A change from recognizing gain or loss under § 1.168(i)-8T upon the
disposition of a section 1245 property, depreciable land improvement, or improvement
or addition thereto included in a general asset account to recognizing gain or loss upon
the disposition of the same asset under § 1.168(i)-8 if: (A) the taxpayer made the
change specified in section 6.11 of Rev. Proc. 2016-29, section 6.34 of Rev. Proc.
2015-14, or section 6.34 of the APPENDIX to Rev. Proc. 2011-14 (revocation of a
general asset account election); (B) the taxpayer made a qualifying disposition election
under § 1.168(i)-1T(e)(3)(iii) in a taxable year prior to the year of change for the
disposition of such asset; (C) the taxpayer's present method of accounting for such
asset is in accord with § 1.168(i)-8(c)(4)(i) or (ii), as applicable; and (D) the taxpayer

recognized a gain or loss under § 1.168(i)-8T on the disposition of such asset in a
taxable year prior to the year of change.
(4) Manner of making change.
(a) A taxpayer (including a qualified small taxpayer as defined in section
6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115
a statement with the following:
(i) A description of the assets to which this change applies;
(ii) If the taxpayer is making a change specified in section 6.14(3)(a)
of this revenue procedure, a description of the assets for disposition purposes under the
taxpayer's present and proposed methods of accounting;
(iii) If the taxpayer is making the change specified in section
6.14(3)(f) of this revenue procedure, a description of the methods of identifying which
assets have been disposed of under the taxpayer's present and proposed methods of
accounting;
(iv) If the taxpayer is making the change specified in section
6.14(3)(h) or (j) of this revenue procedure, a description of the methods of determining
the unadjusted depreciable basis of the disposed asset or disposed portion of the asset,
as applicable, under the taxpayer's present and proposed methods of accounting; and
(v) If any asset is public utility property within the meaning of
§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional
terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the application;

(B) As of the beginning of the year of change, the taxpayer will
adjust its deferred tax reserve account or similar account in the taxpayer's regulatory
books of account by the amount of the deferral of federal income tax liability associated
with the § 481(a) adjustment applicable to the public utility property subject to the
application; and
(C) Within 30 calendar days of filing the federal income tax return
for the year of change, the taxpayer will provide a copy of the completed application to
any regulatory body having jurisdiction over the public utility property subject to the
application.
(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the
qualified small taxpayer is not making a change in method of accounting specified in
section 6.14(3)(h) and (j) of this revenue procedure;
(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the
qualified small taxpayer is making a change in method of accounting specified in section
6.14(3)(h) or (j) of this revenue procedure;
(vi) Part IV, all lines except line 25; and
(vii) Schedule E.

(5) No ruling on asset. The consent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section 6.14(3)(a) of this revenue procedure is not a
determination by the Commissioner that the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining what asset is disposed of by the taxpayer and
does not create any presumption that the proposed asset is permissible under
§ 1.168(i)-8(c)(4). The director will ascertain whether the taxpayer's determination of its
asset under § 1.168(i)-8(c)(4) is permissible.
(6) Section 481(a) adjustment.
(a) A taxpayer changing its method of accounting under section 6.14 of
the revenue procedure may use statistical sampling in determining the § 481(a)
adjustment by following the guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B.
318.
(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section
6.39 of Rev. Proc. 2015-14 (which is now this section 6.14) by following section 5 of
Rev. Proc. 2015-20 is required to calculate a § 481(a) adjustment as of the first day of
the year of change that takes into account only dispositions in taxable years beginning
on or after January 1, 2014.
(7) Section 481(a) adjustment period.
(a) A taxpayer must take the entire amount of the § 481(a) adjustment
into account in computing taxable income for the year of change:
(i) If the taxpayer is making the change specified in section
6.14(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under
§ 1.168(i)-8T on the disposition of the § 1245 property, depreciable land improvement,

or improvement or addition thereto (or if applicable, a portion of such asset) in a taxable
year prior to the year of change; or
(ii) If the taxpayer is making the change specified in section
6.14(3)(k) of this revenue procedure.
(b) If section 6.14(7)(a) of this revenue procedure does not apply, see
section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.
(8) No audit protection. A taxpayer calculating a § 481(a) adjustment under
section 6.14(6)(b) of this revenue procedure that takes into account only dispositions in
taxable years beginning on or after January 1, 2014, does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under this
section 6.14 in taxable years beginning before January 1, 2014. See section 5.05 of
Rev. Proc. 2015-20.
(9) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are
included in that Form 3115 generating such negative adjustment and a single positive
§ 481(a) adjustment for all the changes that are included in that Form 3115 generating
such positive adjustment.
(b) A taxpayer making this change and any change listed in section
6.14(9)(b)(i)-(iv) of this revenue procedure for the same year of change should file a

single Form 3115 for all of such changes and must enter the designated automatic
accounting method change numbers for the changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes. For example, a qualified small taxpayer must include on the single
Form 3115 the information required to be completed on Form 3115 by a qualified small
taxpayer under this revenue procedure for each change in method of accounting
included on that Form 3115. The listed changes are:
(i) A change under section 6.01 of this revenue procedure;
(ii) A change under section 6.12 of this revenue procedure;
(iii) A change under section 6.13 of this revenue procedure; and
(iv) A change under section 6.15 of this revenue procedure.
(10) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.14 is "206."
(11) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.15 Dispositions of tangible depreciable assets in a general asset account
(§ 168(i)(4); § 1.168(i)-1).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-
41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of
accounting that is specified in section 6.15(3) of this revenue procedure for disposing of
an asset subject to a general asset account election under § 168(i)(4) and the
regulations thereunder. These specified changes are consistent with §§ 1.168(i)-

1(e)(1), 1.168(i)-1(e)(2)(viii), and 1.168(i)-1(j), as applicable. This change also may
affect the determination of gain or loss from disposing of the asset and may affect
whether the taxpayer must capitalize amounts paid to restore a unit of property (as
determined under § 1.263(a)-3(e) or (f)) under § 1.263(a)-3(k).
(b) Inapplicability. This change does not apply to the following:
(i) Any asset (as determined under § 1.168(i)-1(e)(2)(viii)) that is not
depreciated under § 168 under the taxpayer's present method of accounting and, if
applicable, proposed method of accounting; or
(ii) Any asset not subject to a general asset account election under
§ 168(i)(4) and the regulations thereunder (but see sections 6.13 and 6.14 of this
revenue procedure for making a change for dispositions of tangible depreciable assets
not subject to a general asset account election).
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this
change.
(3) Covered changes. This section 6.15 only applies to the following
changes in methods of accounting for an asset subject to a general asset account
election under § 168(i)(4) and the regulations thereunder:
(a) For purposes of applying § 1.168(i)-1(e)(2)(viii) (determination of
asset disposed of), a change to the appropriate asset as determined under § 1.168(i)-
1(e)(2)(viii)(A) or (B), as applicable;
(b) A change in the method of identifying which assets or which portions
of assets have been disposed of from a method of accounting not specified in
§ 1.168(i)-1(j)(2)(i)(A), (B), (C), or (D) (for example, the last-in, first-out (LIFO) method of

accounting) to a method of accounting specified in § 1.168(i)-1(j)(2)(i)(A), (B), (C), or
(D), as applicable;
(c) If § 1.168(i)-1(j)(3) applies (basis of disposed asset or disposed
portion of an asset) and it is practicable from the taxpayer's records to determine the
unadjusted depreciable basis of the disposed asset or the disposed portion of an asset,
as applicable, a change in the method of determining the unadjusted depreciable basis
of the disposed asset or the disposed portion of an asset, as applicable, from a method
of not using the taxpayer's records to a method of using the taxpayer's records; or
(d) If § 1.168(i)-1(j)(3) applies (basis of disposed asset or disposed
portion of an asset) and it is impracticable from the taxpayer's records to determine the
unadjusted depreciable basis of the disposed asset or the disposed portion of an asset,
as applicable, a change in the method of determining the unadjusted depreciable basis
of all assets in the same general asset account from an unreasonable method (for
example, discounting the cost of the replacement asset to its placed-in-service year cost
using the Consumer Price Index) to a reasonable method.
(4) Manner of making change.
(a) A taxpayer (including a qualified small taxpayer as defined in section
6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115
a statement with the following:
(i) A description of the assets to which this change applies;
(ii) If the taxpayer is making the change specified in section
6.15(3)(a) of this revenue procedure, a description of the assets for disposition
purposes under the taxpayer's present and proposed methods of accounting;

(iii) If the taxpayer is making the change specified in section
6.15(3)(b) of this revenue procedure, a description of the methods of identifying which
assets have been disposed of under the taxpayer's present and proposed methods of
accounting;
(iv) If the taxpayer is making the change specified in section
6.15(3)(d) of this revenue procedure, a description of the methods of determining the
unadjusted depreciable basis of the disposed asset or disposed portion of the asset, as
applicable, under the taxpayer's present and proposed methods of accounting; and
(v) If any asset is public utility property within the meaning of
§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional
terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public utility property subject to the application;
(B) As of the beginning of the year of change, the taxpayer will
adjust its deferred tax reserve account or similar account in the taxpayer's regulatory
books of account by the amount of the deferral of federal income tax liability associated
with the § 481(a) adjustment applicable to the public utility property subject to the
application; and
(C) Within 30 calendar days of filing the federal income tax return
for the year of change, the taxpayer will provide a copy of the completed application to
any regulatory body having jurisdiction over the public utility property subject to the
application.

(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this
revenue procedure, is required to complete only the following information on Form 3115
(Rev. December 2022) to make this change:
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the
qualified small taxpayer is not making a change in method of accounting specified in
section 6.15(3)(a) and (d) of this revenue procedure;
(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the
qualified small taxpayer is making a change in method of accounting specified in section
6.15(3)(a) or (d) of this revenue procedure;
(vi) Part IV, all lines except line 25; and
(vii) Schedule E.
(5) No ruling on asset. The consent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section 6.15(3)(a) of this revenue procedure is not a
determination by the Commissioner that the taxpayer is using the appropriate asset
under § 1.168(i)-1(e)(2)(viii) for determining what asset is disposed of by the taxpayer
and does not create any presumption that the proposed asset is permissible under
§ 1.168(i)-1(e)(2)(viii). The director will ascertain whether the taxpayer's determination
of its asset under § 1.168(i)-1(e)(2)(viii) is permissible.
(6) Section 481(a) adjustment period.
(a) A taxpayer must take the entire amount of the § 481(a) adjustment
into account in computing taxable income for the year of change:

(i) If the taxpayer makes the change specified in section 6.15(3)(a) of
this revenue procedure and if the taxpayer recognized a gain or loss under § 1.168(i)-1T
or § 1.168(i)-8T, as applicable, on the disposition of a portion of the asset in a taxable
year prior to the year of change; or
(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01
of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and that is within the scope of section 3 of
Rev. Proc. 2015-56, and is making the change specified in section 5.02(5)(b) of Rev.
Proc. 2015-56 on or before the first taxable year that the qualified taxpayer uses the
remodel-refresh safe harbor provided in section 5.02 of Rev. Proc. 2015-56.
(b) If section 6.15(6)(a) of this revenue procedure does not apply, see
section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.
(c) Example. (i) X, a fiscal year taxpayer with a taxable year beginning
December 1 and ending November 30, acquired and placed in service a building and its
structural components in 2000. X depreciates this building and its structural
components under § 168. The roof is a structural component of the building. X
replaced the entire roof in June 2010. On its federal tax return for the taxable year
ended November 30, 2010, X did not recognize a loss on the retirement of the original
roof and continues to depreciate the original roof. X also capitalized the cost of the
replacement roof and has been depreciating this roof under § 168 since June 2010.
The adjusted depreciable basis of the original roof at the time of its retirement in 2010
(taking into account the applicable convention) is $11,000, and X claimed depreciation
of $1,000 for such roof after its retirement (taking into account the applicable
convention) and before the taxable year ended November 30, 2013 (2012 taxable year).
Also the 12-month allowable depreciation deduction for the original roof is $500 for the
2012 taxable year, $500 for the taxable year ended November 30, 2014 (2013 taxable
year), and $500 for the taxable year ended November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-1T and section 6.32(1)(a) of the
APPENDIX to Rev. Proc. 2011-14, as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, X filed with its federal tax return for the taxable year ended November 30, 2013, a
Form 3115 to: (1) make a late general asset account election to include the building
(including its structural components) placed in service in 2000 in one general asset
account and the replacement roof in a separate general asset account; and (2) make a
late qualifying disposition election for the retirement of the original roof in 2010. As a
result, X removed the original roof from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of $10,000 (adjusted depreciable basis

of $11,000 for the original roof at the time of its retirement (taking into account the
applicable convention) less depreciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable convention) and before the 2012 taxable
year).

(iii) X complies with § 1.168(i)-1 beginning with its taxable year
ended November 30, 2016 (2015 taxable year). In accordance with section 6.15(3)(a)
of this revenue procedure, X files a Form 3115 with its federal income tax return for the
2015 taxable year to change to treating the building (including its original roof and other
original structural components) placed in service in 2000 as an asset and the
replacement roof as a separate asset for disposition purposes. As a result, X must
include the original roof that X retired in 2010 in the general asset account. Thus, the
net positive § 481(a) adjustment for this change is $8,500 (net loss of $10,000 claimed
on the 2012 return for the retirement of the original roof less depreciation of $1,500 for
the original roof for the 2012, 2013, and 2014 taxable years) and is included in X's
taxable income for the 2015 taxable year.

(7) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115. If one or more
of the changes in that single Form 3115 generate a negative § 481(a) adjustment and
other changes in that same Form 3115 generate a positive § 481(a) adjustment, the
taxpayer may provide a single negative § 481(a) adjustment for all the changes that are
included in that Form 3115 generating such negative adjustment and a single positive
§ 481(a) adjustment for all the changes that are included in that Form 3115 generating
such positive adjustment.
(b) A taxpayer making this change and any change listed in section
6.15(7)(b)(i)-(iv) of this revenue procedure for the same year of change should file a
single Form 3115 for all of such changes and must enter the designated automatic
accounting method change numbers for the changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes. For example, a qualified small taxpayer must include on the single
Form 3115 the information required to be completed on Form 3115 by a qualified small
taxpayer under this revenue procedure for each change in method of accounting
included on that Form 3115. The listed changes are:
(i) A change under section 6.01 of this revenue procedure;
(ii) A change under section 6.12 of this revenue procedure;
(iii) A change under section 6.13 of this revenue procedure; and
(iv) A change under section 6.14 of this revenue procedure.
(8) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.15 is "207."
(9) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.16 Summary of certain changes in methods of accounting related to dispositions
of MACRS property.
(1) Final regulations. The following chart summarizes the changes in
methods of accounting under § 1.167(a)-4, § 1.168(i)-1, § 1.168(i)-7, and § 1.168(i)-8
that a taxpayer may make under this revenue procedure.
Depreciation of leasehold improvements:
FINAL REGULATION SECTION SECTION # in REV.
PROC. 2025-23
DESIGNATED
CHANGE
NUMBER
(DCN)
§ 1.167(a)-4, Depreciation of
leasehold improvements 6.11 199

General Asset Accounts:
FINAL REGULATION SECTION
SECTION #
in REV.
PROC.
2025-23
DESIGNATED
CHANGE
NUMBER
(DCN)
a. § 1.168(i)-1(c), Change in grouping assets 6.12 200
b. § 1.168(i)-1(e)(2)(viii), Change in determining
asset disposed of 6.15 207
c. § 1.168(i)-1(j)(2), Change in method of
identifying which assets or portions of assets
have been disposed of from one method to
another method specified in § 1.168(i)-1(j)(2)
6.12 200
d. § 1.168(i)-1(j)(2), Change in method of
identifying which assets or portions of assets
have been disposed of from a method not
specified in § 1.168(i)-1(j)(2) to a method
specified in § 1.168(i)-1(j)(2)
6.15 207
e. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from one
reasonable method to another reasonable
method when it is impracticable from the
taxpayer's records to determine the unadjusted
depreciable basis of disposed asset or disposed
portion of asset
6.12 200
f. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from not using to
using the taxpayer's records when it is
practicable from the taxpayer's records to
determine the unadjusted depreciable basis of
disposed asset or disposed portion of asset
6.15 207
g. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from an
unreasonable method to a reasonable method
when it is impracticable from the taxpayer's
records to determine the unadjusted depreciable
basis of disposed asset or disposed portion of
asset
6.15 207

Single Asset Accounts or Multiple Asset Accounts for MACRS Property:
FINAL REGULATION SECTION
SECTION # in
REV. PROC. 2025-

DESIGNATED
CHANGE
NUMBER
(DCN)
a. § 1.168(i)-7, Change from single asset
accounts to multiple asset accounts, or
vice versa
6.12 200
b. § 1.168(i)-7(c), Change in grouping
assets in multiple asset accounts 6.12 200

Dispositions of MACRS Property (not in a general asset account):

FINAL REGULATION SECTION
SECTION # in
REV. PROC.
2025-23
DESIGNATED
CHANGE
NUMBER
(DCN)
a. § 1.168(i)-8(c)(4), Change in determining
asset disposed of
6.13 (Building or
structural
component)

6.14 (Property
other than a
building or
structural
component)

b. § 1.168(i)-8(f)(2) or (3), Change in
determining unadjusted depreciable basis of
disposed asset in a multiple asset account or
disposed portion of an asset from one
reasonable method to another reasonable
method when it is impracticable from the
taxpayer's records to determine the
unadjusted depreciable basis of disposed
asset or disposed portion of asset
6.12 200
c. § 1.168(i)-8(f)(2) or (3), Change in
determining unadjusted depreciable basis of
disposed asset in a multiple asset account or
disposed portion of an asset from not using to
using the taxpayer's records when it is
practicable from the taxpayer's records to
determine the unadjusted depreciable basis of
disposed asset or disposed portion of asset
6.13 (Building or
structural
component)

6.14 (Property
other than a
building or
structural
component)

d. § 1.168(i)-8(f)(2) or (3), Change in
determining unadjusted depreciable basis of
disposed asset in a multiple asset account or
disposed portion of an asset from an
unreasonable method to a reasonable method
when it is impracticable from the taxpayer's
records to determine the unadjusted
depreciable basis of disposed asset or
disposed portion of asset
6.13 (Building or
structural
component)

6.14 (Property
other than a
building or
structural
component)

e. § 1.168(i)-8(g), Change in method of
identifying which assets in a multiple asset
account or portions of assets have been
disposed of from one method to another
method specified in § 1.168(i)-8(g)(1) or (2)
6.12 200
f. § 1.168(i)-8(g), Change in method of
identifying which assets in a multiple asset
account or portions of assets have been
disposed of from a method not specified in
§ 1.168(i)-8(g)(1) or (2) to a method specified
in § 1.168(i)-8(g)(1) or (2)
6.13 (Building or
structural
component)

6.14 (Property
other than a
building or
structural
component)

g. § 1.168(i)-8(h)(1), Change from
depreciating a disposed asset or disposed
portion of an asset to recognizing gain or loss
upon disposition when a taxpayer continues to
depreciate the asset or portion that the
taxpayer disposed of prior to the year of
change
6.13 (Building or
structural
component)

6.14 (Property
other than a
building or
structural
component)

h. § 1.168(i)-8(d)(2)(iii), Partial disposition
election for the disposition of a portion of an
asset to which the IRS's adjustment pertains
6.10 198

.17 Depreciation of fiber optic transfer node and fiber optic cable used by a cable
system operator (§§ 167 and 168).
(1) Description of change.
(a) Applicability. This change applies to a cable system operator that is
within the scope of Rev. Proc. 2015-12, 2015-2 I.R.B. 266, and wants to change to the
safe harbor method of accounting provided in section 8.03 of Rev. Proc. 2015-12 for
determining depreciation under §§ 167 and 168 of a fiber optic transfer node and trunk
line consisting of fiber optic cable used in a cable distribution network providing one-way
and two-way communication services. The safe harbor method provided by section
8.03 of Rev. Proc. 2015-12 determines the asset for purposes of §§ 167 and 168.

(b) Inapplicability. This change does not apply to the following:
(i) any property that is not depreciated under § 168 under the
taxpayer's present and proposed methods of accounting; or
(ii) any property that is not owned by the taxpayer at the beginning of
the year of change.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)
of Rev. Proc. 2015-13 does not apply to a taxpayer that makes this change.
(3) Concurrent automatic change.
(a) A taxpayer that wants to make this change for more than one asset
for the same year of change should file a single Form 3115 for all such assets and
provide a single net § 481(a) adjustment for all the changes included in that Form 3115.
If one or more of the changes in that single Form 3115 generate a negative § 481(a)
adjustment and other changes in that same Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a single negative § 481(a) adjustment for all the
changes that are included in that Form 3115 generating such adjustment and a single
positive § 481(a) adjustment for all the changes that are included in that Form 3115
generating such adjustment.
(b) A taxpayer that wants to make both this change and a change to a
UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure,
as applicable, for the same year of change should file a single Form 3115 for all such
changes and must enter the designated automatic accounting method change numbers
for the changes on the appropriate line on the Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.17 is "210."
(5) Contact information. For further information regarding a change under
this section, contact Charles Magee at (202) 317-7005 (not a toll-free number).
.18 Qualified improvement property placed in service after December 31, 2017
(§ 168).
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
from an impermissible to a permissible method of accounting for depreciation of any
item of qualified improvement property, as defined in § 168(e)(6):
(i) that is placed in service by the taxpayer after December 31, 2017;
(ii) for which the taxpayer used the impermissible method of
accounting in at least two taxable years immediately preceding the year of change (but
see section 6.18(1)(b) of this revenue procedure for qualified improvement property
placed in service in the taxable year immediately preceding the year of change); and
(iii) that is owned by the taxpayer at the beginning of the year of
change (but see section 6.07 of this revenue procedure for property disposed of before
the year of change).
(b) Taxpayer has not adopted a method of accounting for the qualified
improvement property. If a taxpayer does not satisfy section 6.18(1)(a)(ii) of this
revenue procedure for an item of qualified improvement property because the item of
qualified improvement property is placed in service by the taxpayer in the taxable year
immediately preceding the year of change (1-year QIP), the taxpayer may change from

the impermissible method of determining depreciation to the permissible method of
determining depreciation for the 1-year QIP by filing a Form 3115 for this change,
provided the § 481(a) adjustment reported on the Form 3115 includes the amount that
is attributable to all property (including the 1-year QIP) subject to the Form 3115.
Alternatively, the taxpayer may change from the impermissible method of determining
depreciation to the permissible method of determining depreciation for the 1-year QIP
by filing an amended federal income tax return, or an administrative adjustment request
under § 6227 (AAR), as applicable, for the property's placed-in-service year prior to the
date the taxpayer files its federal income tax return for the taxable year succeeding the
placed-in-service year. In addition, if the 1-year QIP is within the scope of section 3 of
Rev. Proc. 2020-25, 2020-19 I.R.B. 785, the taxpayer may change from the
impermissible method of determining depreciation to the permissible method of
determining depreciation for the 1-year QIP by filing an amended federal income tax
return, or AAR, as applicable, in accordance with section 3.02(3)(a) of Rev. Proc. 2020-
25.
(c) Inapplicability. This change does not apply to:
(i) any qualified improvement property placed in service by a
taxpayer that made a late election, or withdrew an election, under § 163(j)(7)(B)
(electing real property trade or business) or § 163(j)(7)(C) (electing farming business)
for the taxable year in which the qualified improvement property is placed in service by
the taxpayer, in accordance with Rev. Proc. 2020-22, 2020-18 I.R.B. 745. Any changes
to depreciation for such qualified improvement property, or other depreciable property,
affected by the late election or withdrawn election under § 163(j)(7)(B) or (C) are made
in accordance with sections 4.02 and 4.03, or 5.02 of Rev. Proc. 2020-22, as applicable;

(ii) any qualified improvement property for which the taxpayer is
changing from deducting the cost or other basis as an expense to capitalizing and
depreciating the cost or other basis, or vice versa;
(iii) any qualified improvement property for which the taxpayer is
changing its method of accounting for depreciation to the method of accounting for
depreciation provided in § 1.168(i)-4, which applies when there is a change in use of the
property (but see section 6.04 or 6.05 of this revenue procedure for making this
change); or
(iv) any change in method of accounting to which section 6.20 of this
revenue procedure applies.
(2) Reduced filing requirement. A taxpayer making a change under this
section 6.18 is required to complete only the following information on Form 3115 (Rev.
December 2022):
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;
(e) Part IV, all lines; and
(f) Schedule E, all lines except lines 1, 4b, 5, and 6.
(3) Concurrent automatic change.
(a) A taxpayer making this change for more than one asset for the same
year of change should file a single Form 3115 for all such assets and provide a single
net § 481(a) adjustment for all the changes included in that Form 3115.

(b) A taxpayer making this change and the change in section 6.01 or
6.19 of this revenue procedure for the same year of change should file a single Form
3115 for all such changes and must enter the designated automatic accounting method
change numbers on the appropriate line of the Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.18 is "244."
(5) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.19 Certain late elections under §§ 168 and 1502 or revocation of certain
elections under § 168 (§ 168(g)(7), (k)(5), (k)(7), and (k)(10); §§ 1.168(k)-2 and 1.1502-
68).
(1) Description of change.
(a) Applicability. This change applies to a taxpayer within the scope of
section 5 of Rev. Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to make a late election
under § 168(k)(5), (7), or (10), § 1.168(k)-2(c) (component election), § 1.1502-68(c)(4)
(designated transaction election), or proposed § 1.168(k)-2(c) (proposed component
election) as provided in section 5.02(2) of Rev. Proc. 2020-50. This change also
applies to a taxpayer within the scope of section 6 of Rev. Proc. 2020-50 that wants to
revoke an election under § 168(k)(5), (k)(7), or (k)(10), or a proposed component
election as provided in section 6.02(2)(b) of Rev. Proc. 2020-50.
(b) Inapplicability. The IRS will treat the making of a late election under
§ 168(k)(5), (7), or (10), a late component election, a late designated transaction

election, or a late proposed component election as provided in section 5 of Rev. Proc.
2020-50, or the revocation of an election under § 168(k)(5), (k)(7), or (k)(10), or a
proposed component election as provided in section 6 of Rev. Proc. 2020-50, as a
change in method of accounting with a § 481(a) adjustment only for the taxable years
specified in section 6.19(2) of this revenue procedure. This treatment does not apply to
a taxpayer that makes these late elections or revocations before or after the time
specified in section 6.19(2) of this revenue procedure, and any such late election or
revocation is not a change in method of accounting pursuant to § 1.446-
1(e)(2)(ii)(d)(3)(iii).
(2) Time for making the change. The change under section 6.19(1)(a) and
(b) of this revenue procedure must be made for the taxpayer's first or second taxable
year succeeding the taxable year in which the taxpayer (A) placed in service the
property affected by the late election under § 168(k)(7) or (10), the late component
election, the late designated transaction election, or the late proposed component
election, as applicable, or by the revocation of the election under § 168(k)(7) or (k)(10),
or the proposed component election, as applicable, or (B) planted or grafted the
specified plant to which the late § 168(k)(5) election applies or to which the revocation
of the election under § 168(k)(5) applies.
(3) Certain eligibility rules inapplicable. The eligibility rules in section
5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to the change
under section 6.19(1)(a) and (b) of this revenue procedure for the taxpayer's first or
second taxable year succeeding the taxable year in which the taxpayer (A) placed in
service the property affected by the late election under § 168(k)(7) or (10), the late
component election, the late designated transaction election, or the late proposed

component election, as applicable, or by the revocation of the election under § 168(k)(7)
or (k)(10), or the proposed component election, as applicable, or (B) planted or grafted
the specified plant to which the late § 168(k)(5) election applies or to which the
revocation of the election under § 168(k)(5) applies.
(4) Reduced filing requirement. A taxpayer making a change under this
section 6.19 is required to complete only the following information on Form 3115 (Rev.
December 2022):
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;
(e) Part IV, all lines; and
(f) Schedule E, all lines except lines 1, 4b, 5, and 6.
(5) Concurrent automatic change.
(a) A taxpayer making one or more late elections and/or revoking one or
more elections under sections 5 and 6 of Rev. Proc. 2020-50 for the same year of
change must file a single Form 3115 for all such changes. The single Form 3115 must
provide a single net § 481(a) adjustment for all such changes for all assets placed in
service, and all specified plants planted or grafted, by the taxpayer during the same
taxable year. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes.
(b) A taxpayer making one or more changes under this section 6.19 and
the change in section 6.01, 6.18, or 6.20 of this revenue procedure for the same year of
change must file a single Form 3115 for all such changes and must enter the

designated automatic accounting method change numbers on the appropriate line on
the Form 3115. The single Form 3115 must provide a single net § 481(a) adjustment
for all such changes for all assets placed in service, and all specified plants planted or
grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making concurrent changes.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the method of
accounting under this section 6.19 is "245."
(7) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.20 Change in depreciation as a result of applying the additional first year
depreciation regulations (§ 168(k); §§ 1.168(k)-2 and 1.1502-68).
(1) Description of Change.
(a) Applicability. This change applies to a taxpayer within the scope of
section 4 of Rev. Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to change its method
of accounting for depreciation under § 168 to comply with the Final Regulations (as
defined in section 2.02(6) of Rev. Proc. 2020-50), the 2019 final regulations (as defined
in section 2.02(2) of Rev. Proc. 2020-50), or both the 2019 final regulations and the
2019 proposed regulations (as defined in section 1 of Rev. Proc. 2020-50), as
applicable, for depreciable property and specified plants within the scope of section 4 of
Rev. Proc. 2020-50. A change under this section 6.20 applies to (i) a taxpayer that is
changing from an impermissible method of accounting to a permissible method of
accounting under section 4.03(4)(b) of Rev. Proc. 2020-50 and section 6.20(3) of this
revenue procedure, and (ii) a taxpayer that is changing from one permissible method of

accounting to another permissible method of accounting under section 4.04 of Rev.
Proc. 2020-50 and section 6.20(4) of this revenue procedure. For purposes of this
section 6.20, a taxpayer is deemed to change from an impermissible method of
accounting to a permissible method of accounting when, for the first time, the taxpayer
changes its method of accounting for depreciation under this section 6.20 for
depreciable property and specified plants described in section 4.02(1) of Rev. Proc.
2020-50 to comply with the Final Regulations, the 2019 final regulations, or both the
2019 final regulations and the 2019 proposed regulations. Further, any subsequent
time the taxpayer changes its method of accounting for depreciation for depreciable
property and specified plants described in section 4.02(1) of Rev. Proc. 2020-50 to
comply with the Final Regulations, the 2019 final regulations, or both the 2019 final
regulations and the 2019 proposed regulations, is a change from a permissible method
of accounting to another permissible method of accounting under this section 6.20. See
section 4.02(2) of Rev. Proc. 2020-50.
(b) Inapplicability. This change does not apply to any property for which
the taxpayer is changing its method of accounting for depreciation to the method of
accounting for depreciation provided in § 1.168(i)-4, which applies when there is a
change in use of the property (but see section 6.04 or 6.05 of this revenue procedure for
making this change).
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in section 5.01(1)(d) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the
property and specified plant within the scope of section 4 of Rev. Proc. 2020-50, as
modified by section 6.20(1)(b) of this revenue procedure.

(b) Special rule. The eligibility rule in section 5.01(1)(f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the
property and specified plant within the scope of section 4 of Rev. Proc. 2020-50, as
modified by section 6.20(1)(b) of this revenue procedure, for the taxpayer's first or
second taxable year succeeding the taxable year in which the taxpayer placed in
service such property, or planted or grafted such specified plant, as applicable.
(3) Impermissible to permissible method of determining the depreciation
deduction allowable.
(a) A taxpayer may change from an impermissible method of accounting
to a permissible method of accounting under section 4.03 of Rev. Proc. 2020-50 for the
property and specified plant within the scope of section 4.03 of Rev. Proc. 2020-50, as
modified by section 6.20(1)(b) of this revenue procedure, for which the taxpayer used
the impermissible method of accounting in at least two taxable years immediately
preceding the year of change (but see section 6.20(3)(b) of this revenue procedure for
property placed in service or a specified plant planted or grafted in the taxable year
immediately preceding the year of change).
(b) If a taxpayer does not satisfy section 6.20(3)(a) of this revenue
procedure for depreciable property that is within the scope of section 4.03 of Rev. Proc.
2020-50, as modified by section 6.20(1)(b) of this revenue procedure, because the
depreciable property is placed in service by the taxpayer in the taxable year
immediately preceding the year of change (1-year Property), the taxpayer may change
from the impermissible method of determining depreciation to the permissible method of
determining depreciation for the 1-year Property by filing a Form 3115 for this change in
accordance with this section 6.20(3), provided the § 481(a) adjustment reported on the

Form 3115 includes the amount of any adjustment attributable to all property, including
the 1-year Property, subject to the Form 3115. Similarly, for a specified plant that is
within the scope of section 4.03 of Rev. Proc. 2020-50, as modified by section
6.20(1)(b) of this revenue procedure, and is planted or grafted by the taxpayer in the
taxable year immediately preceding the year of change (1-year Plant), the taxpayer may
change from the impermissible method of determining depreciation to the permissible
method of determining depreciation under this section 6.20(3) for the 1-year Plant by
filing a Form 3115 for this change in accordance with this section 6.20(3), provided the
§ 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment
attributable to all property, including the 1-year Plant, subject to the Form 3115.
Alternatively, the taxpayer may change from the impermissible method of determining
depreciation to the permissible method of determining depreciation for the 1-year
Property or 1-year Plant by filing an amended federal income tax return, or an
administrative adjustment request under § 6227 (AAR), as applicable, for the 1-year
Property's placed-in-service year or 1-year Plant's planting or grafting year, as
applicable, prior to the date the taxpayer files its federal income tax return for the
taxable year succeeding the placed-in-service year or planting or grafting year, as
applicable. In addition, if the 1-year Property or 1-year Plant is within the scope of
section 4.03 of Rev. Proc. 2020-50, as modified by section 6.20(1)(b) of this revenue
procedure, the taxpayer may change from the impermissible method of determining
depreciation to the permissible method of determining depreciation for the 1-year
Property or 1-year Plant by filing an amended federal income tax return, or AAR, as
applicable, in accordance with section 4.03(4)(a) of Rev. Proc. 2020-50.

(c) A change under section 4.03(4)(b) of Rev. Proc. 2020-50 and this
section 6.20(3) is made with a § 481(a) adjustment. However, consent to make a
change in method of accounting under this section 6.20 will be granted by the
Commissioner only if the taxpayer satisfies section 4.02 of Rev. Proc. 2020-50, to the
extent relevant. Further, if a taxpayer that has a trade or business with floor plan
financing indebtedness is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations,
§ 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of
the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations
for depreciable property placed in service by the taxpayer in its 2018, 2019, or 2020
taxable year, consent to make a change in method of accounting under this section 6.20
will be granted by the Commissioner only if the amount of the § 481(a) adjustment is
adjusted to account for the proper amount of interest expense, taking into account the
business interest limitation under § 163(j) and the regulations thereunder, as of the
beginning of the year of change.
(4) Permissible to another permissible method of determining the
depreciation deduction allowable.
(a) A taxpayer may change from one permissible method of accounting
to another permissible method of accounting under section 4.04 of Rev. Proc. 2020-50
for the property and specified plant within the scope of section 4.04 of Rev. Proc. 2020-
50, as modified by section 6.20(1)(b) of this revenue procedure.
(b) A change under section 4.04 of Rev. Proc. 2020-50 and this section
6.20(4) is made on a cut-off basis. Accordingly, neither the modified cut-off method, as
described in § 1.446-1(e)(2)(ii)(d)(5)(iii), nor a § 481(a) adjustment is permitted or
required.

(5) Additional requirement. A taxpayer making a change under this section
6.20 also must comply with section 4.02 of Rev. Proc. 2020-50, to the extent relevant.
Once a taxpayer applies § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the
Final Regulations, in their entirety, for a taxable year, the taxpayer must continue to
apply § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in
their entirety, for the taxpayer's subsequent taxable years. See §§ 1.168(k)-2(h)(3)(iii)
and 1.1502-68(e)(2)(iii) of the Final Regulations and section 4.02(1) of Rev. Proc. 2020-
50.
(6) Reduced filing requirement. A taxpayer making a change under this
section 6.20 is required to complete only the following information on Form 3115 (Rev.
December 2022):
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;
(e) Part IV, all lines; and
(f) Schedule E, all lines except lines 1, 4b, 5, and 6.
(7) Concurrent automatic change.
(a) A taxpayer making this change must file a single Form 3115 for all
assets placed in service, and all specified plants planted or grafted, by the taxpayer
during the same taxable year and must provide a single net § 481(a) adjustment for all
the changes included in that Form 3115.
(b) A taxpayer making one or more changes under section 6.20(3) of this
revenue procedure and the change in section 6.01, 6.18, or 6.19 of this revenue

procedure for the same year of change must file a single Form 3115 for all such
changes and must enter the designated automatic accounting method change numbers
on the appropriate line on the Form 3115. The single Form 3115 must provide a single
net § 481(a) adjustment for all such changes for all assets placed in service, and all
specified plants planted or grafted, by the taxpayer during the same taxable year. See
section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.
(8) Designated automatic accounting method change numbers. The
designated automatic accounting method change number for (a) a change under
section 6.20(3) of this revenue procedure is "246", and (b) a change under section
6.20(4) of this revenue procedure is "247."
(9) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.21 Depreciation of tangible property under § 168(g) by controlled foreign
corporations.
(1) Description of change. This change is applicable to a controlled foreign
corporation (as defined in § 957(a)) (CFC) that seeks to change its method of
accounting for depreciation for an item of property that is described in § 168(g)(1)(A)
(except for property excluded from the application of § 168 as a result of § 168(f)) and
owned by the CFC at the beginning of the year of change to the permissible
depreciation method, convention, and recovery period prescribed under the alternative
depreciation system (ADS) in § 168(g) for such property in determining the CFC's gross
and taxable income under § 1.952-2 as well as its earnings and profits ("E&P") under
§§ 964 and 986(b) and the regulations thereunder. This change applies regardless of
whether the method of accounting for depreciation that the CFC wants to change

pursuant to this section 6.21 is impermissible or permissible under the Internal Revenue
Code and the regulations thereunder.
(2) CFC has not adopted a method of accounting for the item of property. If
a CFC placed in service an item of property described in section 6.21(1) of this revenue
procedure in the taxable year immediately preceding the year of change (1-year
property), the CFC may change its method of determining depreciation for the 1-year
property to ADS if the designated shareholder files a Form 3115 for this change,
provided the § 481(a) adjustment attributable to the 1-year property is included on the
Form 3115. Alternatively, the CFC may change its impermissible method of
determining depreciation for the 1-year property to ADS if each U.S. shareholder of the
CFC (or the agent described in § 1.1502-77(a), if applicable) files an amended federal
income tax return for the taxable year in which or with which the property's placed-in-
service year ends prior to the date the shareholder files its federal income tax return for
the taxable year in which or with which the CFC's taxable year succeeding the placed-
in-service year ends.
(3) Section 481(a) adjustment. A § 481(a) adjustment is required with
respect to a change made under this section 6.21 for any CFC.
(4) Certain eligibility rules inapplicable. The eligibility rules in section
5.01(1)(c), (d), (e), and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this
change.
(5) Short Form 3115 in lieu of a standard Form 3115. In accordance with
§ 1.446-1(e)(3)(ii), the requirement in § 1.446-1(e)(3)(i) to file a standard Form 3115 is
waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized with respect to any CFC making a change under this section 6.21. The short
Form 3115 (Rev. December 2022) must include the following information:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 10, 13, 16, and 19;
(e) Part IV; and
(f) Schedule E.
(6) Concurrent automatic changes. A designated shareholder making an
accounting method change on behalf of a CFC under this section 6.21 with respect to
more than one asset for the same year of change may file a single short Form 3115 for
all such changes. If any § 481(a) adjustment (or any component of a § 481(a)
adjustment) from a change that is included in that Form 3115 shares all of the same
characteristics as any other § 481(a) adjustment (or component) from a change that is
included in that Form 3115, those § 481(a) adjustments (or components) must be
provided as a single § 481(a) adjustment, with the characteristics identified, in the Form
3115. Any § 481(a) adjustment (or component of a § 481(a) adjustment) from a change
that is included in that Form 3115 that does not share all of the same characteristics as
any other § 481(a) adjustment (or component) from a change that is included in that
Form 3115 must be provided as a separate § 481(a) adjustment, with the characteristics
identified, in the Form 3115. A § 481(a) adjustment (or any component of a § 481(a)
adjustment) shares all of the same characteristics as another § 481(a) adjustment (or
component) if:

(i) The § 481(a) adjustments (or components) relate to the same
qualified business unit (QBU), as defined in § 989(a) and § 1.989(a)-1(b);
(ii) If applicable, the § 481(a) adjustments (or components) relate to the
same tested unit, as defined in § 1.951A-2(c)(7)(iv);
(iii) The § 481(a) adjustments (or components) are either all positive or
all negative, as applicable (for this purpose a negative component of an overall positive
adjustment will be treated as positive and a positive component of an overall negative
adjustment will be treated as negative); and
(iv) The § 481(a) adjustments (or components) have the same source,
separate limitation classification, character, and treatment under section 7.07(2) of Rev.
Proc. 2015-13, as modified by section 4 of Rev. Proc. 2021-26, 2021-22 I.R.B. 1163,
1167-68.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 6.21 is "248."
(8) Contact information. For further information regarding a change under
this section, contact Dylan Steiner at (202) 317-6934 (not a toll-free number).
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)
.01 Change in Method of Accounting for SRE Expenditures.
(1) Description of change.
(a) In general. This change applies to a taxpayer that wants to change
its method of accounting for expenditures paid or incurred in taxable years beginning
after December 31, 2021, to:

(i) comply with § 174, as amended by § 13206(a) of Public Law 115-
97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act
(TCJA); or
(ii) rely on interim guidance provided in sections 3, 4, 5, 6, or 7 of
Notice 2023-63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-5 I.R.B. 616.
(b) References to § 174. Unless otherwise stated, references to "§ 174"
in this section 7.01 refer to § 174 as amended by § 13206(a) of the TCJA. Section
13206(e) of the TCJA provides that the amendments made by § 13206 of the TCJA
apply to amounts paid or incurred in taxable years beginning after December 31, 2021.
(c) Changes included in section 7.01(1)(a) of this revenue procedure.
The changes described in section 7.01(1)(a) of this revenue procedure include, among
other changes, a change:
(i) from capitalizing specified research or experimental (SRE)
expenditures, as defined in § 174(b) and section 4.02(2) of Notice 2023-63, as
applicable, to inventoriable property or depreciable property and recovering such
expenditures through cost of goods sold or depreciation, respectively, to capitalizing
and amortizing such expenditures under § 174(a) or section 3.02 of Notice 2023-63, as
applicable; and
(ii) from treating an expenditure that does not meet the definition of
an SRE expenditure as an SRE expenditure subject to capitalization and amortization
under § 174(a) or section 3.02 of Notice 2023-63, as applicable, to treating that
expenditure under the appropriate provision of the Code.
(2) Inapplicability. This change described in section 7.01(1)(a) of this
revenue procedure does not apply to:

(a) a change in the treatment of acquired, leased, or licensed computer
software under Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-
16, 2007-1 C.B. 358 (see section 9.01 of this revenue procedure);
(b) a change in the treatment of research or experimental expenditures
under former § 174 (that is, § 174 as in effect prior to the amendments made by
§ 13206(a) of the TCJA), or software development expenditures, paid or incurred in
taxable years beginning before January 1, 2022 (see section 9.01 of this revenue
procedure).
(c) a change to rely on interim guidance provided in sections 8 and 9 of
Notice 2023-63, as modified by Notice 2024-12.
(d) a change from treating SRE expenditures paid or incurred by a
taxpayer that transfers related property (that is, property with respect to which such
SRE expenditures were paid or incurred) in a § 351 exchange as amortizable by the
transferee corporation following such exchange to treating such SRE expenditures as
amortizable by the transferor following such exchange (as such a change is not a
change in method of accounting).
(3) Manner of making change.
(a) Modified § 481(a) adjustment and cut-off.
(i) In general. Except as provided in section 7.01(3)(a)(ii) of this
revenue procedure, the change under section 7.01(1)(a) of this revenue procedure is
made with a modified § 481(a) adjustment that takes into account only expenditures
paid or incurred in taxable years beginning after December 31, 2021.
(ii) Exception for negative modified § 481(a) adjustment. If a change
described in section 7.01(3)(a)(i) of this revenue procedure results in a modified

§ 481(a) adjustment that is negative, the taxpayer may instead choose to implement the
change on a cut-off basis.
(b) Form 3115 and required statement. In completing a Form 3115,
Application for Change in Accounting Method, to make the change in method of
accounting under section 7.01(1)(a) of this revenue procedure, a taxpayer must include
on an attachment to Form 3115:
(i) a general description of the type of expenditures included as SRE
expenditures;
(ii) the taxable year(s) in which the expenditures subject to the
change were paid or incurred by the applicant; and
(iii) a declaration that provides the reason for which the applicant is
changing its method of accounting under section 7.01(1)(a) of this revenue procedure.
The declaration must also state whether the applicant is making the change on a cut-off
basis under section 7.01(3)(a)(ii) of this revenue procedure or with a modified § 481(a)
adjustment that takes into account only expenditures paid or incurred in taxable years
beginning after December 31, 2021, under section 7.01(3)(a)(i) of this revenue
procedure.
(4) Transition rule. A taxpayer who filed a Federal tax return on or before
January 17, 2023, for a taxable year beginning after December 31, 2021, is deemed to
have complied with the § 446 method change procedures and section 7.01 of this
revenue procedure to change its method of accounting for expenditures paid or incurred
in the first taxable year beginning after December 31, 2021, to comply with § 174 if the
taxpayer:

(a) reported the amount of SRE expenditures paid or incurred for such
taxable year on Part VI of Form 4562, Depreciation and Amortization, filed with the
Federal tax return, and
(b) properly capitalized and amortized such SRE expenditures in
accordance with § 174 for such taxable year.
(5) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in section 5.01(1)(d) and (f) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a change described in section
7.01(1)(a) of this revenue procedure made by a taxpayer for any taxable year beginning
in 2022, 2023, or 2024.
(b) Changes made in successive taxable years. A taxpayer may make a
change described in section 7.01(1)(a) of this revenue procedure for a taxable year
beginning in 2022, 2023, or 2024, regardless of whether the taxpayer made a change
for the same item for any previous taxable year beginning in 2022, 2023, or 2024.
(6) Limited audit protection. A taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for the change under section 7.01(1)(a) of this
revenue procedure with respect to expenditures paid or incurred in taxable years
beginning on or before December 31, 2021. Additionally, a taxpayer does not receive
audit protection under section 8.01 of Rev. Proc. 2015-13 for a change under section
7.01(1)(a) of this revenue procedure made for any taxable year beginning in 2022 or
2023 (other than the first taxable year beginning after December 31, 2021), with respect
to expenditures paid or incurred in the first taxable year beginning after December 31,
2021, if the taxpayer did not change its method of accounting under section 7.01(1)(a)

in an effort to comply with § 174 for the first taxable year beginning after December 31,
2021. See section 8.02(2) of Rev. Proc. 2015-13.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 7.01 is "265."
(8) No inference relating to expenditures paid or incurred in taxable years
prior to the first taxable year in which § 174 becomes effective. No inference may be
drawn from section 7.01 of this revenue procedure regarding the treatment of
expenditures paid or incurred in, and changes in methods of accounting for, taxable
years in which former § 174 was in effect, including issues relating to the application of
§§ 1.174-1, 1.174-2, 1.174-3, and 1.174-4 for taxable years in which former § 174 was
in effect.
(9) No ruling on method used. The consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under section 7.01(1)(a)(i) of this revenue procedure
is not a determination by the Commissioner that the new method of accounting is a
permissible method of accounting, nor does it create any presumption that the new
method of accounting is a permissible method of accounting. The director will ascertain
whether the new method of accounting is a permissible method of accounting.
(10) Contact information. For further information regarding a change under
this section, contact Bruce Chang at (202) 317-7005 (not a toll-free number).
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)
.01 Deduction for Energy Efficient Commercial Buildings (§ 179D).
(1) Description of change. This change, as described in Rev. Proc. 2012-39,
2012-41 I.R.B. 470, applies to a taxpayer that wants to change its method of accounting

to deduct under § 179D amounts paid or incurred for the installation of energy efficient
commercial building property, as defined in § 179D(c)(1). The deduction for energy
efficient commercial building property is subject to the limits of § 179D(b) and must be
claimed in the taxable year in which the property is placed in service. The basis of the
energy efficient commercial building property is reduced by the amount of the § 179D
deduction taken and the remaining basis of the energy efficient commercial building
property is depreciated over its recovery period.
(2) Applicability. This change applies to a taxpayer that places in service
property for which a deduction is allowed under § 179D(a).
(3) Inapplicability. This change does not apply to a designer to whom the
owner of a government building allocates the § 179D deduction.
(4) Manner of making change. A taxpayer making this change must attach to
its Form 3115 (the original, the duplicate copy filed with the IRS in Ogden, UT, and any
additional copies) a statement with a detailed description of the tax treatment of the
property under the taxpayer's present and proposed methods of accounting.
(5) Certification requirement. In addition to the statement required by section
8.01(4) of this revenue procedure, a taxpayer making this change must attach to its
Form 3115 a certification as required by section 4 of Notice 2006-52, 2006-1 C.B. 1175,
or section 5 of Notice 2008-40, 2008-1 C.B. 725, to demonstrate that the energy
efficient commercial building property has achieved the reduction in energy and power
costs or in lighting power density necessary to qualify for the § 179D deduction.
(6) No ruling on qualification. The consent granted under section 9 of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, for a change provided in this section 8.01 is not a
determination by the Commissioner that the taxpayer qualifies for a deduction under

section 179D. The director will ascertain whether the taxpayer qualifies for a deduction
under section 179D (including a review of the required certifications). See section 12 of
Rev. Proc. 2015-13.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 8.01 is "152."
(8) Contact information. For further information regarding a change under
this section, contact Charles Hyde at (202) 317-5214 (not a toll-free number).
SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197)
.01 Computer software expenditures.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for the costs of computer software to a method
described in Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16,
2007-1 C.B. 358. Section 5 of Rev. Proc. 2000-50 describes the methods applicable to
the costs of developing computer software. Section 6 of Rev. Proc. 2000-50 describes
the method applicable to the costs of acquired computer software. Section 7 of Rev.
Proc. 2000-50 describes the method applicable to leased or licensed computer
software. Section 13206 of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017),
commonly referred to as the Tax Cuts and Jobs Act (TCJA), amended § 174 to treat the
costs of software development as research or experimental expenditures, effective for
amounts paid or incurred in taxable years beginning after December 31, 2021. Section
12 of Notice 2023-63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-5 I.R.B.
616, provides that, as a result of the TCJA amendments to § 174 and the rules in
sections 3 through 5 of Notice 2023-63, section 5 of Rev. Proc. 2000-50 is obsolete for

costs of developing software paid or incurred in taxable years beginning after December
31, 2021. Accordingly, section 5 of Rev. Proc. 2000-50 (costs of developing computer
software) applies only to costs of developing computer software paid or incurred in any
taxable year beginning on or before December 31, 2021.
(2) Scope. This change applies to all costs of computer software as defined
in section 2 of Rev. Proc. 2000-50. However, this change does not apply to any
computer software that is subject to amortization as an "amortizable section 197
intangible" as defined in § 197(c) and the regulations thereunder, or to costs that a
taxpayer has treated as research and experimentation expenditures under § 174.
(3) Inapplicability. This change does not apply to costs of developing
computer software that are paid or incurred in taxable years beginning after December
31, 2021.
(4) Statement required. If a taxpayer is changing to the method described in
section 5.01(2) of Rev. Proc. 2000-50, the taxpayer must attach to its Form 3115 a
statement providing the information required in section 8.02(2) of Rev. Proc. 2000-50.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 9.01 is "18."
(6) Contact information. For further information regarding a change under
this section, contact Bruce Chang at (202) 317-7005 (not a toll-free number).
SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§§ 195,
248, AND 709)
.01 Start-up expenditures.
(1) Description of change and scope.

(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting under § 195 to change:
(i) the characterization of an item as a start-up expenditure;
(ii) the determination of the taxable year in which the taxpayer begins
the active trade or business to which the start-up expenditures relate; or
(iii) the amortization period of a start-up expenditure to 180 months.
(b) Inapplicability. This change does not apply to:
(i) start-up expenditures paid or incurred before October 23, 2004; or
(ii) start-up expenditures paid or incurred after October 22, 2004, and
before August 17, 2011, if the period of limitations on assessment of tax for the taxable
year the election under § 1.195-1(b) is deemed made has expired.
(2) No rulings.
(a) Characterization of item. The consent granted under section 9 of
Rev. Proc. 2015-13 for a change specified in section 10.01(1)(a)(i) of this revenue
procedure is not a determination by the Commissioner that the taxpayer has properly
characterized an item as a start-up expenditure and does not create any presumption
that the proposed characterization of an item as a start-up expenditure is permissible
under § 195(c)(1). The director will ascertain whether the taxpayer's characterization of
an item as a start-up expenditure is permissible.
(b) When active trade or business begins. The consent granted under
section 9 of Rev. Proc. 2015-13 for a change specified in section 10.01(1)(a)(ii) of this
revenue procedure is not a determination by the Commissioner that the taxpayer has
properly determined the taxable year in which the taxpayer begins the active trade or
business to which the start-up expenditures relate and does not create any presumption

that the proposed taxable year in which the taxpayer begins the active trade or business
to which the start-up expenditures relate is permissible under § 195(c)(2). The director
will ascertain whether the taxpayer's determination of the taxable year in which the
taxpayer begins the active trade or business to which the start-up expenditures relate is
permissible.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to a method of
accounting under this section 10.01 is "223."
(4) Contact information. For further information regarding a change under
this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
.02 Organizational expenditures under § 248.
(1) Description of change and scope.
(a) Applicability. This change applies to a corporation that wants to
change its method of accounting under § 248 to change:
(i) the characterization of an item as an organizational expenditure;
(ii) the determination of the taxable year in which the corporation
begins business to which the organizational expenditures relate; or
(iii) the amortization period of an organizational expenditure to 180
months.
(b) Inapplicability. This change does not apply to:
(i) organizational expenditures paid or incurred before October 23,
2004; or

(ii) organizational expenditures paid or incurred after October 22,
2004, and before August 17, 2011, if the period of limitations on assessment of tax for
the taxable year the election under § 1.248-1(c) is deemed made has expired.
(2) No rulings.
(a) Characterization of items. The consent granted under section 9 of
Rev. Proc. 2015-13 for a change specified in section 10.02(1)(a)(i) of this revenue
procedure is not a determination by the Commissioner that the corporation has properly
characterized an item as an organizational expenditure and does not create any
presumption that the proposed characterization of an item as an organizational
expenditure is permissible under § 248(b) and § 1.248-1(b). The director will ascertain
whether the corporation's characterization of an item as an organizational expenditure is
permissible.
(b) When the corporation begins business. The consent granted under
section 9 of Rev. Proc. 2015-13 for a change specified in section 10.02(1)(a)(ii) of this
revenue procedure is not a determination by the Commissioner that the corporation has
properly determined the taxable year in which the corporation begins business to which
the organizational expenditures relate and does not create any presumption that the
proposed taxable year in which the corporation begins business to which the
organizational expenditures relate is permissible under § 1.248-1(d). The director will
ascertain whether the corporation's determination of the taxable year in which the
corporation begins business to which the organizational expenditures relate is
permissible.

(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 10.02 is "228."
(4) Contact information. For further information regarding a change under
this section, contact Benjamin Masselli at (202) 317-7003 (not a toll-free number).
.03 Organization fees under § 709.
(1) Description of change and scope.
(a) Applicability. This change applies to a partnership that wants to
change its method of accounting under § 709 to change:
(i) the characterization of an item as an organizational expense;
(ii) the determination of the taxable year in which the partnership
begins business to which the organizational expenses relate; or
(iii) the amortization period of an organizational expense to 180
months.
(b) Inapplicability. This change does not apply to:
(i) organizational expenses paid or incurred before October 23,
2004; or
(ii) organizational expenses paid or incurred after October 22,
2004, and before August 17, 2011, if the period of limitations on assessment of tax for
the taxable year the election under § 1.709-1(b) is deemed made has expired.
(2) No rulings.
(a) Characterization of items. The consent granted under section 9 of
Rev. Proc. 2015-13 for a change specified in section 10.03(1)(a)(i) of this revenue
procedure is not a determination by the Commissioner that the partnership has properly

characterized an item as an organizational expense and does not create any
presumption that the proposed characterization of an item as an organizational expense
is permissible under § 709(b)(3). The director will ascertain whether the partnership's
characterization of an item as an organizational expense is permissible.
(b) When the partnership begins business. The consent granted under
section 9 of Rev. Proc. 2015-13 for a change specified in section 10.03(1)(a)(ii) of this
revenue procedure is not a determination by the Commissioner that the partnership has
properly determined the taxable year in which the partnership begins business to which
the organizational expenses relate and does not create any presumption that the
proposed taxable year in which the partnership begins business to which the
organizational expenses relate is permissible under § 1.709-2(c). The director will
ascertain whether the partnership's determination of the taxable year in which the
partnership begins business to which the organizational expenses relate is permissible.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 10.03 is "229."
(4) Contact information. For further information regarding a change under
this section, contact Elizabeth Zanet at (202) 317-5279 (not a toll-free number).
SECTION 11. CAPITAL EXPENDITURES (§ 263)
.01 Package design costs.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting for package design costs that are within the scope of Rev.
Proc. 97-35, 1997-2 C.B. 448, as modified by Rev. Proc. 98-39, 1998-1 C.B. 1320, to

one of the three alternative methods of accounting for package design costs described
in section 5 of Rev. Proc. 97-35, which are: (i) the capitalization method, (ii) the design-
by-design capitalization and 60-month amortization method, and (iii) the pool-of-cost
capitalization and 48-month amortization method.
(b) Inapplicability. This change does not apply to a taxpayer that wants
to change to the capitalization method for costs of developing or modifying any package
design that has an ascertainable useful life.
(2) Additional requirements. If a taxpayer is changing its method of
accounting for package design costs to the capitalization method or the design-by-
design capitalization and 60-month amortization method, the taxpayer must attach a
statement to its timely filed Form 3115. The statement must provide a description of
each package design, the date on which each was placed in service, and the cost basis
of each (as determined under sections 5.01(2) or 5.02(2) of Rev. Proc. 97-35).
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.01 is "19."
(4) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).
.02 Line pack gas or cushion gas.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for line pack gas or cushion gas to a method
consistent with the holding in Rev. Rul. 97-54, 1997-2 C.B. 23. Rev. Rul. 97-54 holds
that the cost of line pack gas or cushion gas is a capital expenditure under § 263, the
cost of recoverable line pack gas or recoverable cushion gas is not depreciable, and the

cost of unrecoverable line pack gas or unrecoverable cushion gas is depreciable under
§§ 167 and 168.
(2) Additional requirements. A taxpayer that changes its method of
accounting for unrecoverable line pack gas or unrecoverable cushion gas under this
section 11.02 must change to a permissible method of accounting for depreciation for
the cost of that gas as part of this change.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.02 is "20."
(4) Contact information. For further information regarding a change under
this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).
.03 Removal costs.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting for certain costs in the retirement and removal of a depreciable
asset to conform with Rev. Rul. 2000-7, 2000-1 C.B. 712, as modified by this revenue
procedure, or for removal costs in disposal of a depreciable asset, including a partial
disposition, as described under § 1.263(a)-3(g)(2)(i).
(b) Inapplicability. This change does not apply to a taxpayer that wants
to change its method of accounting for removal costs in the disposal of a component of
a unit of property where the disposal of the component is not a disposition for federal
tax purposes. To make that change, see section 11.08 of this revenue procedure.

(c) Manner of making change. A qualified small taxpayer, as defined in
section 6.01(4)(b) of this revenue procedure, is required to complete only the following
information on Form 3115 (Rev. December 2022):
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13, 15, 16, 17, and 19, if the change
is not to depreciating property;
(v) Part II, all lines except lines 13, 15b, 16, 17, and 19, if the change
is to depreciating property;
(vi) Part IV, lines 26 and 27; and
(vii) Schedule E, if applicable.
(2) Additional requirements.
(a) Except for assets for which depreciation is determined in accordance
with § 1.167(a)-11 (ADR), the taxpayer's proposed method of treating removal costs for
assets accounted for in a multiple asset account must be consistent with the taxpayer's
method of treating salvage proceeds. See Rev. Rul. 74-455, 1974-2 C.B. 63. (See
section 6.02 of this revenue procedure for changing a taxpayer's present method of
treating salvage proceeds.)
(b) If this change involves assets that are public utility property within the
meaning of § 168(i)(10) or former § 167(l)(3)(A), the taxpayer must comply with the
terms and conditions in section 6.01(3)(b)(v) of this revenue procedure.
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.03 is "21."
(5) Contact information. For further information regarding a change under
this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).
.04 Distributor commissions.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
from currently deducting distributor commissions (as defined by section 2 of Rev. Proc.
2000-38, 2002-2 C.B. 310, as modified by Rev. Proc. 2007-16, 2007-1 C.B. 358) to a
method of capitalizing and amortizing distributor commissions using the distribution fee
period method, the 5-year method, or the useful life method (all described in Rev. Proc.
2000-38).
(b) Inapplicability. This change does not apply to an amortizable section
197 intangible (including any property for which a timely election under § 13261(g)(2) of
the Revenue Reconciliation Act of 1993, 1993-3 C.B. 1, 128, was made).
(2) Manner of making change. This change is made on a cut-off basis and
applies only to distributor commissions paid or incurred on or after the beginning of the
year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.04 is "47."
(4) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).

.05 Intangibles.
(1) Description of change. This change applies to a taxpayer that wants to
change its treatment of an item to a method of accounting permitted by §§ 1.263(a)-4,
1.263(a)-5, and 1.167(a)-3(b). See Rev. Proc. 2006-12, 2006-1 C.B. 310, as modified
by Rev. Proc. 2006-37, 2006-2 C.B. 499, for the specific requirements, information, and
documentation required for this change.
(2) Section 481(a) adjustment. In computing the § 481(a) adjustment for this
change, the taxpayer takes into account only amounts paid or incurred in taxable years
ending on or after January 24, 2002. See section 5 of Rev. Proc. 2006-12 for detailed
rules for computing the § 481(a) adjustment and reporting it on Form 3115.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.05 is "78."
(4) Contact information. For further information regarding a change under
this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).
.06 Rotable spare parts safe harbor method.
(1) Description of change. This change applies to a taxpayer that maintains
a pool or pools of rotable spare parts that are primarily used to repair customer-owned
(or customer-leased) equipment under warranty or maintenance agreements, and wants
to change its method of accounting for the rotable spare parts to the safe harbor method
of accounting provided in Rev. Proc. 2007-48, 2007-2 C.B. 110. The taxpayer must
meet the requirements in section 4.01 of Rev. Proc. 2007-48 to use this safe harbor
method of accounting.

(2) Change from safe harbor method. A taxpayer that is required to change
its method of accounting from the safe harbor method under section 5.06 of Rev. Proc.
2007-48, must make the change under section 21.09 of this revenue procedure.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.06 is "109."
(4) Contact information. For further information regarding a change under
this section, contact Eugene Kirman at (202) 317-7003 (not a toll-free number).
.07 Repairable and reusable spare parts.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting to treat repairable and reusable spare parts as depreciable
property to conform with the holdings in Rev. Rul. 69-200, 1969-1 C.B. 60, and Rev.
Rul. 69-201, 1969-1 C.B. 60. This change applies to repairable and reusable spare
parts that: are owned by the taxpayer at the beginning of the year of change; are used
to repair equipment owned by the taxpayer; are acquired by the taxpayer for a specific
type of equipment at the time that the related equipment is acquired; usually have the
same useful life as the related equipment; and have been placed in service by the
taxpayer after 1986. A taxpayer making a change in method of accounting under this
section 11.07 may treat its repairable and reusable spare parts as tangible property for
which depreciation is allowable at the time that the related equipment is placed in
service by the taxpayer. The method of computing depreciation for the repairable and
reusable spare parts is the same method of computing depreciation for the related
equipment.

(b) Inapplicability. This change does not apply to:
(i) A taxpayer that is currently capitalizing and depreciating the cost
of its repairable and reusable spare parts, or that is currently capitalizing the cost of its
repairable and reusable spare parts and treating these parts as nondepreciable property
(but see section 6.01 of this revenue procedure for making a change from an
impermissible to a permissible method of accounting for depreciation);
(ii) A taxpayer that is using an impermissible method of accounting
for depreciation for the related equipment for which the repairable and reusable spare
parts are acquired, unless the taxpayer concurrently changes its method to use a
permissible method of accounting for depreciation under section 6 of this revenue
procedure;
(iii) A repairable and reusable spare part that meets the definition of
rotable spare parts, temporary spare parts, or standby emergency spare parts in
§ 1.162-3(c)(2) or (3), for which the cost was paid or incurred by the taxpayer in a
taxable year beginning on or after January 1, 2014 (or in a taxable year beginning on or
after January 1, 2012, if the taxpayer chooses to apply § 1.162-3 to amounts paid or
incurred in those taxable years), and for which the taxpayer did not make the election
under § 1.162-3(d) to capitalize and depreciate such repairable and reusable spare part;
or
(iv) a taxpayer that chooses to apply § 1.162-3T to a repairable and
reusable spare part that meets the definition of rotable spare parts or temporary spare
parts in § 1.162-3T(c)(2), for which the cost was paid or incurred by the taxpayer in a
taxable year beginning on or after January 1, 2012, and before January 1, 2014, and for

which the taxpayer did not make the election under § 1.162-3T(d) to capitalize and
depreciate such repairable and reusable spare part.
(2) Additional requirements.
(a) To change a method of accounting under this section 11.07, a
taxpayer (including a qualified small taxpayer as defined in section 6.01(4)(b) of this
revenue procedure) must complete Schedule E of Form 3115 for the repairable and
reusable spare parts and also attach the following information to the completed Form
3115:
(i) A description of the repairable and reusable spare parts;
(ii) A list of related equipment for which the repairable and reusable
spare parts are acquired; and
(iii) A complete description of the method of computing depreciation
(for example, depreciation method, recovery period, convention, and applicable asset
class under Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc.
88-22, 1988-1 C.B. 785) that the taxpayer uses for the related equipment for which the
repairable and reusable spare parts are acquired.
(b) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022):
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19; and
(v) Part IV, all lines except line 25.

(3) Concurrent automatic change.
(a) A taxpayer making both this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on
making concurrent changes. For example, a qualified small taxpayer, as defined in
section 6.01(4)(b) of this revenue procedure, must include on the single Form 3115 the
information required by section 11.07(2)(b) of this revenue procedure and the
information required by the lines on Form 3115, applicable to the UNICAP method
change, including Part II lines 14 and 15, Part IV, and Schedule D, and must include a
separate response to each line on Form 3115 that is applicable to both changes (such
as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV) for which the
taxpayer's response is different for this change and the change to a UNICAP method.
(b) A taxpayer making both this change and a change to a permissible
method of accounting for depreciation for repairable and reusable spare parts, or for the
related equipment for which the repairable and reusable spare parts are acquired, under
section 6 of this revenue procedure (as applicable) for the same year of change should
file a single Form 3115 for both changes, in which case the taxpayer must enter the
designated automatic accounting method change numbers for both changes on the
appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes. For example, a qualified small taxpayer
must include on the single Form 3115 the information required to be completed on Form

3115 by a qualified small taxpayer under this revenue procedure for each change in
method of accounting included on that Form 3115.
(c) A taxpayer making this change also may establish pools for the
repairable and reusable spare parts or may identify disposed repairable and reusable
spare parts in accordance with section 6.12 of this revenue procedure. A taxpayer
making both this change and the change under section 6.12 of this revenue procedure
for the same year of change should file a single Form 3115 for both changes, in which
case the taxpayer must enter the designated automatic accounting method change
numbers for both changes on the appropriate line on that Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes. For
example, a qualified small taxpayer must include on the single Form 3115 the
information required to be completed on Form 3115 by a qualified small taxpayer under
this revenue procedure for each change in method of accounting included on that Form
3115.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.07 is "121."
(5) Contact information. For further information regarding a change under
this section, contact Eugene Kirman at (202) 317-7003 (not a toll-free number).
.08 Tangible property.
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-
9 I.R.B. 606, applies to a taxpayer that wants to make a change to a method of
accounting specified in section 11.08(2) of this revenue procedure and permitted under:

(i) Section 1.162-3, § 1.162-4, § 1.263(a)-1, § 1.263(a)-2, or
§ 1.263(a)-3 (the final tangible property regulations) for taxable years beginning on or
after January 1, 2012; or
(ii) Section 1.446-1(e)(2)(ii)(d)(2) if the property for which the
taxpayer is otherwise changing its method of accounting under this section is
depreciable under either the present or the proposed method of accounting.
(b) Inapplicability. This change does not apply to:
(i) A taxpayer that wants to change its method of accounting for
dispositions of depreciable property, including a change in the asset disposed of (but
see sections 6.10, 6.13, 6.14, and 6.15 of this revenue procedure);
(ii) Amounts paid or incurred for certain materials and supplies that
the taxpayer has elected to capitalize and depreciate under § 1.162-3(d);
(iii) Amounts paid or incurred to which the taxpayer has elected to
apply the de minimis safe harbor under § 1.263(a)-1(f);
(iv) Amounts paid or incurred for employee compensation or
overhead that the taxpayer has elected to capitalize under § 1.263(a)-2(f)(2)(iv)(B);
(v) Amounts paid or incurred to which the taxpayer has elected to
apply the safe harbor for small taxpayers under § 1.263(a)-3(h);
(vi) Amounts paid or incurred for repair and maintenance costs that
the taxpayer has elected to capitalize under § 1.263(a)-3(n);
(vii) Amounts paid or incurred to facilitate the acquisition or
disposition of assets that constitute a trade or business (but see section 10.05 of this
revenue procedure); or

(viii) Amounts paid or incurred for repair and maintenance costs that
the taxpayer is changing from capitalizing to deducting and for which the taxpayer has
(A) claimed a federal income tax credit, (B) elected to apply § 168(k)(4) (as in effect on
the day before the date of enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22,
2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA)), or (C) received a
payment for specified energy property in lieu of tax credits under section 1603 of the
American Recovery and Reinvestment Tax Act of 2009, Div. B of Pub. L. No. 111-5,
123 Stat. 115 (February 17, 2009), as amended by section 707 of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No.
111-312, 124 Stat. 3296 (December 17, 2010).
(2) Covered changes. This section 11.08 only applies to the following
changes in methods of accounting:
(a) A change to deducting amounts paid or incurred to acquire or
produce non-incidental materials and supplies in the taxable year in which they are first
used in the taxpayer's operations or consumed in the taxpayer's operations in
accordance with §§ 1.162-3(a)(1) and 1.162-3(c)(1);
(b) A change to deducting amounts to acquire or produce incidental
materials and supplies in the taxable year in which paid or incurred in accordance with
§§ 1.162-3(a)(2) and 1.162-3(c)(1);
(c) A change to deducting amounts paid or incurred to acquire or
produce non-incidental rotable and temporary spare parts in the taxable year which the
taxpayer disposes of the parts in accordance with §§ 1.162-3(a)(3) and 1.162-3(c)(2);
(d) A change to the optional method of accounting for rotable and
temporary spare parts in accordance with § 1.162-3(e);

(e) A change to deducting amounts paid or incurred for repair and
maintenance in accordance with § 1.162-4, including a change, if any, in identifying the
unit of property under § 1.263(a)-3(e) or, in the case of a building, identifying the
building structure or building systems under § 1.263(a)-3(e)(2) for purposes of making
the change to deducting the amounts;
(f) A change to capitalizing amounts paid or incurred for improvements to
tangible property in accordance with § 1.263(a)-3 and, if depreciable, to depreciating
such property under § 167 or § 168, including a change, if any, in identifying the unit of
property under § 1.263(a)-3(e) or, in the case of a building, identifying the building
structure or building systems under § 1.263(a)-3(e)(2) for purposes of making the
change to capitalizing the amounts;
(g) A change by a dealer in property to deduct amounts paid or incurred
for commissions and other costs that facilitate the sale of property in accordance with
§ 1.263(a)-1(e)(2);
(h) A change by a non-dealer in property to capitalizing amounts paid or
incurred for commissions and other costs that facilitate the sale of property in
accordance with § 1.263(a)-1(e);
(i) A change to capitalizing amounts paid or incurred to acquire or
produce property in accordance with § 1.263(a)-2, and if depreciable, to depreciating
such property under § 167 or § 168;
(j) A change to deducting amounts paid or incurred in the process of
investigating or otherwise pursuing the acquisition of real property if the amounts meet
the requirements of § 1.263(a)-2(f)(2)(iii); and

(k) A change to the optional regulatory accounting method in accordance
with § 1.263(a)-3(m) to determine whether amounts paid or incurred to repair, maintain,
or improve tangible property are treated as deductible expenses or capital expenditures.
(3) Manner of making change.
(a) Form 3115. In addition to the other information required on line 14 of
Form 3115, the taxpayer must include the following:
(i) The citation to the paragraph of the final tangible property
regulations that provides for the proposed method, or methods, of accounting to which
the taxpayer is changing (for example, § 1.162-3(a), § 1.263(a)-3(i), § 1.263(a)-3(k));
and
(ii) If the taxpayer is changing any unit(s) of property under
§ 1.263(a)-3(e) or, in the case of a building, is changing the identification of any building
structure(s) or building system(s) under § 1.263-3(e)(2) for purposes of determining
whether amounts are deducted as repair and maintenance costs under § 1.162-4 or
capitalized as improvement costs under § 1.263(a)-3, the taxpayer must include a
detailed description of the unit(s) of property, building structure(s), or buildings
system(s) used under its present method of accounting and a detailed description of the
unit(s) of property, building structure(s), and building system(s) under its proposed
method of accounting, together with a citation to the paragraph of the final tangible
property regulations under which the unit of property is permitted.
(iii) A taxpayer changing its method of accounting under this section
11.08 to capitalizing amounts paid or incurred and to depreciating such property under
§ 167 or § 168, as applicable, must complete Schedule E of Form 3115.

(b) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to
complete only the following information on Form 3115 (Rev. December 2022):
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13, 15, 16, 17, and 19, if the change
is to not depreciating property;
(v) Part II, all lines except line 13, line 15b, 16, 17, and 19, if the
change is to depreciating property;
(vi) Part IV, lines 26 and 27; and
(vii) Schedule E, if applicable.
(4) Concurrent automatic change.
(a) A taxpayer making two or more changes in method of accounting
pursuant to this section 11.08 should file a single Form 3115 for all of these changes
and must enter the designated automatic accounting method change numbers for all of
these changes on the appropriate line on the Form 3115.
(b) A taxpayer making both one or more changes in method of
accounting pursuant to this section 11.08 and a change to a UNICAP method under
section 12 of this revenue procedure (as applicable) for the same year of change should
file a single Form 3115 that includes all of these changes and must enter the designated
automatic accounting method change numbers for all of these changes on the
appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes. For example, a qualified small taxpayer, as

defined in section 6.01(4)(b) of this revenue procedure, must include on the single Form
3115 the information required by section 11.08(3)(b) of this revenue procedure for this
change and the information required by the lines on Form 3115, applicable to the
UNICAP method change, including Part II lines 14 and 15, Part IV, and Schedule D, and
must include a separate response to each line on Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)
for which the taxpayer's response is different for this change and the change to a
UNICAP method.
(5) Section 481(a) adjustment.
(a) In general. Except as provided in section 11.08(5)(b) of this revenue
procedure, a taxpayer changing to a method of accounting provided in this section
11.08 must apply § 481(a) and take into account any applicable § 481(a) adjustment in
the manner provided in section 7.03 of Rev. Proc. 2015-13.
(b) Limited adjustment for certain changes.
(i) Final tangible property regulations. A taxpayer changing to a
method of accounting under § 1.162-3 (except § 1.162-3(e)), § 1.263(a)-2(f)(2)(iii),
§ 1.263(a)-2(f)(3)(ii), § 1.263(a)-3(m), § 1.263A-1(e)(2)(i)(A), and § 1.263A-1(e)(3)(ii)(E)
is required to calculate a § 481(a) adjustment as of the first day of the taxpayer's
taxable year of change that takes into account only amounts paid or incurred in taxable
years beginning on or after January 1, 2014. Optionally, a taxpayer may take into
account amounts paid or incurred in taxable years beginning on or after January 1,
2012.
(ii) Small business exception. A taxpayer that met the scope
requirements of section 4 of Rev. Proc. 2015-20, 2015-9 I.R.B. 694, and that changed

its method of accounting under section 10.11(3)(a) of Rev. Proc. 2015-14 (which is now
section 11.08(2) of this revenue procedure) by following section 5 of Rev. Proc. 2015-20
is required to calculate a § 481(a) adjustment as of the first day of the year of change
that takes into account only amounts paid or incurred in taxable years beginning on or
after January 1, 2014.
(c) Itemized listing on Form 3115. A taxpayer changing to a method of
accounting provided in this section 11.08 must include on Form 3115 (Rev. December
2022), Part IV, line 26, the total § 481(a) adjustment for each change in method of
accounting being made. If the taxpayer is making more than one change in method of
accounting under the final tangible property regulations, the taxpayer (including a
qualified small taxpayer) must include on an attachment to Form 3115:
(i) The information required by Part IV, line 26 of Form 3115 (Rev.
December 2022) for each change in method of accounting (including the amount of the
§ 481(a) adjustment for each change in method of accounting, which includes the
portion of the § 481(a) adjustment attributable to UNICAP);
(ii) The information required by Part II, line 14 of Form 3115 (Rev.
December 2022) for each change; and
(iii) The citation to the paragraph of the final tangible property
regulations that provides for each proposed method of accounting.
(d) Repair allowance property. A taxpayer changing to a method of
accounting provided by § 1.263(a)-3 under this section 11.08 must not include in the
§ 481(a) adjustment any amount attributable to property for which the taxpayer elected
to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable year in which the
repair allowance election was made.

(e) Statistical Sampling. Except for any change in accounting method for
which a taxpayer is required to compute a § 481(a) adjustment under section
11.08(5)(b) of this revenue procedure, a taxpayer changing its method of accounting
under this section 11.08 may use statistical sampling in determining the § 481(a)
adjustment by following the guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B.
318.
(6) No audit protection. A taxpayer calculating a § 481(a) adjustment under
section 11.08(5)(b)(ii) of this revenue procedure that takes into account only amounts
paid or incurred in taxable years beginning on or after January 1, 2014, does not
receive audit protection under section 8.01 of Rev. Proc. 2015-13 for amounts subject to
a change under this section 11.08 that are paid or incurred in taxable years beginning
before January 1, 2014. See section 5.02 of Rev. Proc. 2015-20.
(7) Designated automatic accounting method change number. See the
following table for the designated automatic accounting method change numbers (DCN)
for the changes in method of accounting under this section 11.08.

(a) Changes under the final tangible property regulations.
Description of Change DCN Citation
A change to deducting amounts paid or incurred for
repair and maintenance or a change to capitalizing
amounts paid or incurred for improvements to tangible
property and, if depreciable, to depreciating such
property under § 167 or § 168. Includes a change, if
any, in the method of identifying the unit of property,
or in the case of a building, identifying the building
structure or building systems for the purpose of
making this change.

184 §§ 1.162-4, 1.263(a)-3
Change to the regulatory accounting method. 185 § 1.263(a)-3(m)
Change to deducting non-incidental materials and
supplies when used or consumed. 186 § 1.162-3(a)(1), (c)(1)
Change to deducting incidental materials and supplies
when paid or incurred.
187 § 1.162-3(a)(2), (c)(1)
Change to deducting non-incidental rotable and
temporary spare parts when disposed of. 188 § 1.162-3(a)(3), (c)(2)
Change to the optional method for rotable and
temporary spare parts. 189 § 1.162-3(e)
Change by a dealer in property to deduct
commissions and other costs that facilitate the sale of
property.
190 § 1.263(a)-1(e)(2)
Change by a non-dealer in property to capitalizing
commissions and other costs that facilitate the sale of
property.

191 § 1.263(a)-1(e)(1)
Change to capitalizing acquisition or production costs
and, if depreciable, to depreciating such property
under § 167 or § 168.
192 § 1.263(a)-2
Change to deducting certain costs for investigating or
pursuing the acquisition of real property (whether and
which).
193 § 1.263(a)-2(f)(2)(iii)

(8) Contact information. For further information regarding a change under
this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).
.09 Railroad track structure expenditures.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for railroad track structures to:

(a) the safe harbor method provided in Rev. Proc. 2002-65, 2002-2 C.B.
700; or
(b) the safe harbor method provided in Rev. Proc. 2001-46, 2001-2 C.B.
263.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 11.09 is "213."
(3) Contact information. For further information regarding a change under
this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).
.10 Remodel-refresh safe harbor method.
(1) Description of change.
(a) Applicability. This change applies to a qualified taxpayer as defined in
section 4.01 of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and within the scope of Rev.
Proc. 2015-56 that wants to change to the remodel-refresh safe harbor method of
accounting provided in section 5.02 of Rev. Proc. 2015-56, as modified by Rev. Proc.
2020-25, 2020-19 I.R.B. 785, for its qualified costs, including the making of a late
general asset account election as provided under section 5.02(6)(d) of Rev. Proc. 2015-
56.
(b) Inapplicability. This change does not apply to the following:
(i) The revocation of a partial disposition election that is made pursuant to
section 5.02(4)(b)(ii)(B) of Rev. Proc. 2015-56;
(ii) A change in determination of the asset disposed of described in section
5.02(5) of Rev. Proc. 2015-56 (which is made under section 6.13(3)(a) or 6.15(3)(a) of
this revenue procedure, as applicable). See section 11.10(5)(b) of this revenue

procedure for making the change under section 6.13(3)(a) or 6.15(3)(a) of this revenue
procedure as a concurrent change;
(iii) The making of a late general asset account election not provided under
section 5.02(6)(d) of Rev. Proc. 2015-56;
(iv) If section 5.02(4)(c) of Rev. Proc. 2015-56 applies to a qualified building
(partial disposition election made in a prior year and the qualified taxpayer did not
revoke such election within the time and in the manner provided in section 5.02(4)(b)(ii)
of Rev. Proc. 2015-56), any qualified costs paid for that qualified building prior to the
year of change for a Form 3115 filed to make the change to the remodel-refresh safe
harbor method of accounting under this section 11.10; or
(v) If section 5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified building
(recognized gain or loss under § 1.168(i)-1 or § 1.168(i)-8, or in a taxable year
beginning before January 1, 2012, for disposition of a component of a qualified building)
and the qualified taxpayer did not make the required change in method of accounting to
be in accord with § 1.168(i)-1(e)(2)(viii) or § 1.168-8(c)(4), as applicable, on or before
the first taxable year that the qualified taxpayer uses the remodel-refresh safe harbor
and takes the entire amount of the § 481(a) adjustment into account in computing the
qualified taxpayer's taxable income for that year of change, any qualified costs paid for
that qualified building prior to the first taxable year that the qualified taxpayer or the IRS
makes the change specified in section 6.13(3)(a) or 6.15(3)(a) of this revenue
procedure, as applicable, for that qualified building and takes into account the entire
amount of the § 481(a) adjustment in computing taxable income for the year of change.
(2) No audit protection. If section 5.02(4)(c) or 5.02(5)(b) of Rev. Proc. 2015-
56 applies to a qualified building (and, in the case of section 5.02(5)(b), the qualified

taxpayer does not make the required change on or before the first taxable year that the
qualified taxpayer uses the remodel-refresh safe harbor), the qualified taxpayer does
not receive audit protection under section 8.01 of Rev. Proc. 2015-13 in connection with
this change for that qualified building. See section 8.02(2) of Rev. Proc. 2015-13.
(3) Manner of making change.
(a) Reduced filing requirement for qualified small taxpayers. A qualified
small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, may
complete only the following information on Form 3115 (Rev. December 2022):
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 5, 13, 15, 16, 17, and 19;
(v) Part IV, lines 25, 26, and 27;
(vi) Schedule E; and
(vii) If applicable, the election statement described in section
11.10(3)(b)(ii).
(b) Late general asset account election.
(i) In general. If under section 5.02(6)(d) of Rev. Proc. 2015-56 the
qualified taxpayer is required to make a late general asset account election, the late
general asset account election change is made using a modified cut-off method under
which the unadjusted depreciable basis and the depreciation reserve of the asset as of
the beginning of the year of change are accounted for using the new method of
accounting. The late general asset account election change requires the general asset
account to include a beginning balance for both the unadjusted depreciable basis and

the depreciation reserve. The beginning balance for the unadjusted depreciable basis
of each general asset account is equal to the sum of the unadjusted depreciable bases
as of the beginning of the year of change for all assets included in that general asset
account. The beginning balance of the depreciation reserve of each general asset
account is equal to the sum of the greater of the depreciation allowed or allowable as of
the beginning of the year of change for all assets included in that general asset account.
(ii) Election statement. The qualified taxpayer (including a qualified small
taxpayer) must attach to its Form 3115 a statement providing that the qualified taxpayer
agrees to the following additional terms and conditions:
(A) The qualified taxpayer consents to, and agrees to apply, all of the
provisions of § 1.168(i)-1 to the assets that are subject to the election specified in
section 5.02(6)(d) of Rev. Proc. 2015-56; and
(B) Except as provided in § 1.168(i)-1(c)(1)(ii)(A), (e)(3), (g), or (h), the
election made by the qualified taxpayer under section 5.02(6)(d) of Rev. Proc. 2015-56
is irrevocable and will be binding on the qualified taxpayer for computing taxable income
for the year of change and for all subsequent taxable years with respect to the assets
that are subject to this election.
(c) Cut-off method required for certain changes.
(i) If section 5.02(4)(c) of Rev. Proc. 2015-56 applies to a qualified
building, the change to the remodel-refresh safe harbor method of accounting for that
qualified building, and any improvements to that qualified building, is made using a cut-
off method and applies only to qualified costs paid or incurred for that qualified building,
and any improvements to that qualified building, beginning in the year of change for the
change made to the remodel-refresh safe harbor method of accounting.

(ii) If section 5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified
building and the qualified taxpayer does not change its present method of accounting to
be in accord with § 1.168(i)-1(e)(2)(viii) or § 1.168(i)-8(c)(4), as applicable, on or before
the first taxable year that the qualified taxpayer used the remodel-refresh safe harbor
and takes the entire amount of the § 481(a) adjustment into account in computing the
qualified taxpayer's taxable income for that year of change, the change to the remodel-
refresh safe harbor method of accounting for that qualified building, and any
improvements to that qualified building, is made using a cut-off method and applies only
to qualified costs paid or incurred for that qualified building, and any improvements to
that qualified building, beginning in the year of change for the change made to comply
with § 1.168(i)-1(e)(2)(viii) or § 1.168(i)-8(c)(4), as applicable. See section 6.13(3)(a)
and section 6.15(3)(a) of this revenue procedure, as applicable.
(4) Section 481(a) adjustment.
(a) In general. A qualified taxpayer changing its method of accounting under
this section 11.10 must apply § 481(a) and take into account any applicable § 481(a)
adjustment in the manner provided in section 7.03 of Rev. Proc. 2015-13. However, a
§ 481(a) adjustment is neither required nor permitted for the late general asset account
election under section 5.02(6)(d) of Rev. Proc. 2015-56 or, if section 5.02(4)(c) or
5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified building, and an improvement to
a qualified building (and, in the case of section 5.02(5)(b) of Rev. Proc. 2015-56, the
qualified taxpayer did not make the required change on or before the first taxable year
that the qualified taxpayer uses the remodel-refresh safe harbor), for the change to the
remodel-refresh safe harbor method of accounting for that qualified building and an
improvement to that qualified building.

(b) Repair allowance property. A qualified taxpayer changing to the method
of accounting provided under this section 11.10 must not include in the § 481(a)
adjustment any amount attributable to property for which the qualified taxpayer elected
to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable year in which the
repair allowance election was made.
(c) Statistical sampling. A qualified taxpayer changing its method of
accounting under this section 11.10 may use statistical sampling in determining the
§ 481(a) adjustment only by following the sampling procedures provided in Rev. Proc.
2011-42, 2011-37 I.R.B. 318.
(5) Concurrent automatic change.
(a) A qualified taxpayer making this change for more than one asset for the
same year of change should file a single Form 3115 for all such assets. The single
Form 3115 must provide a single net § 481(a) adjustment for all such changes.
(b) A qualified taxpayer making this change, a change under section
6.13(3)(a) of this revenue procedure, and any change listed in section 6.12(3)(b) or
section 6.15 of this revenue procedure for the same year of change should file a single
Form 3115 for all such changes and must enter the designated automatic accounting
method change numbers for the changes on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes.
(6) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change to the method of accounting
under this section 11.10 is "222."

(7) Contact information. For further information regarding a change under this
section, contact Riston Escher at (202) 317-5100 (not a toll-free number).
SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)
.01 Certain uniform capitalization (UNICAP) methods used by resellers and
reseller-producers.
(1) Description of change.
(a) Applicability. This change applies to:
(i) a reseller that is a former small business taxpayer, or a reseller-
producer that is a former small business taxpayer, that wants to change from a
permissible non-UNICAP inventory capitalization method to a permissible UNICAP
method specifically described in the regulations in the first taxable year that it does not
qualify as a small business taxpayer;
(ii) a reseller-producer that wants to change from a permissible
UNICAP method for both its production and resale activities to a permissible simplified
resale method described in § 1.263A-3(d)(3) in any taxable year that it qualifies to use a
simplified resale method for both its production and resale activities under § 1.263A-
3(a)(4) (resellers with de minimis production activities);
(iii) a reseller-producer that wants to change from a permissible
simplified resale method described in § 1.263A-3(d)(3) for both its production and resale
activities to a permissible UNICAP method specifically described in the regulations for
both its production and resale activities in the first taxable year that it does not qualify to
use a simplified resale method for both its production and resale activities under
§ 1.263A-3(a)(4);

(iv) a reseller that wants to change its permissible UNICAP method
to include a special reseller cost allocation rule;
(v) a reseller or reseller-producer that wants to change to a UNICAP
method (or methods) specifically described in the regulations, including any necessary
changes in the identification of costs subject to § 263A that will be accounted for using
the proposed method, in any taxable year other than the first taxable year that it does
not qualify as a small business taxpayer; or
(vi) a reseller or reseller-producer that wants to change from not
capitalizing a cost subject to § 263A to capitalizing that cost under a UNICAP method
(or methods) specifically described in the regulations that the reseller or reseller-
producer is already using.
(b) Inapplicability.
(i) Self constructed assets. This change does not apply to a
taxpayer that wants to use either the simplified service cost method, the simplified
production method, or the modified simplified production method for self-constructed
assets under §§ 1.263A-1(h)(2)(i)(D), 1.263A-2(b)(2)(i)(D), and 1.263A-2(c)(2),
respectively.
(ii) Election or revocation of election to use a historic absorption ratio.
This change does not apply to a taxpayer that (1) wants to make a historic absorption
ratio election with the simplified production method, the modified simplified production
method, or the simplified resale method under §§ 1.263A-2(b)(4), 1.263A-2(c)(4), or
1.263A-3(d)(4), respectively; or (2) wants to revoke an election to use a historic
absorption ratio with the simplified production method, the modified simplified

production method, or the simplified resale method (see §§ 1.263A-2(b)(4)(iii)(B),
1.263A-2(c)(4), or 1.263A-3(d)(4)(iii)(B), respectively).
(iii) Interest capitalization. This change does not apply to a change
in method of accounting for interest capitalization (but see section 12.14 of this revenue
procedure).
(iv) Recharacterizing costs under the simplified resale method,
simplified production method, or modified simplified production method. This change
does not include a change to recharacterize section 471 costs, as defined in § 1.263A-
1(d)(2), as additional section 263A costs, as defined in § 1.263A-1(d)(3) (or vice versa)
for a taxpayer that uses or is changing to the simplified resale method, the simplified
production method, or the modified simplified production method. See section 12.17 of
this revenue procedure for certain changes to recharacterize section 471 costs as
additional section 263A costs (or vice versa).
(v) Revocation of election under § 263A(d)(3). This change does not
apply to a taxpayer that wants to revoke its election under § 263A(d)(3) not to have
§ 263A apply to certain plants produced by the taxpayer in a farming business. But see
Rev. Proc. 2020-13, 2020-11 I.R.B. 515, for the procedures to revoke an election under
§ 263A(d)(3).
(vi) Direct reallocation or step-allocation methods. This change does
not apply to a taxpayer that wants to change either to or from the direct reallocation
method or the step-allocation method under §§ 1.263A-1(g)(4)(iii)(A) and 1.263A-
1(g)(4)(iii)(B), respectively.
(vii) Election or revocation of election to use 90-10 de minimis rule.
This change does not apply to a taxpayer that presently uses the direct reallocation

method or the step-allocation method under §§ 1.263A-1(g)(4)(iii)(A) and 1.263A-
1(g)(4)(iii)(B), respectively, and (1) wants to elect the 90-10 de minimis rule, under
§ 1.263A-1(g)(4)(ii), to allocate a mixed service department's costs to resale activities;
or (2) wants to revoke an election to use the 90-10 de minimis rule to allocate a mixed
service department's costs to resale activities.
(2) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to the change described in section
12.01(1)(a)(i) of this revenue procedure.
(3) Definitions.
(a) "Reseller" means a taxpayer that acquires real or personal property
described in § 1221(a)(1) for resale.
(b) "Producer" means a taxpayer that produces real or tangible personal
property.
(c) "Reseller-producer" means a taxpayer that is both a producer and a
reseller.
(d) "Permissible UNICAP method" means a method of capitalizing costs
that is permissible under § 263A.
(e) "A UNICAP method specifically described in the regulations" does not
include any other reasonable allocation method within the meaning of § 1.263A-1(f)(4).
However, a "UNICAP method specifically described in the regulations" includes:
(i) the 90-10 de minimis rule to allocate a mixed service department's
costs to resale activities (§ 1.263A-1(g)(4)(ii)) (but see paragraph (1)(b)(vii) of this
section);

(ii) the 1/3 - 2/3 rule to allocate labor costs of personnel to
purchasing activities (§ 1.263A-3(c)(3)(ii)(A));
(iii) the 90-10 de minimis rule to allocate a dual-function storage
facility's costs to property acquired for resale (§ 1.263A-3(c)(5)(iii)(C));
(iv) the specific identification method (§ 1.263A-1(f)(2));
(v) the burden rate method (§ 1.263A-1(f)(3)(i));
(vi) the standard cost method (§ 1.263A-1(f)(3)(ii));
(vii) the direct reallocation method (§ 1.263A-1(g)(4)(iii)(A)) (but see
paragraphs (1)(b)(vi) and (vii) of this section);
(viii) the step-allocation method (§ 1.263A-1(g)(4)(iii)(B)) (but see
paragraphs (1)(b)(vi) and (vii) of this section);
(ix) the simplified service cost method (§ 1.263A-1(h)) (with either a
labor-based allocation ratio or a production cost allocation ratio);
(x) the simplified resale method without a historic absorption ratio
election (§ 1.263A-3(d));
(xi) the alternative method to determine amounts of section 471
costs by using a taxpayer's financial statement (§ 1.263A-1(d)(2)(iii));
(xii) the method to determine amounts of section 471 costs by using
the amounts incurred in the taxable year for federal income tax purposes (§ 1.263A-
1(d)(2)(i));
(xiii) the safe harbor method for certain variances and under- or over-
applied burdens (§ 1.263A-1(d)(2)(v));
(xiv) the removal of one or more costs from section 471 costs as
required in § 1.263A-1(d)(2)(vi);

(xv) the removal of one or more costs from section 471 costs using
negative adjustments to additional section 263A costs as permitted in § 1.263A-
1(d)(3)(ii)(B);
(xvi) the de minimis rule for certain direct labor costs (§ 1.263A-
1(d)(2)(iv)(B));
(xvii) the de minimis rule for certain direct material costs (§ 1.263A-
1(d)(2)(iv)(C));
(xviii) the simplified production method without a historic absorption
ratio election (§ 1.263A-2(b));
(xix) the modified simplified production method without a historic
absorption ratio election (§ 1.263A-2(c));
(xx) the direct material costs or pre-production labor costs allocation
methods for capitalizable mixed service costs under the modified simplified production
method (§ 1.263A-2(c)(3)(iii)(B)); and
(xxi) the 90-10 de minimis rule to allocate capitalizable mixed service
costs under the modified simplified production method (§ 1.263A-2(c)(3)(iii)(C)).
(f) "Special reseller cost allocation rule" means the 90-10 de minimis rule
to allocate a mixed service department's costs to property acquired for resale
(§ 1.263A-1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate labor costs of personnel to
purchasing activities (§ 1.263A-3(c)(3)(ii)(A)), and the 90-10 de minimis rule to allocate
a dual-function storage facility's costs to property acquired for resale (§ 1.263A-
3(c)(5)(iii)(C)).
(g) "Permissible non-UNICAP inventory capitalization method" means a
method of capitalizing inventory costs that is permissible under § 471.

(h) "Small business taxpayer" means a taxpayer, other than a tax shelter
under § 448(d)(3), proposed § 1.448-2(b)(2), or § 1.448-2(b)(2), as applicable, that
meets the § 448(c) gross receipts test as provided in § 448(c), proposed § 1.263A-1(j),
or § 1.263A-1(j), as applicable. The § 448(c) gross receipts test is met if a taxpayer has
average annual gross receipts for the three prior taxable years of $25,000,000 or less
(adjusted for inflation), as described in § 448(c), proposed §§ 1.448-2(c), or § 1.448-
2(c), as applicable. For taxable years beginning in 2019, 2020 and 2021, the inflation-
adjusted amount is $26,000,000. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev.
Proc. 2019-44, 2019-47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as
applicable. For a taxable year beginning in 2022, the inflation-adjusted amount is
$27,000,000. See Rev. Proc. 2021-45, 2021-48 I.R.B. 764. For a taxable year
beginning in 2023, the inflation-adjusted amount is $29,000,000. See Rev. Proc. 2022-
38, 2022-45 I.R.B. 445. For a taxable year beginning in 2024, the inflation-adjusted
amount is $30,000,000. See Rev. Proc. 2023-34, 2023-48 I.R.B. 1287. For a taxable
year beginning in 2025, the inflation-adjusted amount is $31,000,000. See Rev. Proc.
2024-40, 2024-45 I.R.B. 1100.
(i) "Former small business taxpayer" means a taxpayer that no longer
qualifies as a small business taxpayer. A former small business taxpayer includes a
taxpayer that no longer qualifies as a small business taxpayer for the year of change
because it is a tax shelter under § 448(d)(3), proposed § 1.448-2(b)(2), or § 1.448-
2(b)(2), as applicable.
(4) Section 481(a) adjustment period. Except as otherwise provided in this
section 12.01(4), beginning with the year of change, a taxpayer changing its method of
accounting for costs under section 12.01(1)(a)(ii) or 12.01(1)(a)(iii) of this revenue

procedure generally must take any applicable net positive § 481(a) adjustment for such
change into account ratably over the same number of taxable years, not to exceed four,
that the taxpayer used its former method of accounting. A taxpayer changing its
method of accounting for costs under section 12.01(1)(a)(i), 12.01(1)(a)(iv),
12.01(1)(a)(v), or 12.01(1)(a)(vi) of this revenue procedure must take any applicable net
positive § 481(a) adjustment for such change into account as provided in section 7.03 of
Rev. Proc. 2015-13.
(5) Multiple changes. A taxpayer making both this change and another
change in method of accounting for the same year of change must comply with the
ordering rules of § 1.263A-7(b)(2).
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.01 is "22."
(7) Example. The following example illustrates the principles of this section
12.01 and 12.16 for small business taxpayers and former small business taxpayers.
X is a C corporation incorporated on January 2, 2017, that adopted a taxable year
ending December 31 and an overall accrual method of accounting. X is a reseller of
personal property. To determine whether X is a small business taxpayer, as provided in
section 12.01(3)(h) of this revenue procedure, X calculated its average annual gross
receipts for the three taxable years (or fewer, if applicable) immediately preceding the
taxable year being analyzed as shown in the table below, in accordance with § 1.263A-
1(j):

Example – Average AGR Calculation
Current Taxable Year Average Annual Gross
Receipts for the Three Taxable
Years Immediately Preceding
the Current Taxable Year
2017 0

2018 24,000,000
2019 27,000,000
2020 27,000,000
2021 25,000,000

Furthermore, X adopted the dollar-value LIFO inventory method and has the
following LIFO inventory balances determined without considering the effects of the
UNICAP method:
Example – Inventory Balance Calculation

Year Beginning Ending
2017 $10,000,000 $11,000,000
2018 11,000,000 12,000,000
2019 12,000,000 13,000,000
2020 13,000,000 14,000,000
2021 14,000,000 15,000,000

X was not required to use the UNICAP method for 2017 and 2018 because its
average annual gross receipts for such years made X a small reseller, as described in
section 12.01(3)(b) of Rev. Proc. 2019-43, prior to modification by Rev. Proc. 2022-9,
2022-2 I.R.B. 310 for 2017, and a small business taxpayer, as described in section
12.01(3)(h) of this revenue procedure, for 2018. X was required by § 263A to change to
the UNICAP method for 2019 because its average annual gross receipts for the three
taxable years immediately preceding 2019 were $27,000,000, which exceeded the
$26,000,000 threshold permitted by the small business taxpayer exemption under
§ 263A(i). Assume that X was required to capitalize $800,000 of "additional § 263A
costs" to the cost of its 2019 beginning inventory because of this change in inventory
method. In addition, X was required to include one-fourth of the § 481(a) adjustment
when computing taxable income for each of the four taxable years beginning with 2019.
Thus, X was required to include a $200,000 positive § 481(a) adjustment in its 2019
taxable income.

X elected to use the simplified resale method without a historic absorption ratio
election under § 1.263A-3(d)(3) for determining the amount of additional § 263A costs to
be capitalized to each LIFO layer. Assume that X was required to add $100,000 of
additional § 263A costs to the cost of its 2019 ending inventory because of the
$1,000,000 increment for 2019.

X's 2019 Ending Inventory:

Description Amount
Beginning Inventory (Without UNICAP costs) $12,000,000

2019 Increment 1,000,000
Additional § 263A Costs in Beginning Inventory 800,000
Additional § 263A Costs in 2019 Increment 100,000
Total 2019 Ending Inventory $13,900,000

X's Unamortized 2019 § 481(a) Adjustment:

Description Amount
2019 § 481(a) Adjustment $800,000
Amount included in 2019 Taxable Income <200,000>
Unamortized 2019 § 481(a) Adjustment— 12/31/19 $600,000

Because X's average annual gross receipts of $27,000,000 for the three taxable
years immediately preceding 2020 exceeded the $26,000,000 threshold, X failed to
qualify for the small business taxpayer exemption for 2020 and was required to continue
using the UNICAP method for its inventory costs. Furthermore, X was required to
include $200,000 of the unamortized 2019 positive § 481(a) adjustment in its 2020
taxable income. Assume that X was required to add $100,000 of additional § 263A
costs to the cost of its 2020 ending inventory because of the $1,000,000 increment for
2020.

X's 2020 Ending Inventory:

Description Amount
Beginning Inventory (With UNICAP costs) $13,900,000
2020 Increment 1,000,000
Additional § 263A Costs in 2020 Increment 100,000
Total 2020 Ending Inventory $15,000,000

X's Unamortized 2019 § 481(a) Adjustment:

Description Amount
Unamortized 2019 § 481(a) Adjustment— 12/31/19 $600,000
Amount Included in 2020 Taxable Income <200,000>

Unamortized 2019 § 481(a) Adjustment— 12/31/20 $400,000

Because X's average annual gross receipts of $25,000,000 for the three taxable
years immediately preceding 2021 did not exceed the $26,000,000 threshold, X
satisfied the small business taxpayer exemption under section 263A(i) for 2021 and
may change voluntarily from the UNICAP method to a method that no longer capitalizes
costs under § 263A for 2021, as provided in section 12.16 of this revenue procedure.
To reflect the removal of the additional § 263A costs from the cost of its 2021 beginning
inventory, X must compute a corresponding § 481(a) adjustment, which is a negative
$1,000,000 ($14,000,000 - $15,000,000). The entire amount of this negative § 481(a)
adjustment is included in X's taxable income for 2021. In addition, X must take the
$400,000 remaining portion of the unamortized 2019 § 481(a) adjustment into account
in its taxable income for 2021, as provided in section 12.16(5) of this revenue
procedure.

X's 2021 Ending Inventory:

Description Amount
Inventory (With UNICAP costs) Beginning $15,000,000
2021 Increment 1,000,000
2021 § 481(a) Adjustment <Negative> <1,000,000>
Total 2021 Ending Inventory $15,000,000

X's Unamortized 2019 § 481(a) Adjustment:

Description Amount
Unamortized 2019 § 481(a) Adjustment— 12/31/20 $400,000
Amount included in 2021 Taxable Income <400,000>
Unamortized 2019 § 481(a) Adjustment— 12/31/21 $ 0

X's Unamortized 2021 § 481(a) Adjustment:

Description Amount
2021 § 481(a) Adjustment <Negative> $<1,000,000>
Amount included in 2021 Taxable Income 1,000,000
Unamortized 2021 § 481(a) Adjustment— 12/31/21 $ 0

(8) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.02 Certain uniform capitalization (UNICAP) methods used by producers and
reseller-producers.
(1) Description of change.
(a) Applicability. This change applies to:
(i) a producer as defined in section 12.01(3)(b) of this revenue
procedure or a reseller-producer as defined in section 12.01(3)(c) of this revenue
procedure that wants to change to a UNICAP method (or methods) specifically
described in the regulations, including any necessary changes in the identification of
costs subject to § 263A that will be accounted for using the proposed method, in any
taxable year other than the first taxable year that it does not qualify as a small business
taxpayer as defined in section 12.01(3)(h) of this revenue procedure. This change
includes a change from not capitalizing a cost subject to § 263A to capitalizing that cost
for a producer or a reseller-producer under a UNICAP method (or methods) specifically
described in the regulations that the producer or reseller-producer is already using; or
(ii) a producer or reseller-producer that is a former small business
taxpayer, as defined in section 12.01(3)(i) of this revenue procedure, that wants to
change from not capitalizing costs under § 263A(i) to capitalizing costs under a UNICAP
method (or methods) specifically described in the regulations in the first taxable year
that the taxpayer does not qualify as a small business taxpayer as defined in section
12.01(3)(h) of this revenue procedure.
(b) Inapplicability.

(i) Self-constructed assets. This change does not apply to a
taxpayer that wants to use either the simplified service cost method, the simplified
production method, or the modified simplified production method for self-constructed
assets under §§ 1.263A-1(h)(2)(i)(D), 1.263A-2(b)(2)(i)(D), and 1.263A-2(c)(2),
respectively.
(ii) Election or revocation of election to use a historic absorption
ratio. This change does not apply to a taxpayer that (1) wants to make a historic
absorption ratio election with the simplified production method or the modified simplified
production method under §§ 1.263A-2(b)(4) or 1.263A-2(c)(4), respectively; or (2) wants
to revoke an election to use a historic absorption ratio with the simplified production
method or the modified simplified production method (see §§ 1.263A-2(b)(4)(iii)(B) or
1.263A-2(c)(4), respectively).
(iii) Interest capitalization. This change does not apply to a change
in method of accounting for interest capitalization (but see section 12.14 of this revenue
procedure).
(iv) Recharacterizing costs under the simplified production method or
modified simplified production method. This change does not include a change to
recharacterize section 471 costs, as defined in § 1.263A-1(d)(2), as additional section
263A costs, as defined in § 1.263A-1(d)(3), (or vice versa) for a taxpayer that uses or is
changing to the simplified production method or the modified simplified production
method. See section 12.17 of this revenue procedure for certain changes to
recharacterize section 471 costs as additional section 263A costs (or vice versa).
(v) Reseller-producer using the simplified resale method. This
change does not apply to a reseller-producer that uses or is changing to the simplified

resale method under § 1.263A-3(d) (but see section 12.01(1) of this revenue procedure
for certain changes that may be made by a reseller-producer).
(vi) Direct reallocation or step-allocation methods. This change does
not apply to a taxpayer that wants to change either to or from the direct reallocation
method or the step-allocation method under §§ 1.263A-1(g)(4)(iii)(A) and 1.263A-
1(g)(4)(iii)(B), respectively.
(vii) Election or revocation of election to use 90-10 de minimis rule.
This change does not apply to a taxpayer that presently uses the direct reallocation
method or the step-allocation method under §§ 1.263A-1(g)(4)(iii)(A) and 1.263A-
1(g)(4)(iii)(B), respectively, and (1) wants to elect the 90-10 de minimis rule, under
§ 1.263A-1(g)(4)(ii), to allocate a mixed service department's costs to production or
resale activities; or (2) wants to revoke an election to use the 90-10 de minimis rule to
allocate a mixed service department's costs to production or resale activities.
(2) Definitions. A "UNICAP method specifically described in the regulations"
does not include the simplified resale method under § 1.263A-3(d)(4) or any other
reasonable allocation method within the meaning of § 1.263A-1(f)(4). However, a
"UNICAP method specifically described in the regulations" includes:
(a) the 90-10 de minimis rule to allocate a mixed service department's
costs to production or resale activities (§ 1.263A-1(g)(4)(ii)) (but see paragraph
(1)(b)(vii) of this section);
(b) the 1/3 - 2/3 rule to allocate labor costs of personnel to purchasing
activities (§ 1.263A-3(c)(3)(ii)(A));
(c) the 90-10 de minimis rule to allocate a dual-function storage facility's
costs to property acquired for resale (§ 1.263A-3(c)(5)(iii)(C));

(d) the specific identification method (§ 1.263A-1(f)(2));
(e) the burden rate method (§ 1.263A-1(f)(3)(i));
(f) the standard cost method (§ 1.263A-1(f)(3)(ii));
(g) the direct reallocation method (§ 1.263A-1(g)(4)(iii)(A)) (but see
paragraphs (1)(b)(vi) and (vii) of this section);
(h) the step-allocation method (§ 1.263A-1(g)(4)(iii)(B)) (but see
paragraphs (1)(b)(vi) and (vii) of this section);
(i) the simplified service cost method (§ 1.263A-1(h)) (with either a labor-
based allocation ratio or a production cost allocation ratio);
(j) the simplified production method without a historic absorption ratio
election (§ 1.263A-2(b));
(k) the alternative method to determine amounts of section 471 costs by
using a taxpayer's financial statement (§ 1.263A-1(d)(2)(iii));
(l) the method to determine amounts of section 471 costs by using the
amounts incurred in the taxable year for federal income tax purposes (§ 1.263A-
1(d)(2)(i));
(m) the safe harbor method for certain variances and under- or over-
applied burdens (§ 1.263A-1(d)(2)(v));
(n) the removal of one or more costs from section 471 costs as required
in § 1.263A-1(d)(2)(vi);
(o) the removal of one or more costs from section 471 costs using
negative adjustments to additional section 263A costs as permitted in § 1.263A-
1(d)(3)(ii)(B);

(p) the de minimis rule for certain direct labor costs (§ 1.263A-
1(d)(2)(iv)(B));
(q) the de minimis rule for certain direct material costs (§ 1.263A-
1(d)(2)(iv)(C));
(r) the modified simplified production method without a historic
absorption ratio election (§ 1.263A-2(c)(3));
(s) the direct material costs or pre-production labor costs allocation
methods for capitalizable mixed service costs under the modified simplified production
method (§ 1.263A-2(c)(3)(iii)(B)); and
(t) the 90-10 de minimis rule to allocate capitalizable mixed service costs
under the modified simplified production method (§ 1.263A-2(c)(3)(iii)(C)).
(3) Multiple changes. A taxpayer making both this change and another
change in method of accounting in the same year of change must comply with the
ordering rules of § 1.263A-7(b)(2).
(4) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change described in section
12.02(1)(a)(ii) of this revenue procedure.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.02 is "23."
(6) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.03 Impact fees.

(1) Description of change. This change applies to a taxpayer that incurs
impact fees as defined in Rev. Rul. 2002-9, 2002-1 C.B. 614, in connection with the
construction of a new residential rental building that wants to capitalize the costs to the
building under §§ 263(a) and 263A. See Rev. Rul. 2002-9 for further information.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.03 is "25."
(3) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.04 Change to capitalizing environmental remediation costs under § 263A.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for environmental remediation costs from a method
that does not comply with the holding in Rev. Rul. 2004-18, 2004-1 C.B. 509, to
capitalizing them to inventory under § 263A.
(2) Concurrent automatic changes. A taxpayer making both this change and
another automatic change under § 263A for the same year of change may file a single
Form 3115 for both changes, provided the taxpayer enters the designated automatic
change numbers for both changes on the appropriate line on that Form 3115, and
complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.04 is "77."

(4) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.05 Change in allocating environmental remediation costs under § 263A.
(1) Description of change. This change applies to a taxpayer that capitalizes
environmental remediation costs to inventory under § 263A, but allocates these costs to
inventory using a method of accounting that does not comply with the holding in Rev.
Rul. 2005-42, 2005-2 C.B. 67, and wants to change to allocating these costs to
inventory produced during the taxable year in which the costs are incurred under
§ 263A. See Rev. Rul. 2005-42 for further information.
(2) Concurrent automatic changes. A taxpayer making both this change and
another automatic change under § 263A for the same year of change may file a single
Form 3115 for both changes, provided the taxpayer enters the designated automatic
accounting method change numbers for both changes on the appropriate line on that
Form 3115, and complies with the ordering rules of § 1.263A-7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making
concurrent changes.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.05 is "92."
(4) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles.
(1) Description of change. This change applies to a motor vehicle
dealership, as defined in section 4 of Rev. Proc. 2010-44, 2010-49 I.R.B. 811, that is

within the scope of section 3 of Rev. Proc. 2010-44 and wants to change its method of
accounting to (1) treat its sales facility as a retail sales facility or (2) be treated as a
reseller without production activities, as described in section 5 of Rev. Proc. 2010-44. A
motor vehicle dealership that wants to make an automatic change in method of
accounting to use one or both safe harbor methods described in section 5 of Rev. Proc.
2010-44 may make any corresponding changes in the identification of costs subject to
§ 263A that will be accounted for using the proposed method (for example, to remove
internal profit from inventory costs) or to no longer include negative amounts as
additional § 263A costs in the numerator of the simplified resale method formula or the
simplified production method formula. However, except as provided in the preceding
sentence, a change under this section does not include a change for purposes of
recharacterizing "§ 471 costs" as "additional § 263A costs" (or vice versa) under the
simplified resale method or the simplified production method.
(2) Concurrent automatic changes. A motor vehicle dealership making an
automatic change to one or both safe harbor methods described in section 5 of Rev.
Proc. 2010-44 and another automatic change under § 263A for the same taxable year
may file one Form 3115 to make both changes, provided the dealership enters the
designated automatic change numbers for all such changes in Part I on that Form 3115,
and complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.
(3) Multiple adjustments. In the event that a motor vehicle dealership is
taking into account a § 481(a) adjustment from another accounting method change in
addition to the § 481(a) adjustment required by a change to a safe harbor method
described in section 5 of Rev. Proc. 2010-44, the § 481(a) adjustments must be taken

into account separately. For example, a motor vehicle dealership that changed to
comply with § 263A in 2009 and was required to take its § 481(a) adjustment into
account over four years must continue to take into account that adjustment over the
remainder of that four year § 481(a) adjustment period even though the dealership
changed to a safe harbor method described in section 5 of Rev. Proc. 2010-44 in 2010
and has an additional § 481(a) adjustment required by that change.
(4) Designated automatic accounting method change numbers. The
designated automatic accounting method change number for a change to treat certain
sales facilities as retail sales facilities as described in section 5.01 of Rev. Proc. 2010-
44 is "150." The designated automatic accounting method change number for a change
to be treated as a reseller without production activities as described in section 5.02 of
Rev. Proc. 2010-44 is "151."
(5) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.07 Change to not apply § 263A to one or more plants removed from the list of
plants that have a preproductive period in excess of 2 years.
(1) Description of change. This change, as described in Rev. Proc. 2013-20,
2013-14 I.R.B. 744, applies to a taxpayer that is not a corporation, partnership, or tax
shelter required to use an accrual method of accounting under § 447 or § 448(a)(3), and
either (a) wants to not apply § 263A, pursuant to § 263A(d)(1) and § 1.263A-4(a)(2), to
the production of one or more plants that the IRS and the Treasury Department have
removed from the list of plants that have a nationwide weighted average preproductive
period in excess of 2 years, or (b) properly elected, pursuant to § 263A(d)(3) and
§ 1.263A-4(d), to not apply § 263A to the production of a plant or plants that have been

removed from the list of plants that have a nationwide weighted average preproductive
period in excess of 2 years, and wishes to revoke its § 263A(d)(3) election with respect
to those plants. See Notice 2013-18, 2013-14 I.R.B. 742, or its successor.
(2) Manner of making change. A change under this section 12.07 is made
with any necessary adjustments under § 481(a). For example, the revocation of an
election under § 263A(d)(3) results in a § 481(a) adjustment that must take into account
the change in depreciation from the alternative depreciation system to the general
depreciation system included within such revocation.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.07 is "181."
(4) Contact information. For further information regarding a change under
this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).
.08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for
self-constructed assets.
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-
9 I.R.B. 606, applies to a producer (as defined in section 12.01(3)(b) of this revenue
procedure) or a reseller-producer (as defined in section 12.01(3)(c) of this revenue
procedure) that wants to change to a reasonable allocation method within the meaning
of § 1.263A-1(f)(4), other than the methods specifically described in § 1.263A-1(f)(2) or
(3), for self-constructed assets produced during the taxable year, including any
necessary changes in the identification of costs subject to § 263A that will be accounted
for using the proposed method. This section 12.08 also includes a change from not

capitalizing a cost subject to § 263A to capitalizing that cost for a producer or reseller-
producer under a reasonable allocation method within the meaning of § 1.263A-1(f)(4)
that the producer or reseller-producer is already using for self-constructed assets, other
than the methods specifically described in § 1.263A-1(f)(2) or (3). See section 12.02 of
this revenue procedure for a producer or reseller-producer that wants to change to a
method described in § 1.263A-1(f)(2) or (3).
(b) Inapplicability. This change does not apply to an allocation method
based on the number of units produced or an allocation method that does not allocate
costs to the units of property produced. This change does not apply to a change
described in another section of this revenue procedure or in other guidance published in
the Internal Revenue Bulletin. For example, this change does not apply to a change
described in section 12.01 or 12.02 of this revenue procedure.
(2) No ruling on reasonableness of method. The consent granted in section
9 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for this change is not a determination by the
Commissioner that the taxpayer is using a reasonable allocation method for costs
subject to § 263A and does not create any presumption that the proposed allocation
method is permissible. The director will ascertain whether the taxpayer's allocation
method is reasonable within the meaning of § 1.263A-1(f)(4).
(3) Multiple changes. A taxpayer making both this change and another
change in method of accounting under section 11.08 of this revenue procedure for the
same year of change must comply with the ordering rules of § 1.263A-7(b)(2).
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.08 is "194."

(5) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.09 Real property acquired through foreclosure.
(1) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-9
I.R.B. 606, applies to a taxpayer that capitalizes costs under § 263A(b)(2) and
§ 1.263A-3(a)(1) to real property acquired through foreclosure, or similar transaction,
where the taxpayer wants to change its method of accounting to an otherwise
permissible method of accounting under which the acquisition and holding costs for real
property acquired through foreclosure, or similar transaction, are not capitalized under
§ 263A(b)(2) and § 1.263A-3(a)(1). To qualify for this change in method of accounting,
a taxpayer must:
(a) originate, or acquire and hold for investment, loans that are secured
by real property; and
(b) acquire the real property that secures the loans at a foreclosure sale,
by deed in lieu of foreclosure, or in another similar transaction.
(2) Inapplicability. This change does not apply to costs capitalized under
§ 263A(b)(1) and § 1.263A-2(a)(1) by the taxpayer to the acquired real property as a
result of production activities.
(3) Designated automatic accounting method change numbers. The
designated automatic accounting method change number for a change under this
section 12.09 is "195."
(4) Contact information. For further information regarding a change under
this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number).
.10 Sales-Based Royalties.

(1) Description of change. This change, as described in Rev. Proc. 2014-33,
2014-22 I.R.B. 1060, applies to a taxpayer that wants to change its method of
accounting for sales-based royalties (as described in § 1.263A-1(e)(3)(ii)(U)(2)) that are
properly allocable to inventory property:
(a) From not capitalizing sales-based royalties to capitalizing these costs
and allocating them entirely to cost of goods sold under a taxpayer's method of
accounting;
(b) From not capitalizing sales-based royalties to capitalizing these costs
and allocating them to inventory property under a taxpayer's method of accounting;
(c) From capitalizing sales-based royalties and allocating these costs to
inventory property to allocating them entirely to cost of goods sold; or
(d) From capitalizing sales-based royalties and allocating these costs
entirely to cost of goods sold to allocating them to inventory property.
(2) Limitations.
(a) A taxpayer may not make a change in method of accounting under
this section 12.10 if the taxpayer wants to change to capitalizing sales-based royalties
and allocating them to inventory property using another reasonable allocation method
within the meaning of § 1.263A-1(f)(4).
(b) A taxpayer making the changes described in section 12.10(1)(a) or
12.10(1)(c) of this revenue procedure that uses a simplified method to determine the
additional § 263A costs allocable to inventory property on hand at year end must
remove sales-based royalties allocated to cost of goods sold from the formulas used to
allocate additional § 263A costs to ending inventory in the same manner that the
taxpayer included these amounts in the formulas.

(c) A taxpayer making a change in method of accounting under this
section 12.10 that uses a simplified method with a historic absorption ratio election (see
§§ 1.263A-2(b)(4) and 1.263A-3(d)(4)) and currently includes, or is changing its method
to include, sales-based royalties in any part of its historic absorption ratio must revise its
previous and current historic absorption ratios. To revise its historic absorption ratios,
the taxpayer must apply its proposed method of accounting during the test period,
during all recomputation years, and during all updated test periods to determine the
§ 471 costs and additional § 263A costs that were incurred. The revised historic
absorption ratios must be used to revalue beginning inventory and must be accounted
for in the taxpayer's § 481(a) adjustment. The taxpayer must use a method described
in § 1.263A-7(c) to revalue beginning inventory.
(3) Concurrent automatic changes. A taxpayer making a change under this
section 12.10 and one or more automatic changes in method of accounting under
§ 263A for the same year of change may file a single Form 3115 for all changes,
provided the taxpayer enters the designated automatic change numbers for all changes
on the appropriate line on the Form 3115 and complies with the ordering rules of
§ 1.263A–7(b)(2). See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on
making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for changes in method of
accounting under this section 12.10 is "201."
(5) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method.

(1) Description of change. This change, as described in Rev. Proc. 2014-33,
2014-22 I.R.B. 1060, applies to a taxpayer that wants to change its method of
accounting to no longer include cost adjustments for sales-based vendor chargebacks
described in § 1.471-3(e)(1) in the formulas used to allocate additional § 263A costs to
ending inventory under a simplified method.
(2) Limitations.
(a) A taxpayer making this change that uses a simplified method to
determine the additional § 263A costs allocable to inventory property on hand at year
end must remove sales-based vendor chargebacks from the formulas used to allocate
additional § 263A costs to ending inventory in the same manner that the taxpayer
included these amounts in the formulas.
(b) A taxpayer making a change in method of accounting under this
section 12.11 that uses a simplified method with a historic absorption ratio election (see
§§ 1.263A-2(b)(4) and 1.263A-3(d)(4)) and currently includes sales-based vendor
chargebacks in any part of its historic absorption ratio must revise its previous and
current historic absorption ratio(s). To revise its historic absorption ratios, the taxpayer
must apply its proposed method of accounting during the test period, during all
recomputation years, and during all updated test periods to determine the § 471 costs
and additional § 263A costs that were incurred. The revised historic absorption ratios
must be used to revalue beginning inventory and must be accounted for in the
taxpayer's § 481(a) adjustment. The taxpayer must use a method described in
§ 1.263A-7(c) to revalue beginning inventory.
(3) Concurrent automatic changes. A taxpayer making both this change and
one or more automatic changes under § 263A, or both this change and the change

described in section 21.15 of this revenue procedure for the same taxable year of
change may file a single Form 3115 for both changes, provided the taxpayer enters the
designated automatic change numbers for all changes on the appropriate line on the
Form 3115 and complies with the ordering rules of § 1.263A-7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for changes in method of
accounting under this section 12.11 is "202."
(5) Contact information. For further information regarding a change under
this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number).
.12 U.S. ratio method.
(1) Change to the U.S. ratio method.
(a) Description of change. This change applies to a foreign person, as
defined in Notice 88-104, 1988-2 C.B. 443, as modified by Notice 89-67, 1989-1 C.B.
723, that is required to capitalize costs under § 263A and wants to change its method of
accounting to the U.S. ratio method, as described in Notice 88-104.
(b) Manner of making change. A taxpayer requesting a change on
behalf of a foreign person under section 12.12(1) of this revenue procedure must make
the change in accordance with the requirements set forth in section 12.12(1)(c) of this
revenue procedure, and must attach a statement to the Form 3115 providing the
following information:
(i) Foreign person requirement. A representation that the foreign
person is a qualified business unit (QBU), as defined in § 1.989(a)-1(b), of a foreign
person, or the foreign branch of a U.S. person that constitutes a separate QBU, within

the meaning of Notice 88-104. If the taxpayer is requesting a change in method of
accounting on behalf of multiple foreign persons, please provide a representation that
each foreign person is a QBU, as defined in § 1.989(a)-1(b), of a foreign person or the
foreign branch of a U.S. person that constitutes a separate QBU, within the meaning of
Notice 88-104;
(ii) Description of trade or business. The name and employer
identification number (if applicable) for each foreign person and an explanation of each
trade or business, as defined in § 1.446-1(d), for which a request to change to the U.S.
ratio method is being made under this section 12.12(1);
(iii) Applicable U.S. trade or business requirement. The identity of
the "applicable U.S. trade or business," as defined in Notice 88-104, that the foreign
person wishes to use and an explanation of how this U.S. trade or business is "the
same as, or most similar to" the trade or business conducted by the foreign person. If
the taxpayer is requesting a change in method of accounting for multiple foreign
persons, the taxpayer must identify the "applicable U.S. trade or business" for each
foreign person, and explain how the respective U.S. trade or business is "the same as,
or most similar to" the trade or business conducted by the foreign person; and
(iv) Relationship requirement. An explanation of how the "applicable
U.S. trade or business" identified in section 12.12(1)(b)(iii) of this revenue procedure is
a trade or business conducted in the United States by a "related person," as defined in
Notice 88-104, with respect to the foreign person requesting a change under this
section. If the taxpayer is requesting a change in method of accounting for multiple
foreign persons, the taxpayer must explain how the "applicable U.S. trade or business"
identified in section 12.12(1)(b)(iii) of this revenue procedure is a trade or business

conducted in the United States by a "related person" for purposes of Notice 88-104 for
each foreign person requesting a change in method of accounting. Use § 267(b) or
§ 707(b), as applicable, to explain the relationship.
(c) Additional requirements.
(i) A foreign person must continue to use the U.S. ratio of the
applicable U.S. trade or business identified in section 12.12(1)(b)(iii) of this revenue
procedure unless consent of the Commissioner is obtained to use the U.S. ratio of a
different applicable U.S. trade or business under § 446(e) (see section 12.12(2) of this
revenue procedure);
(ii) In the case of a controlled foreign corporation, the controlling U.S.
shareholder, or in the case of a foreign branch of a U.S. person, the U.S. person, must
maintain records of the U.S. ratio used by each foreign person to calculate the
additional § 263A costs capitalized to property produced and property acquired for
resale for the year of change and for subsequent taxable years for each foreign person
requesting a change in method of accounting under this section 12.12. In the case of a
controlled foreign partnership, the U.S. partner must maintain records of the U.S. ratio
used by each foreign person to calculate the additional § 263A costs capitalized to
property produced and property acquired for resale for the year of change and for
subsequent taxable years for each foreign person requesting a change in method of
accounting under this section 12.12(1).
(iii) The § 481(a) adjustment is computed in the manner provided in
Notice 88-104;

(iv) The U.S. ratio is determined, and the ratio is applied to the costs
of property produced or property acquired for resale incurred by the foreign person, in
accordance with Notice 88-104; and
(v) If any foreign person is unable to obtain a U.S. ratio from the
applicable U.S. trade or business identified in section 12.12(1)(b)(iii) of this revenue
procedure, or is otherwise no longer eligible to use the U.S. ratio method, the foreign
person is no longer permitted to use the U.S. ratio method. However, the foreign
person is not ineligible to use the U.S. ratio method if the foreign person is able to
obtain a U.S. ratio from a different applicable U.S. trade or business, and changes the
applicable U.S. trade or business pursuant to section 12.12(2) of this revenue
procedure or under the non-automatic change procedures of this revenue procedure, as
applicable. If a foreign person is no longer eligible to use the U.S. ratio method, it is
required to change its method of accounting to a method that complies with §§ 263A
and 471 using either the automatic change procedures of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, and sections 12.01, 12.02, or 12.08, as applicable, of this revenue procedure
or the non-automatic change procedures of Rev. Proc. 2015-13.
(2) Change within U.S. ratio method. This change applies to a foreign
person currently using the U.S. ratio method that wants to use the U.S. ratio of a
different applicable U.S. trade or business for purposes of applying the U.S. ratio
method as described in section 12.12(2)(a) or 12.12(2)(b) of this revenue procedure.
(a) Required change in the applicable U.S. trade or business.
(i) In general. A foreign person is permitted to change its method of
accounting under this section 12.12(2)(a) to use the U.S. ratio of a different applicable
U.S. trade or business, as defined in Notice 88-104, if the foreign person is no longer

able to obtain the U.S. ratio from the applicable U.S. trade or business previously
identified and if: (A) the U.S. person or related person in which the applicable U.S. trade
or business is conducted terminates its existence; (B) the foreign person is no longer
related, within the meaning of § 267(b) or § 707(b), to the U.S. person or related person
in which the applicable U.S. trade or business is conducted; or (C) the U.S. person or
related person ceases to conduct the applicable U.S. trade or business.
(ii) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not apply to the change described in section
12.12(2)(a) of this revenue procedure.
(iii) Manner of making change. A foreign person making a change in
method of accounting under this section 12.12(2)(a) must make the change in
accordance with the requirements set forth in section 12.12(2)(c) and (d) of this revenue
procedure.
(b) Other changes in the applicable U.S. trade or business.
(i) In general. If the foreign person cannot make the change in
method of accounting described in section 12.12(2)(a) of this revenue procedure, or
there is more than one U.S. trade or business that can reasonably be considered the
"same as, or most similar to" the foreign person's trade or business, the foreign person
is permitted to change its method of accounting under this section 12.12(2)(b) to use the
U.S. ratio of a different applicable U.S. trade or business.
(ii) Manner of making change. A foreign person making a change in
method of accounting under this section 12.12(2)(b) must make the change in
accordance with the requirements set forth in section 12.12(2)(c) and (d) of this revenue
procedure.

(c) Section 481(a) adjustment. The § 481(a) adjustment is computed in
the manner provided in Notice 88-104.
(d) Short Form 3115 in lieu of a standard Form 3115. In accordance with
§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is
waived and pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is
authorized for a change described in section 12.12(2)(a) or 12.12(2)(b) of this revenue
procedure. The short Form 3115 (Rev. December 2022) must include the following
information:
(i) the identification section of page 1 (above Part I);
(ii) the signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) Part IV, all lines except Line 25;
(v) the information required under section 12.12(1)(b) of this revenue
procedure; and
(vi) a statement that the change in method of accounting is made
under section 12.12(2)(a) or 12.12(2)(b) of Rev. Proc. 2025-23, as applicable.
(3) Designated automatic accounting method change numbers. The
designated automatic accounting method change number for a change under this
section 12.12 is "214."
(4) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.13 Depletion.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for depletion to treat these amounts as an indirect cost

that is only properly allocable to property that has been sold (that is, for purposes of
determining gain or loss on the sale of the property) under § 1.263A-1(e)(3)(ii)(J).
(2) Limitation.
(a) A taxpayer making this change in method of accounting that uses a
simplified method to determine the additional § 263A costs allocable to inventory
property on hand at year end must remove depletion allocated to cost of goods sold
from the formulas used to allocate additional § 263A costs to ending inventory in the
same manner that the taxpayer included these amounts in the formulas.
(b) A taxpayer making this change in method of accounting that uses a
simplified method with a historic absorption ratio election (see §§ 1.263A-2(b)(4) and
1.263A-3(d)(4)) and currently includes depletion in any part of its historic absorption
ratio must revise its previous and current historic absorption ratios. To revise its historic
absorption ratios, the taxpayer must apply its proposed method of accounting during the
test period, during all recomputation years, and during all updated test periods to
determine the § 471 costs and additional § 263A costs that were incurred. The revised
historic absorption ratios must be used to revalue beginning inventory and must be
accounted for in the taxpayer's § 481(a) adjustment. The taxpayer must use a method
described in § 1.263A-7(c) to revalue beginning inventory.
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.
(4) Concurrent automatic changes. A taxpayer making both this change and
another automatic change under § 263A for the same year of change may file a single
Form 3115 for both changes, provided the taxpayer enters the designated automatic
change numbers for both changes on the appropriate line on that Form 3115 and

complies with the ordering rules of § 1.263A–7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making concurrent changes.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change in method of
accounting under this section 12.13 is "215."
(6) Contact information. For further information regarding a change under
this section, contact Michael Supanick at (202) 317-7007 (not a toll-free number).
.14 Interest capitalization.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
its method of accounting for interest from not capitalizing any interest, capitalizing
interest in accordance with its method of accounting for financial reporting purposes, or
applying an improper method of capitalizing interest under §§ 1.263A-8 through -14,
with respect to the production of designated property, to capitalizing interest with
respect to the production of designated property in accordance with §§ 1.263A-8
through -14.
(b) Inapplicability. This change does not apply to a taxpayer that wants
to change its method of accounting for interest to apply either: (1) current §§ 1.263A-
11(e)(1)(ii) and (iii); or (2) proposed §§ 1.263A-8(d)(3) and 1.263A-11(e) and (f) (REG-
133850-13), as published on May 15, 2024 (89 FR 42404) and corrected on July 24,
2024 (89 FR 59864).
(2) Manner of making change. A taxpayer requesting a change under this
section 12.14 must attach a statement to the Form 3115 with the following information:
(a) Representations as to the following:

(i) The taxpayer's method is in accordance with the avoided cost
method under § 1.263A-9; and
(ii) The taxpayer will comply with § 1.263A-14 and Notice 88-99,
1988-2 C.B. 422, should the taxpayer incur average excess expenditures allocable to
related persons; and
(b) Details with respect to the taxpayer's sub-methods of accounting for
determining capitalizable interest in accordance with §§ 1.263A-8 through -14 (for
example, whether the taxpayer elects to not trace debt under § 1.263A-9(d); the
computation period(s) used under the new method; and whether the taxpayer will
suspend the capitalization of interest for units of property for which production has
ceased for at least 120 consecutive days as determined under § 1.263A-12(g)).
(3) Concurrent automatic changes. A taxpayer making a change under this
section 12.14 and one or more automatic changes in method of accounting under
§ 263A for the same year of change may file a single Form 3115 for all changes,
provided the taxpayer enters the designated automatic change numbers for all changes
on the appropriate line on the Form 3115 and complies with the ordering rules of
§ 1.263A-7(b)(2). See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on
making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change in method of
accounting under this section 12.14 is "224."
(5) Contact information. For further information regarding a change under
this section, contact Max Fishman at (202) 317-7007 (not a toll-free number).

.15 Change to not apply § 263A to replanting costs for lost or damaged citrus
plants pursuant to § 263A(d)(2)(C).
(1) Description of change.
(a) In general. This change, as described in Rev. Proc. 2018-35, 2018-
28 I.R.B. 204, applies to a taxpayer, other than the owner described in § 263A(d)(2)(A),
that: (i) paid or incurred replanting costs of citrus plants after the loss or damage of
citrus plants by reason of freezing temperatures, disease, drought, pests, or casualty,
as described in § 263A(d)(2)(A); (ii) paid or incurred the replanting costs after December
22, 2017, and on or before December 22, 2027; (iii) satisfies the ownership test
provided in section 12.15(1)(b) of this revenue procedure; and (iv) wants to change its
method of accounting from applying § 263A to citrus plant replanting costs to not
applying § 263A to those costs, pursuant to § 263A(d)(2)(C).
(b) Ownership test. The taxpayer satisfies the ownership test if either:
(i) the owner described in § 263A(d)(2)(A) has an equity interest of not less than 50
percent in the replanted citrus plants at all times during the taxable year in which the
taxpayer paid or incurred amounts for replanting costs, and the taxpayer holds any part
of the remaining equity interest; or (ii) the taxpayer acquired the entirety of the equity
interest of the owner described in § 263A(d)(2)(A) in the land on which the lost or
damaged citrus plants were located at the time of the loss or damage, and the
replanting is on such land.
(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(3) Section 481(a) adjustment. A taxpayer making a change under this
section 12.15 calculates a § 481(a) adjustment by taking into account only amounts
paid or incurred after December 22, 2017, and on or before December 22, 2027.
(4) Multiple changes. A taxpayer making both this change and another
change in method of accounting in the same year of change must comply with the
ordering rules of § 1.263A-7(b)(2).
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.15 is "232."
(6) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.16 Small business taxpayer exception from requirement to capitalize costs under
§ 263A.
(1) Description of change. This change applies to a small business taxpayer,
as defined in section 12.01(3)(h) of this revenue procedure, that chooses to no longer
capitalize costs under § 263A, including for self-constructed assets, pursuant to
§ 263A(i) and § 1.263A-1(j).
(2) Inapplicability.
(a) Home construction contracts. This change does not apply to a
taxpayer not required by § 460(e)(1) to capitalize costs under § 263A for home
construction contracts, and that wants to make a change to no longer capitalize costs
under section 263A. See section 19.01 of this revenue procedure to make this change.
(b) Election under § 263A(d)(3). This change does not apply to a small
business taxpayer, as defined in section 12.01(3)(h) of this revenue procedure, that

elected under § 263A(d)(3) not to have § 263A apply to certain plants produced by the
taxpayer in a farming business and wants to revoke its § 263A(d)(3) election and
change to a method of accounting that no longer capitalizes costs under § 263A. But
see Rev. Proc. 2020-13, 2020-11 I.R.B. 511.
(3) Eligibility rule inapplicable. For a change described in section 12.16(1) of
this revenue procedure, if the taxpayer changed from not capitalizing costs under
§ 263A in accordance with § 263A(i) and § 1.263A-1(j) to capitalizing costs under
§ 263A and the accompanying regulations within the prior five taxable years ending with
the year of change, and such change was made in the first taxable year that the
taxpayer did not qualify as a small business taxpayer, then such change is disregarded
for purposes of section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419.
(4) Reduced filing requirement. A taxpayer is required to complete only the
following information on Form 3115 (Rev. December 2022) to make this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except line 16; and
(e) Part IV, all lines except line 25.
(5) Acceleration of § 481 adjustment. If a taxpayer making a change
described in section 12.16(1) of this revenue procedure has a § 481(a) adjustment
remaining on a prior change in method of accounting from not capitalizing costs under
§ 263A in accordance with § 263A(i) and § 1.263A-1(j) to capitalizing costs under
§ 263A and the accompanying regulations, then it must take the remaining portion of
such prior § 481(a) adjustment into account in the year of change.

(6) Concurrent automatic changes. A small business taxpayer making a
change under this section 12.16 and a change under sections 15.17, 22.18 and/or
22.19 of this revenue procedure for the same year of change may file a single Form
3115 for such changes, provided the taxpayer enters the designated automatic
accounting method change number for each change on the appropriate line of the Form
3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes.
(7) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.16 is "234."
(8) Contact information. For further information regarding a change under
this section, contact Max Fishman at (202) 317-7007 (not a toll-free number).
.17 Recharacterizing costs under the simplified resale method, simplified
production method, or the modified simplified production method.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that uses or is
changing to the simplified production method, the modified simplified production
method, or the simplified resale method under §§ 1.263A-2(b), 1.263A-2(c), and
1.263A-3(d), respectively, and that wants to recharacterize a section 471 cost, as
defined in § 1.263A-1(d)(2), as an additional section 263A cost, as defined in § 1.263A-
1(d)(3), or vice versa, in accordance with the characterization requirements of § 1.263A-
1(d)(2) and (d)(3). For example, this change applies to a taxpayer using the modified
simplified production method that treats a direct cost of property produced or property

acquired for resale as an additional section 263A cost and that wants to change to
characterize the direct cost as a section 471 cost, as required by § 1.263A-1(d)(2)(ii).
(b) Inapplicability. This change does not apply to a change in method of
accounting that is described in another section of this revenue procedure or in other
guidance published in the Internal Revenue Bulletin. For example, this change does not
apply to a taxpayer that wants to make a change described in section 12.01 or 12.02 of
this revenue procedure, such as a change to use the methods described in § 1.263A-
1(d)(2)(iv), (v), or (vi), § 1.263A-2(b), § 1.263A-2(c), or § 1.263A-3(d).
(2) Restatement of financial statement. A taxpayer's restatement of its
financial statement does not invalidate the taxpayer's method of accounting or change
its determination of section 471 costs in earlier taxable years.
(3) Reduced filing requirement. A taxpayer is required to complete only the
following information on Form 3115 (Rev. December 2022) to make this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b, 16c, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule D, all Parts except Part I.
(4) Limitation. If a taxpayer making this change in method of accounting
uses a historic absorption ratio election under §§ 1.263A-2(b)(4), 1.263A-2(c)(4), or
1.263A-3(d)(4), and the change in the characterization of cost(s) under this section
12.17 affects any part of the taxpayer's historic absorption ratio, the taxpayer must
revise its previous and current historic absorption ratios. To revise its historic

absorption ratios, the taxpayer must apply its proposed method of accounting during the
test period, during all recomputation years, and during all updated test periods to
determine the section 471 costs and additional section 263A costs that were incurred.
The revised historic absorption ratios must be used to revalue beginning inventory and
must be accounted for in the taxpayer's § 481(a) adjustment. The taxpayer must use a
method described in § 1.263A-7(c) to revalue beginning inventory.
(5) Concurrent automatic changes. A taxpayer making both this change and
another automatic change under § 263A for the same year of change may file a single
Form 3115 for both changes, provided the taxpayer enters the designated automatic
change numbers for both changes on the appropriate line of that Form 3115 and
complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making concurrent changes.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 12.17 is "237."
(7) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

# SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO

TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)
.01 Change to comply with § 267.
(1) Description of change. This change applies to a taxpayer that wants to
change its method or methods of accounting to comply with the requirements of § 267,
and, to clarify, this change also applies to a taxpayer that, by reason of the exception in
§ 1.267(a)-3(c)(4), wants to change its method of accounting with respect to the

deduction of amounts owed to a controlled foreign corporation (as defined in § 957)
(CFC) that does not have any United States shareholders (as defined in § 951(b))
owning stock of the CFC within the meaning of § 958(a). However, this change does
not apply to a change for original issue discount (OID), including stated interest that is
OID because it is not qualified stated interest (as defined in § 1.1273-1(c)). See section
5.02 of this revenue procedure for a change to comply with § 163(e)(3) for OID on an
obligation held by a related foreign person.
(2) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(e) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change
to comply with § 267(a)(3), including a change by reason of the exception in § 1.267(a)-
3(c)(4).
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 13.01 is "26."
(4) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number). For further
information regarding a change to comply with § 267(a)(3), contact Dylan Steiner at
(202) 317-6934 (not a toll-free number).
SECTION 14. DEFERRED COMPENSATION (§ 404)
.01 Deferred compensation.
(1) Description of change. This change applies to a taxpayer using an
overall accrual method of accounting that wants to change its method of accounting to
treat bonuses or vacation pay as follows (see § 404(a)(5) and § 1.404(b)-1T, Q&A 2):
(a) Applicability.

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

calendar month after the end of that taxable year, to treat the vacation pay as deductible
in the taxable year of the employer in which the vacation pay is paid to the employee; or
(B) Vacation pay that is subject to capitalization under § 263A. If
by the end of the taxable year all the events have occurred that establish the fact of the
liability to pay vacation pay and the amount of the liability can be determined with
reasonable accuracy (see § 1.446-1(c)(1)(ii)), and the vacation pay is otherwise
deductible (without regard to § 263A), but the vacation pay is received by the employee
after the 15th day of the 3rd calendar month after the end of that taxable year, to treat the
vacation pay as capitalizable (within the meaning of § 1.263A-1(c)(3)) in the taxable
year of the employer in which the vacation pay is paid to the employee.
(b) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 14.01 if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 14.01 is "28."
(3) Contact information. For further information regarding a change under
this section, contact Thomas Scholz at (202) 317-5600 (not a toll-free number).
.02 Grace period contributions.

(1) Description of change. This change applies to a taxpayer that wants to
cease deducting contributions made during the § 404(a)(6) grace period to a qualified
cash or deferred arrangement within the meaning of § 401(k) or to a defined
contribution plan as matching contributions with the meaning of § 401(m) when the
contributions are attributable to compensation earned by plan participants after the end
of a taxable year as required by Rev. Rul. 2002-46, 2002-2 C.B. 117, as modified by
Rev. Rul. 2002-73, 2002-2 C.B. 805.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 14.02 is "29."
(3) Contact information. For further information regarding a change under
this section, contact Jeremy Lamb at 202-317-6799 (not toll-free numbers).
SECTION 15. METHODS OF ACCOUNTING (§ 446)
.01 Change in overall method from the cash method, or from an accrual method
with regard to purchases and sales of inventories and the cash method for all other
items, to an accrual method.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to change
its overall method of accounting from the cash receipts and disbursements method
(cash method), or from an accrual method with regard to purchases and sales of
inventories and the cash method for computing all other items of income and expense,
to an accrual method. A change under this section 15.01 applies to (1) a taxpayer
required to make this change by § 448, any other section of the Code or regulations, or
in other guidance published in the Internal Revenue Bulletin (IRB), and (2) a taxpayer

that wants to make this change but is not required to do so by § 448, any other section
of the Code or regulations, or in other guidance published in the IRB. A taxpayer
changing its overall method of accounting to an accrual method because it is prohibited
from using the cash method under § 448 may use this section 15.01 regardless of
whether the year of change is the first taxable year that the taxpayer is required by
§ 448 to change from the cash method, as defined in § 1.448-2(g)(1) ("mandatory § 448
year"), or a taxable year other than the taxpayer's mandatory § 448 year. Similarly, a
taxpayer changing its overall method of accounting to an accrual method because it is
prohibited from using the cash method under § 447 may use this section 15.01
regardless of whether the year of change is the first taxable year that the taxpayer is
required by § 447 to change from the cash method or a subsequent taxable year in
which the taxpayer is newly subject to § 447 after previously making a change in
method of accounting that complies with § 447 ("mandatory § 447 year"), or a taxable
year other than a mandatory § 447 year, as applicable.
Additionally, a taxpayer qualifies to change its overall method of accounting to an
accrual method using this section 15.01 even if the taxpayer is also making one or more
of the following changes in method of accounting for the same year of change:
(i) adopting the recurring item exception, as defined in section
15.01(2)(c) of this revenue procedure, for one or more types of recurring items. See
§ 1.461-5(d);
(ii) adopting or changing to a permissible inventory method of
accounting and is either adopting this inventory method or qualifies to change to this
inventory method using the automatic change procedures of Rev. Proc. 2015-13, 2015-
5 I.R.B. 419, and a section of this revenue procedure, or the change can be made

automatically under any section of the Code or regulations, or other guidance published
in the IRB. See Rev. Rul. 90-38, 1990-1 C.B. 57, regarding when a taxpayer may adopt
a method of accounting;
(iii) adopting or changing to a permissible § 263A method of
accounting and is either adopting this § 263A method or qualifies to change to this
§ 263A method using the automatic change procedures of Rev. Proc. 2015-13 and a
section of this revenue procedure, or the change can be made automatically under any
section of the Code or regulations, or other guidance published in the IRB. See Rev.
Rul. 90-38 regarding when a taxpayer may adopt a method of accounting; or
(iv) adopting or changing to any other special method of accounting
(as defined in section 15.01(2)(d) of this revenue procedure) and is either adopting this
special method or qualifies to change to this special method using the automatic change
procedures of Rev. Proc. 2015-13 and a section of this revenue procedure, or the
change can be made automatically under any section of the Code or regulations, or
other guidance published in the IRB. See Rev. Rul. 90-38 regarding when a taxpayer
may adopt a method of accounting.
Also, a taxpayer qualifies to use this section 15.01 when that taxpayer, in the
taxable year immediately preceding the year of change, has used a permissible
inventory method for that year, and, if that taxpayer was subject to § 263A for that year,
has also used a permissible § 263A method for that year, and the method(s) continue to
be used for the year of change.
Lastly, a taxpayer with an applicable financial statement (AFS), as defined in
§ 1.451-3(a)(5), that is changing its overall method of accounting to an accrual method
qualifies to use this section 15.01 to comply with § 1.451-3.

(b) Inapplicability. This change does not apply to:
(i) a taxpayer that uses any combination of the cash method and an
accrual method as its present overall method of accounting other than an accrual
method with respect to purchases and sales of inventories and the cash method for
computing all other items of income and expense;
(ii) a taxpayer that is changing its method of accounting for one or
more items of income or expense, but not its overall method of accounting. See section
15.09 of this revenue procedure for a description of accounting method changes from
the cash method to an accrual method for specific items that are to be made using the
automatic change procedures of Rev. Proc. 2015-13 and that section;
(iii) a taxpayer that is required by the Code, regulations, or other
guidance published in the IRB to use a special method such as, for example, an
inventory method, a § 263A method, or a long-term contract method, in the year of
change and fails to adopt or change to that method;
(iv) a taxpayer that has included in its § 481(a) adjustment any
amount of deferred compensation that is described under § 457A(d)(3) that is
attributable to services performed before January 1, 2009;
(v) a taxpayer that is engaged in two or more trades or businesses,
unless that taxpayer makes this change for each trade or business so that the identical
accrual method is used for each trade or business beginning with the year of change;
(vi) a cooperative organization described in §§ 501(c)(12), 521, or
1381;
(vii) an individual taxpayer, except for activities conducted as a sole
proprietorship;

(viii) a taxpayer with an AFS that wants to make a change in method
of accounting for allocating transaction price between an item of gross income that is
subject to § 451 and an item of gross income that is subject to a special method of
accounting, as defined in § 1.451-3(a)(14), including a change to comply with the
transaction price allocation rules in § 1.451-3(d)(5);
(ix) a taxpayer with an AFS that wants to change to use the AFS cost
offset method, as defined in § 1.451-3(c), if the taxpayer receives advance payments
from the sale of inventory and does not also make a concurrent change to apply the
advance payment cost offset method, as defined in § 1.451-8(e), for the same year of
change by using section 16.08 of this revenue procedure, or a taxpayer with an AFS
that wants to change to use the advance payment cost offset method if the taxpayer is
required to include gross income from the sale of inventory under § 1.451-3 and does
not also make a change to apply the AFS cost offset method;
(x) a taxpayer with an AFS that wants to make a change in method
of accounting for specified fees as defined in § 1.451-3(j)(2), other than specified credit
card fees; or
(xi) a taxpayer that wants to make a change in method of accounting
for payments within the scope of the specified good exception, as defined in
§ 1.451-8(a)(1)(ii), if the proposed method of accounting is to include such payments in
gross income under § 1.451-3 in one or more taxable years following the taxable year of
receipt.
(2) Definitions.
(a) Cash method. The cash method is the method of accounting
identified by § 446(c)(1) and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1). See

also § 1.61-4(a) for specific rules relating to farmers' income; § 1.162-12, in part, for
specific rules relating to farmers' expenses.
(b) Accrual method. An accrual method is a method of accounting
identified by § 446(c)(2) and §§ 1.446-1(c)(1)(ii), 1.451-1(a), 1.451-3, and 1.461-1(a)(2).
For a taxable year beginning after December 31, 2017, for which the taxpayer has an
AFS, the all events test under § 451(b)(1)(C) and § 1.451-1(a) for any item of gross
income, or portion thereof, is met no later than when that item, or portion thereof, is
taken into account as AFS revenue. See § 451(b)(1) and § 1.451-3(b).
(c) Recurring item exception. The recurring item exception is the method
described in § 461(h)(3) and § 1.461-5.
(d) Special method of accounting. A special method of accounting within
the meaning of this section 15.01 is a method of accounting, other than the cash
method, expressly permitted or required by the Code, regulations, or in other guidance
published in the IRB, that deviates from the tax accrual accounting rules of §§ 446, 451,
461, and the regulations thereunder. For purposes of this section 15.01, a deferral
method under § 451(c) and the regulations thereunder is deemed to be a special
method of accounting. Examples of special methods of accounting include the
installment method of accounting under § 453, the mark-to-market method under § 475,
a long-term contract method under § 460, and the crop method under § 1.162-12. In
contrast, application of the all-events test under a specific set of facts is not a special
method of accounting. See, for example, Rev. Rul. 69-314, 1969-1 C.B. 139
concerning the treatment of retainages.
(3) Manner of making change.

(a) Section 481(a) adjustment. A taxpayer changing its overall method of
accounting under this section 15.01 must compute a § 481(a) adjustment. This
adjustment must reflect the account receivables, account payables, inventory, and any
other item determined to be necessary in order to prevent items from being duplicated
or omitted. However, the adjustment does not include any item of income accrued but
not received that was worthless or partially worthless, within the meaning of § 166(a),
on the last day of the year immediately prior to the year of change.
(b) Change to comply with § 1.451-3. A taxpayer that uses section
15.01(1)(a) of this revenue procedure to comply with § 1.451-3 must also complete Line
3 of Schedule B of Form 3115, Application for Change in Accounting Method (Rev.
December 2022).
(c) Adoption of recurring item exception. The taxpayer must attach to its
Form 3115 a statement describing the types of liabilities for which the recurring item
exception will be used.
(d) Concurrent automatic change to a special method.
(i) Generally only one Form 3115 required. Except as provided in
section 15.01(3)(d)(ii) of this revenue procedure, a taxpayer that is changing its overall
method of accounting to an accrual method under this section 15.01 and changing to
one or more special methods, as permitted under section 15.01(1)(a)(ii), (iii), or (iv) of
this revenue procedure, must timely file a single Form 3115 for all changes and must
enter the designated automatic accounting method change numbers for all changes on
the appropriate line of Form 3115. For example, a taxpayer making both an overall
change in method of accounting from the cash method to an accrual method under this
section 15.01 and a change to the deferral method for advance payments under section

16.08 of this revenue procedure must timely file a single Form 3115 for both changes
and enter the designated automatic accounting method change numbers for both
changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making concurrent changes.
(ii) Two Forms 3115 required when a concurrent change is being
implemented under section 32.01 of this revenue procedure for short-term obligations.
When a taxpayer subject to § 1281 is changing its method of accounting for interest
income on short-term obligations as part of the overall change in method of accounting
to an accrual method under this section 15.01, that taxpayer must request the change
for the interest income under section 32.01 of this revenue procedure. The taxpayer
must timely file individual Forms 3115 for each change requested. This section 15.01
will govern the overall change in method of accounting to an accrual method.
(e) Concurrent change in accounting method not permitted to be
implemented using the automatic change procedures of Rev. Proc. 2015-13 and a
section of this revenue procedure, any section of the Code or regulations, or other
guidance published in the IRB. A taxpayer that does not qualify to change its overall
method of accounting to an accrual method under this section 15.01 because that
taxpayer is concurrently changing to a method of accounting that may not be
implemented using the automatic change procedures of Rev. Proc. 2015-13 and a
section of this revenue procedure, any section of the Code or regulations, or other
guidance published in the IRB, must timely request both changes using the non-
automatic change procedures in Rev. Proc. 2015-13. See Rev. Proc. 2025-1, 2025-1
I.R.B. 1 (or successor), for more information on whether one Form 3115 is required to
request the changes, and for information on the appropriate user fee.

(4) Change made in the taxpayer's mandatory § 448 year. If the year of
change is a mandatory § 448 year, as defined in § 1.448-2(g)(1), such taxpayer makes
the change from the cash method to an accrual method under the provisions of this
section 15.01 and must comply with all the requirements and provisions of § 1.448-2(g),
in addition to the requirements and provisions of this section 15.01.
(5) Prior change eligibility rule inapplicable. For a taxpayer making a change
from the cash method in a mandatory § 448 year, a mandatory § 447 year, or in the first
taxable year it is required to use an accrual method for purchases and sales of
inventories as a result of becoming a former small business taxpayer, as defined in
section 12.01(3)(i) of this revenue procedure, and having to apply § 1.446-1(c)(2)(i), as
applicable, any prior change to the overall cash method is disregarded for purposes of
section 5.01(1)(e) of Rev. Proc. 2015-13.
(6) Designated automatic accounting method change number.
(a) Change made in the mandatory § 448 year. The designated
automatic accounting method change number for a change from the cash method to an
accrual method in the mandatory § 448 year is "257."
(b) Change made for a taxpayer subject to § 447. The designated
automatic accounting method change number for a change from the cash method to an
accrual method for a taxpayer subject to § 447 under this section 15.01 is "258."
(c) All other changes under this section 15.01. The designated
automatic accounting method change number for all other changes from the cash
method or from an accrual method with regard to purchases and sales of inventories
and the cash method for computing all other items of income and expense to an accrual
method under this section 15.01 is "122."

(7) Contact information. For further information regarding a change under
this section, contact Elizabeth Boone at 202-317-7007 (not a toll-free number).
.02 Multi-year insurance policies for multi-year service warranty contracts.
(1) Description of change.
(a) Applicability. This change applies to a manufacturer, wholesaler, or
retailer of motor vehicles or other durable consumer goods that wants to change its
method of accounting for insurance costs paid or incurred to insure its risks under multi-
year service warranty contracts to the method described in section 15.02(2) of this
revenue procedure. Multi-year service warranty contracts to which this change applies
include only those separately priced contracts sold by a manufacturer, wholesaler, or
retailer also selling the motor vehicles or other durable consumer goods underlying the
contracts (to the ultimate customer or to an intermediary). The classification of goods
as "durable consumer goods" for purposes of this change depends on the common
usage of the goods, rather than the purchaser's actual intended use of the goods.
(b) Inapplicability. This change does not apply to a taxpayer that covers
its risks under its multi-year service warranty contracts through arrangements not
constituting insurance.
(2) Description of method. If a taxpayer purchases a multi-year service
warranty insurance policy (in connection with its sale of multi-year service warranty
contracts to customers) by paying a lump-sum premium in advance, the taxpayer must
capitalize the amount paid or incurred and may only obtain deductions for that amount
by prorating (or amortizing) it over the life of the insurance policy (whether the cash
method or an accrual method of accounting is used to account for service warranty
transactions).

(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.02 is "31."
(4) Contact information. For further information regarding a change under
this section, contact David Sill at (202) 317-7011 (not a toll-free number).
.03 Nonaccrual-experience method.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that wants to make
one or more of the changes in method of accounting to, from, or within a nonaccrual-
experience (NAE) method of accounting that are described in sections 3.01(1) through
(5) of Rev. Proc. 2006-56, 2006-2 C.B. 1169, as modified by Rev. Proc. 2011-14, 2011-
4 I.R.B. 330, and as modified and amplified by Rev. Proc. 2011-46, 2011-42 I.R.B. 518.
(b) Inapplicability. This change does not apply to a taxpayer within the
scope of sections 3.01(6) through 3.01(8) of Rev. Proc. 2006-56, as modified and
amplified by Rev. Proc. 2011-46.
(2) Manner of making the change.
(a) Changes made with a § 481(a) adjustment. A change in method of
accounting described in section 3.01(1), (2), (3), or (5) of Rev. Proc. 2006-56, as
modified and amplified by Rev. Proc. 2011-46, is made with a § 481(a) adjustment.
(b) Changes made on a cut-off basis.
(i) In general. A change described in section 3.01(4) of Rev. Proc.
2006-56 is made on a cut-off basis and the new applicable period applies only to the
taxpayer's NAE calculation of its uncollectible amount for the year of change and for
subsequent years. Moreover, a change described in sections 5.02 and 5.03 of Rev.

Proc. 2011-46 is made on a cut-off basis and the proposed method applies only to
accounts receivable earned on or after the first day of the year of change. Accordingly,
a § 481(a) adjustment is neither permitted nor required for a change described in
section 3.01(4) of Rev. Proc. 2006-56 or in section 5.02 or 5.03 of Rev. Proc. 2011-46.
(ii) Special filing rules for changes made under section 5.02 and 5.03
of Rev. Proc. 2011-46, as modified by this revenue procedure.
(A) Certain eligibility rule inapplicable. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change
in method of accounting made under section 5.02 or 5.03 of Rev. Proc. 2011-46, as
modified by this revenue procedure.
(B) Filing rules. In accordance with § 1.446-1(e)(3)(ii), the
requirement of § 1.446-1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of
a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015-13, the statement in lieu of a Form 3115 that is
permitted under section 5.02 or 5.03 of Rev. Proc. 2011-46 and this section 15.03 is
considered a Form 3115 for purposes of the automatic change procedures of Rev. Proc.
2015-13. However, the requirement to file the duplicate copy, under section 6.03(1)(a)
of Rev. Proc. 2015-13, is waived. See section 5.02 or 5.03 of Rev. Proc. 2011-46, as
applicable, for what information is required to be provided on the statement.
(3) Concurrent change to overall accrual method and a NAE method of
accounting. A taxpayer making both an automatic change to, from, or within a NAE
method of accounting under this section 15.03 and an automatic change to an overall
accrual method under section 15.01 of this revenue procedure (whether or not it is the
taxpayer's mandatory § 448 year), must file a single Form 3115 for both changes. The

taxpayer must complete all applicable sections of Form 3115, including sections that
apply to the change to an overall accrual method and to the change to a NAE method,
and must enter the automatic accounting method change numbers for both changes on
Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making
concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to, from, or
within a NAE method of accounting under this section 15.03 is "35."
(5) Contact information. For further information regarding a change under
this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).
.04 Interest accruals on short-term consumer loans—Rule of 78's method.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting from the Rule of 78's method to the constant yield
method for stated interest (including stated interest that is original issue discount) on
short-term consumer loans described in Rev. Proc. 83-40, 1983-1 C.B. 774, which was
obsoleted by Rev. Proc. 97-37, 1997-2 C.B. 455.
(2) Background.
(a) A short-term consumer loan is described in Rev. Proc. 83-40,
provided:
(i) the loan is a self-amortizing loan that requires level payments, at
regular intervals at least annually, over a period not in excess of five years (with no
balloon payment at the end of the loan term); and

(ii) the loan agreement between the borrower and the lender
provides that interest is earned, or upon the prepayment of the loan interest is treated
as earned, in accordance with the Rule of 78's method.
(b) In general, the Rule of 78's method allocates interest over the term of
a loan based, in part, on the sum of the periods' digits for the term of the loan. See
Rev. Rul. 83-84, 1983-1 C.B. 97, for a description of the Rule of 78's method.
(c) In general, the constant yield method allocates interest and original
issue discount over the term of a loan based on a constant yield. See § 1.1272-1(b) for
a description of the constant yield method. The Rule of 78's method generally front-
loads interest as compared to the constant yield method.
(d) Rev. Proc. 83-40 was obsoleted because, under §§ 1.446-2 and
1.1272-1 (which were effective for debt instruments issued on or after April 4, 1994),
taxpayers generally must account for stated interest and original issue discount on a
debt instrument (loan) by using a constant yield method. As a result, the Rule of 78's
method is no longer an acceptable method of accounting for federal income tax
purposes.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.04 is "71."
(4) Contact information. For further information regarding a change under
this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).
.05 Film producer's treatment of certain creative property costs.
(1) Description of change. This change applies to a taxpayer that wants to
change the method of accounting for creative property costs to the safe harbor method

provided by section 5 of Rev. Proc. 2004-36, 2004-1 C.B. 1063. This safe harbor
method of accounting applies to a taxpayer engaged in the trade or business of film
production and to creative property costs (as defined in section 2.01 of Rev. Proc. 2004-
36) properly written off by the taxpayer under The American Institute of Certified Public
Accountants Statement of Position (SOP) 00-2, "Accounting for Producers or
Distributors of Film."
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.05 is "85."
(3) Contact information. For further information regarding a change under
this section, contact Christian Lagorio at (202) 317-7005 (not a toll-free number).
.06 Deduction of incentive payments to health care providers.
(1) Description of change. This change applies to a taxpayer that wants to
change to the method of accounting for provider incentive payments under which those
payments are included in discounted unpaid losses without regard to § 404, as provided
in Rev. Proc. 2004-41, 2004-2 C.B. 90. A payment by a taxpayer to a health care
provider is a "provider incentive payment," and thus eligible for this treatment, if (a) the
taxpayer is taxable as an insurance company under Part II of subchapter L; (b) the
payment is made pursuant to a written agreement the purpose of which is to encourage
participating health care providers to provide quality health care to the taxpayer's
subscribers in a cost-efficient manner; (c) the taxpayer's liability for the payment is
dependent on the attainment of one or more preestablished goals during a performance
period consisting of not more than 12 consecutive months; (d) the terms of the
arrangement pursuant to which the payment is made are established unilaterally by the

taxpayer, and are not negotiated with the health care providers; (e) the taxpayer
normally makes payments to health care providers under the arrangement within 12
months after the close of the performance period; (f) deferring the receipt of income by
the health care provider or otherwise providing a tax benefit to the provider is not a
principal purpose of the arrangement; (g) the taxpayer records a liability for the payment
on its annual statement filed for state regulatory purposes, and includes this liability in
the determination of discounted unpaid losses under § 846; and (h) the health care
provider is not an employee, and is not providing health care as an agent, of the
taxpayer. See Rev. Proc. 2004-41.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.06 is "90."
(3) Contact information. For further information regarding a change under
this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).
.07 Change by bank for uncollected interest.
(1) Description of change. This change applies to a "bank" as defined in
§ 1.166-2(d)(4)(i) that: (a) uses an overall accrual method of accounting to determine its
taxable income for federal income tax purposes; (b) is subject to supervision by Federal
authorities, or by state authorities maintaining substantially equivalent standards; (c)
has uncollected interest other than interest described in § 1.446-2(a)(2); and (d) has six
or more years of collection experience. Under the safe harbor method of accounting
provided by section 4 of Rev. Proc. 2007-33, 2007-1 C.B. 1289, a bank determines for
each taxable year the amount of uncollected interest (other than interest described in
§ 1.446-2(a)(2)) for which it is considered to have a reasonable expectancy of payment

by multiplying: (a) the total accrued (determined under § 1.446-2) but uncollected
interest for the year, by (b) the bank's "recovery percentage" (determined under section
4.02 of Rev. Proc. 2007-33) for that year. Solely for purposes of this safe harbor, the
bank is not considered to have a reasonable expectancy of payment for the excess, if
any, of the accrued but uncollected interest over the expected collection amount
determined using the bank's recovery percentage. The bank includes in gross income
the portion of accrued but uncollected interest for which it has a reasonable expectancy
of payment. The bank excludes from income the portion of accrued but uncollected
interest for which it has no reasonable expectancy of payment.
(2) Recovery percentage. Subject to the limitations and conditions in Rev.
Proc. 2007-33, sections 4.02(2), (3), and (4), a bank determines its recovery percentage
for each taxable year by dividing: (a) total payments that the bank received on loans
(including principal and interest) during the 5 taxable years immediately preceding the
taxable year, by (b) total amounts that were due and payable to the bank on loans
during the same 5 taxable years. The recovery percentage cannot exceed 100 percent
and must be calculated to at least four decimal places. The data used in the recovery
percentage must take into account acquisitions and dispositions. If a bank acquires the
major portion of a trade or business of another person (predecessor) or the major
portion of a separate unit of a trade or business of a predecessor, then in applying Rev.
Proc. 2007-33 for any taxable year ending on or after the acquisition, the data from
preceding taxable years of the predecessor attributable to the portion of the trade or
business acquired, if available, must be used in determining the bank's recovery
percentage. If a bank disposes of a major portion of a trade or business or the major
portion of a separate unit of a trade or business, and the bank furnished the acquiring

person the information necessary for the computations required by Rev. Proc. 2007-33,
then in applying the revenue procedure for any taxable year ending on or after the
disposition, the data from preceding taxable years attributable to the disposed portion of
the trade or business may not be used in determining the bank's recovery percentage.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.07 is "108."
(4) Contact information. For further information regarding a change under
this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).
.08 Change from the cash method to an accrual method for specific items.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer that uses an overall
accrual method of accounting but has identified a specific item or items of income or
expense (or both) that are being accounted for on the cash method of accounting. This
change does not apply to a taxpayer that is changing its overall method of accounting to
an accrual method. Such a taxpayer may be eligible to change using section 15.01 of
this revenue procedure.
(b) Inapplicability. This change does not apply to:
(i) a taxpayer that presently uses an accrual method with respect to
purchases and sales of inventories and the cash method for all other items (but see
section 15.01 of this revenue procedure);
(ii) a taxpayer that will not have all items of income and expense on
an accrual method subsequent to the change under this section 15.08;

(iii) a cooperative organization described in § 501(c)(12), 521, or
1381;
(iv) an individual taxpayer, except for activities conducted as a sole
proprietorship;
(v) a taxpayer engaged in two or more trades or businesses, unless
the taxpayer makes this change so that the identical accrual method is used for each
such trade or business beginning with the year of change;
(vi) a change in method of accounting for any payment liability
described in § 1.461-4(g);
(vii) a change in the method of accounting for interest that is not
taken into account under § 1.446-2;
(viii) a taxpayer that has included in its § 481(a) adjustment any
amount of deferred compensation that is described under § 457A(d)(3) that is
attributable to services performed before January 1, 2009;
(ix) a change in the method of accounting for any foreign income tax
as defined in § 1.901-2(a); and
(x) any change that is specifically provided in another section of this
revenue procedure.
(2) Definitions.
(a) "Cash method of accounting" is the method identified by § 446(c)(1)
and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).
(b) "Accrual method of accounting" is the method identified by
§ 446(c)(2) and §§ 1.446-1(c)(1)(ii), 1.451-1(a), 1.451-3, and 1.461-1(a)(2). For a
taxable year beginning after December 31, 2017, for which the taxpayer has an AFS,

the all events test under § 451(b)(1)(C) and § 1.451-1(a) for any item of gross income,
or portion thereof, is met no later than when that item, or portion thereof, is taken into
account as AFS revenue. See § 451(b)(1) and § 1.451-3(b).
(3) Additional requirements. To change a method of accounting under this
section 15.08, a taxpayer must attach to its completed Form 3115 a full and complete
description of each specific item for which the change in method of accounting is being
made and how the accrual method of accounting applies to each item, and list the
§ 481(a) adjustment, if any, for each item associated with the change. The change is
fully and completely described if each income and expense item is described with
specificity and how the all-events test (and the economic performance requirement, if
applicable) applies to each item is described under the facts and circumstances of the
taxpayer's trade or business. For example, a taxpayer that merely states that it is
changing its accounting method for advertising expenses from the cash method to an
accrual method, recites the regulations under § 1.461-1(a)(2), and enters the associated
§ 481(a) adjustment has failed to describe fully and completely the specific item for
which the change in method of accounting is being made. In contrast, a taxpayer that
states that it is changing its method of accounting for print advertising expenses from
the cash method of accounting to an accrual method of accounting, describes all of the
relevant facts related to the print advertising expenses, and explains how the all-events
test applies to those facts and when economic performance occurs has fully and
completely described the item and the change. See section 6.03 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for additional filing requirements.

(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.08 is "124."
(5) Contact information. For further information regarding a change under
this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).
.09 Multi-year service warranty contracts.
(1) Description of change.
(a) Applicability. This change applies to a manufacturer, wholesaler, or
retailer of motor vehicles or other durable consumer goods that uses an overall accrual
method of accounting and wants to change to the service warranty income method
described in section 5 of Rev. Proc. 97-38, 1997-2 C.B. 479. Under the service
warranty income method, a qualifying taxpayer may, in certain specified and limited
circumstances, include a portion of an advance payment related to the sale of a multi-
year service warranty contract in gross income generally over the life of the service
warranty obligation.
(b) Inapplicability. This change does not apply to a taxpayer not within
the scope of Rev. Proc. 97-38.
(2) Manner of making change and designated automatic accounting method
change number.
(a) This change is made on a cut-off basis and applies only to qualified
advance payments for multi-year service warranty contracts on or after the beginning of
the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor
required.

(b) In accordance with § 1.446-1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a standard Form 3115 is waived and pursuant to section 6.02(2) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, a short Form 3115 is authorized for this change. The
short Form 3115 (Rev. December 2022) must include the following information:
(i) the identification section of page 1 (above Part I);
(ii) the signature section at the bottom of page 1;
(iii) Part I, line 1(a); and
(iv) the information required under section 6.03 of Rev. Proc. 97-38,
except that the statement under section 6.03(2) (that the taxpayer agrees to all of the
terms and conditions of the revenue procedure) also should refer to Rev. Proc. 2015-13.
(3) Additional requirement. A taxpayer changing to the service warranty
income method of accounting under this section 15.09 must satisfy the annual reporting
requirement set forth in section 6.04 of Rev. Proc. 97-38.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.09 is "125."
(5) Contact information. For further information regarding a change under
this section, contact Morgan Lawrence at (202) 317-7011 (not a toll-free number).
.10 Overall cash method for specified transportation industry taxpayers.
(1) Description of change. This change applies to a "specified transportation
industry taxpayer" with "average annual gross receipts" of more than the inflation-
adjusted amount, as defined in section 15.10(2)(f) of this revenue procedure, and not in
excess of $50,000,000 that wants to change to the overall cash receipts and
disbursements (cash) method. For a small business taxpayer, as defined in section

15.17(4)(a) of this revenue procedure, see section 15.17 of this revenue procedure for a
change to the overall cash method.
(2) Definitions. For purposes of this section 15.10 the following definitions
apply:
(a) Specified transportation industry taxpayer. A specified transportation
industry taxpayer is a taxpayer that satisfies the following criteria for the year of change:
(i) The taxpayer reasonably identifies its "business" (as defined in
section 15.10(2)(b) of this revenue procedure) as being described in one of the following
NAICS subsector codes (first three digits of the six-digit NAICS codes):
(A) Air Transportation, Rail Transportation, Water Transportation,
Truck Transportation, Transit and Ground Passenger Transportation, or Scenic and
Sightseeing Transportation, within the meaning of NAICS subsector codes 481-485 and
487; or
(B) Support Activities for Transportation within the meaning of
NAICS subsector code 488.
(ii) The taxpayer is not prohibited from using the overall cash method
under § 448.
(b) Business. A taxpayer may use any reasonable method of applying
the relevant facts and circumstances to determine its business. A business may consist
of several activities, which may or may not be related. For example, a taxpayer
engaged in transportation activities may provide various services such as transporting
air cargo and then subsequently trucking the cargo throughout a metropolitan area to
warehouses and wholesale/retail stores. However, each activity within a taxpayer's
business must individually satisfy the description of a NAICS subsector code in section

15.10(2)(a)(i)(A) or (B) of this revenue procedure. For example, a sightseeing bus
operator that sells box lunches in connection with its tours is not a "specified
transportation industry taxpayer" because one of the two activities of its business (food
sales) does not satisfy the description of a NAICS subsector code in section
15.10(2)(a)(i)(A) or (B) of this revenue procedure. While the sightseeing transportation
activity satisfies the description of the NAICS subsector code in section 15.10(2)(a)(i)(A)
of this revenue procedure, the food sales activity does not satisfy the description of any
NAICS subsector code in section 15.10(2)(a)(i)(A) or (B) of this revenue procedure, and
thus, the taxpayer's business fails to meet the criteria of section 15.10(2)(a)(i).
Similarly, a train operator who operates a dining car where meals are served is not a
"specified transportation industry taxpayer" because one of the two activities of its
business (food service) does not satisfy the description of a NAICS subsector code in
section 15.10(2)(a)(i)(A) or (B) of this revenue procedure. While the rail transportation
activity satisfies the description of a NAICS subsector code in section 15.10(2)(a)(i)(A)
of this revenue procedure, the food service activity does not satisfy the description of
any NAICS subsector code in section 15.10(2)(a)(i)(A) or (B) of this revenue procedure,
and thus, the taxpayer's business fails to meet the criteria of section 15.10(2)(a)(i).
(c) Average annual gross receipts. A taxpayer has average annual gross
receipts of more than the inflation-adjusted amount and not in excess of $50,000,000 if
the taxpayer's average annual gross receipts for the three prior taxable-year period
ending with the applicable prior taxable year are more than the inflation-adjusted
amount and do not exceed $50,000,000. If a taxpayer has not been in existence for
three prior taxable years, the taxpayer must determine its average annual gross receipts

for the number of years (including short taxable years) that the taxpayer has been in
existence. See § 448(c)(3)(A).
(d) Gross receipts. Gross receipts is defined consistent with § 1.448-
2(c)(2)(iv). Thus, gross receipts for a taxable year equal all receipts that must be
recognized under the method of accounting actually used by the taxpayer for that
taxable year for federal income tax purposes. See also § 448(c)(3)(C).
(e) Aggregation of gross receipts. For purposes of computing gross
receipts under section 15.10(2)(d) of this revenue procedure, all taxpayers treated as a
single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a
single employer under these sections if the taxpayers had employees) will be treated as
a single taxpayer. However, when transactions occur between taxpayers that are
treated as a single taxpayer by the previous sentence, gross receipts arising from these
transactions will not be treated as gross receipts for purposes of the average annual
gross receipts limitation. See § 448(c)(2) and § 1.448-2(c)(2)(ii).
(f) Inflation-adjusted amount. The inflation-adjusted amount is the dollar
amount specified in § 448(c)(1), adjusted for inflation. See § 448(c)(4). For a taxable
year beginning in 2019, 2020, or 2021, the inflation-adjusted amount is $26,000,000.
See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev. Proc. 2019-44, 2019-47 I.R.B. 1093,
or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as applicable. For a taxable year
beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev. Proc. 2021-
45, 2021-48 I.R.B. 764. For a taxable year beginning in 2023, the inflation-adjusted
amount is $29,000,000. See Rev. Proc. 2022-38, 2022-45 I.R.B. 445. For a taxable
year beginning in 2024, the inflation-adjusted amount is $30,000,000. See Rev. Proc.

2023-34, 2023-48 I.R.B. 1287. For a taxable year beginning in 2025, the inflation-
adjusted amount is $31,000,000. See Rev. Proc. 2024-40, 2024-45 I.R.B. 1100.
(g) Treatment of short taxable year. In the case of a short taxable year,
a taxpayer's gross receipts must be annualized by multiplying the gross receipts for the
short taxable year by 12 and then dividing the result by the number of months in the
short taxable year. See § 448(c)(3)(B) and § 1.448-2(c)(2)(iii).
(h) Treatment of predecessors. Any reference to a taxpayer in this
section 15.10 includes a reference to any predecessor of that taxpayer. See
§ 448(c)(3)(D).
(i) Cash method. The "cash method" is the method identified by
§ 446(c)(1) and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.10 is "126."
(4) Example. Taxpayer X is an LLC and taxed for federal income tax
purposes as a partnership. Taxpayer X does not have any C corporations as partners
and Taxpayer X is not a tax shelter within the meaning of § 448(d)(3). Taxpayer X's
business consists of short-haul trucking among various cities within State Y, which
satisfies the description of the NAICS subsector code 484. Taxpayer X determines that
its 3-year average annual gross receipts for each prior taxable year have been more
than the inflation-adjusted amount as defined in section 15.10(2)(f) of this revenue
procedure and not in excess of $50,000,000. Taxpayer X qualifies to change to the
overall cash method using this section 15.10.

(5) Contact information. For further information regarding a change under
this section, contact Elizabeth Boone at (202) 317-7007 (not a toll-free number).
.11 Change to overall cash/hybrid method for certain banks.
(1) Description of change.

(a) Applicability. This change applies to a bank described in section
15.11(2)(a) of this revenue procedure that wants to change to an overall cash/hybrid
method described in section 15.11(2)(b) of this revenue procedure.
(b) Inapplicability. A bank's change to an overall cash/hybrid method
under this section 15.11 does not include any change in the accounting treatment of an
item for which the bank uses a special method (as described in section 15.11(2)(b) of
this revenue procedure) before the change, or is required to use a special method, or
will use a special method after the change. A bank may not change the accounting
treatment of such an item under this section 15.11. Any change in the accounting
treatment of such an item must be made under an applicable section of this revenue
procedure, under the non-automatic change procedures of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, or under another guidance published in the Internal Revenue Bulletin, as
appropriate.
(2) Definitions. The following definitions apply for purposes of this section
15.11.
(a) Bank. A bank is described in this section 15.11(2)(a) if the bank:
(i) is a bank as defined in § 581;
(ii) is an S corporation as defined in § 1361(a)(1), or a qualified
subchapter S subsidiary as defined in § 1361(b)(3)(B); and
(iii) has average annual gross receipts (computed as described in
section 15.11(5) of this revenue procedure) not in excess of $50,000,000.
(b) Overall cash/hybrid method. An overall cash/hybrid method is the
use of a combination of accounting methods under which some items of income or
expense are reported on the cash receipts and disbursements method (cash method)

and other items of income or expense are reported on methods permitted or required for
the accounting treatment of special items (special methods).
(i) Cash method. The cash method is the method identified by
§ 446(c)(1) and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).
(ii) Special methods. A few of the special methods typically used by
banks include those provided for the accounting treatment of the following items:
securities held by a dealer in securities as defined in § 475(c)(1) (the mark-to-market
method of § 475); securities held by a dealer in securities as defined in § 1.471-5
(inventories maintained under § 471 and § 1.446-1(c)(2)(i)); hedging transactions
(§ 1.446-4); contracts to which § 1256 applies (§ 1256); original issue discount on debt
instruments (§§ 163(e) and 1271-1275); interest income (including acquisition discount
and original issue discount) on short-term obligations (§§ 1281-1283); and stripped debt
instruments (§ 1286). For example, a bank that regularly purchases or originates
mortgages in the ordinary course of its business and engages in more than negligible
sales of those mortgages generally is a dealer in securities under § 475(c)(1) and
§ 1.475(c)-1(c) and thus must use the mark-to-market method of § 475 for mortgages
and any other securities (as defined in § 475(c)(2)) held by the bank.
(3) Additional condition of change. To change to an overall cash/hybrid
method under this section 15.11, a bank must comply with the following additional
condition. In addition to complying with the terms and conditions set forth in section 7 of
Rev. Proc. 2015-13, the bank must keep its books and records for the year of change
and for subsequent taxable years on an overall cash/hybrid method allowed by this
section 15.11. This condition is considered satisfied if the bank reconciles the results
obtained under the method used in keeping its books and records and those obtained

under the method used for federal income tax purposes pursuant to this section 15.11
and the bank maintains sufficient records to support such reconciliation. See also
§ 1.446-1(a)(4).
(4) Additional filing requirement. To change to an overall cash/hybrid method
under this section 15.11, a bank must include with its completed Form 3115 a
description of each specific item of the bank's income or expense that is affected by the
change under this section 15.11 and, for each such item, identify the following: the
method of accounting under which the bank reports that item for federal income tax
purposes immediately before the change; and the amount of the § 481(a) adjustment
associated with changing that item to the cash method under this section 15.11.
(5) Computation of average annual gross receipts. For purposes of section
15.11(2)(a)(iii) of this revenue procedure, a bank's average annual gross receipts are
computed as described in this section 15.11(5).
(a) Average annual gross receipts. A bank has average annual gross
receipts not in excess of $50,000,000 if, for each prior taxable year ending on or after
December 31, 2006, the bank's average annual gross receipts for the three prior
taxable-year period ending with the applicable prior taxable year do not exceed
$50,000,000. If a bank has not been in existence for three prior taxable years, the bank
must determine its average annual gross receipts for the number of years (including
short taxable years) that the bank has been in existence. See § 448(c)(3)(A).
(b) Gross receipts. Gross receipts is defined consistent with § 1.448-
2(c)(2)(iv). Thus, gross receipts for a taxable year equal all receipts that must be
recognized under the method of accounting actually used by the bank for that taxable
year for federal income tax purposes. See also § 448(c)(3)(C).

(c) Aggregation of gross receipts. For purposes of computing gross
receipts under section 15.11(5)(b) of this revenue procedure, all taxpayers treated as a
single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a
single employer under these sections if the taxpayers had employees) will be treated as
a single taxpayer (that is, a single bank). However, when transactions occur between
taxpayers that are treated as a single taxpayer by the previous sentence, gross receipts
arising from these transactions will not be treated as gross receipts for purposes of the
average annual gross receipts limitation. See § 448(c)(2) and § 1.448-2(c)(2)(ii).
(d) Treatment of short taxable year. In the case of a short taxable year,
a bank's gross receipts must be annualized by multiplying the gross receipts for the
short taxable year by 12 and then dividing the result by the number of months in the
short taxable year. See § 448(c)(3)(B) and § 1.448-2(c)(2)(iii).
(e) Treatment of predecessors. Any reference to a bank or taxpayer in
section 15.11(5) of this revenue procedure includes a reference to any predecessor of
that bank or taxpayer. See § 448(c)(3)(D).
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.11 is "127."
(7) Contact information. For further information regarding a change under
this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).
.12 Change to overall cash method for farmers.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer engaged in the trade
or business of farming that wants to change to the overall cash receipts and

disbursements (cash) method for its trade or business of farming. If a taxpayer is
engaged in more than one trade or business, this change applies only to the taxpayer's
trade or business for which the change is being made.
(b) Inapplicability. This change does not apply to a taxpayer that is
required to use an accrual method pursuant to § 447, or prohibited from using the cash
method by § 448.
(2) Definitions.
(a) Cash method of accounting is the method defined by § 446(c)(1) and
§§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1). See also § 1.61-4(a) for specific rules
relating to farmers' income; § 1.162-12, in part, for specific rules relating to farmers'
expenses.
(b) The trade or business of farming is a farming business as defined by
§ 263A(e)(4) and § 1.263A-4(a)(5).
(3) Manner of making change. Generally, a taxpayer changing its method of
accounting under this section 15.12 must compute a § 481(a) adjustment. However, if
the taxpayer is changing from the crop method, that portion of the change is made using
a cut-off basis under which expenses reported on the crop method and not deducted
prior to the year of change are deducted in the year the related crop is sold.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.12 is "128."
(5) Contact information. For further information regarding a change under
this section, contact Minho Seo at (202) 317-5100 (not a toll-free number).
.13 Nonshareholder contributions to capital under § 118.

(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for payments or property received that do not
constitute contributions to the capital of the taxpayer within the meaning of § 118 and
the regulations thereunder, from excluding the payments or the fair market value of the
property from gross income as nontaxable contributions to capital under § 118 to
including the payments or the fair market value of the property in gross income under
§ 61.
(2) Additional requirement. A taxpayer that is making a change described in
section 15.13(1) of this revenue procedure must complete Schedule E of Form 3115 for
the depreciable property to which the change relates (as well as all other relevant
portions of the Form 3115).
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.13 is "129."
(4) Contact information. For further information regarding a change under
this section, contact David H. McDonnell at (202) 317-4137 (not a toll-free number).
.14 Debt issuance costs.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for capitalized debt issuance costs to comply with
§ 1.446-5, which provides rules for allocating the costs over the term of the debt. This
change also applies to a taxpayer that wants to change its method of accounting for
capitalized debt issuance costs from one permissible method to another permissible
method under the last sentence in § 1.446-5(b)(2) if the total original issue discount
determined for purposes of § 1.446-5 is de minimis.

(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.14 is "148."
(3) Contact information. For further information regarding a change under
this section, contact Jason Kristall at (202) 317-6945 (not a toll-free number).
.15 Transfers of interties under the safe harbor described in Notice 2016-36
(§ 118).
(1) Description of change.
(a) Safe harbor applicable. This change, as described in Notice 2016-
36, 2016-25 I.R.B. 1029, applies to a utility that wants to change to the safe harbor
method of accounting provided in section III.C of Notice 2016-36 for the treatment under
§ 118 of a transfer of an intertie, including a dual-use intertie, by a generator to a utility.
Under this safe harbor method of accounting, such a transfer will not be treated as
gross income under § 118(a) or a contribution in aid of construction (CIAC) under
§ 118(b) if all of the conditions specified in section III.C of Notice 2016-36 are met.
(b) Safe harbor terminates. This change, as described in Notice 2016-
36, applies to a utility that is using the safe harbor method of accounting provided in
section III.C of Notice 2016-36 and is required to terminate that safe harbor method of
accounting because of the occurrence of an event specified in section IV of Notice
2016-36. The occurrence of such event will require the utility to recognize income as a
consequence of the transfer of an intertie, including a dual-use intertie, to the utility by a
generator.

(2) Definitions. For purposes of this section 15.15, the terms "utility,"
"intertie," "dual-use intertie," and "generator" are defined in section III.B of Notice 2016-
36.
(3) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a utility
making a change under this section 15.15.
(4) Manner of making change.
(a) The change in method of accounting under section 15.15(1)(a) of this
revenue procedure is made with a § 481(a) adjustment.
(b) The change in method of accounting under section 15.15(1)(b) of this
revenue procedure is made using a cut-off method and applies to a transfer of an
intertie, including a dual-use intertie, by a generator to a utility made on or after the
beginning of the taxable year in which the safe harbor method of accounting terminates.
(5) Concurrent automatic change. A utility making a change under this
section 15.15 for more than one transfer of an intertie, including a dual-use intertie, for
the same year of change should file a single Form 3115 for all such transfers. The
single Form 3115 must provide a single net § 481(a) adjustment for all changes under
section 15.15(1)(a) of this revenue procedure.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the methods
of accounting under this section 15.15 is "226."
(7) Contact information. For further information regarding a change under
this section, contact Barbara Campbell at (202) 317-4137 (not a toll-free number).
.16 Change to or from the net asset value (NAV) method.

(1) Description of change. This change, as described in Rev. Proc. 2016-39,
2016-30 I.R.B. 164, applies to a taxpayer that holds shares in a money market fund
(MMF) as defined in § 1.446-7(b)(4) (giving effect to § 1.446-7(c)(5), under which MMF
holdings in different accounts are treated as different MMFs) and that wants to change
its method of accounting for gain or loss on the shares from a realization method to the
NAV method described in § 1.446-7 or from the NAV method to a realization method.
(2) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(c), (d), and (f) of Rev. Proc. 2015-13 do not apply to this change.
(3) Definitions.
(a) "Rule 2a-7" means Rule 2a-7 (17 CFR 270.2a-7) under the
Investment Company Act of 1940.
(b) "Floating-NAV MMF" means an MMF that is required to value its
assets using market factors and to round its price per share to the nearest basis point
(the fourth decimal place, in the case of a fund with a $1.0000 share price) under Rule
2a-7.
(c) "Stable-NAV MMF" means an MMF that is not a floating-NAV MMF.
(4) Manner of making change.
(a) A change to or from the NAV method is made on a cut-off basis. See
§ 1.446-7(c)(8). Accordingly, a § 481(a) adjustment is neither permitted nor required. A
taxpayer making a change to or from the NAV method for shares in an MMF applies the
new method only to the computation of gain or loss on the shares beginning with the
year of change. Under § 1.446-7(b)(7)(ii), a taxpayer changing to the NAV method
takes a starting basis (as defined in § 1.446-7(b)(7)) in those shares for the year of
change equal to the aggregate adjusted basis of the taxpayer's shares in the MMF at

the end of the immediately preceding taxable year. A taxpayer changing from the NAV
method to a realization method for shares in an MMF must adjust the basis in the
shares beginning on the first day of the year of change to account for gain or loss
previously recognized under the NAV method. Accordingly, the taxpayer generally
takes a basis in each MMF share at the beginning of the year of change equal to the fair
market value of that share under § 1.446-7(b)(3) used in computing the ending value
(as defined in § 1.446-7(b)(2)) of the shares in that MMF for the final computation period
(as defined in § 1.446-7(b)(1)) of the taxable year prior to the year of change.
(b) Short Form 3115 in lieu of a standard Form 3115. In accordance with
§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is
waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is
authorized for a taxpayer changing from a realization method to the NAV method, or
changing from the NAV method to a realization method, for shares in an MMF. Unless
the change meets the requirements of section 15.16(4)(c) of this revenue procedure,
the taxpayer must file a short Form 3115 (Rev. December 2022) that includes the
following information:
(i) the identification section of page 1 (above Part I);
(ii) the signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) a statement specifying whether the taxpayer is changing from a
realization method to the NAV method or from the NAV method to a realization method;
and
(v) a statement specifying the MMF or MMFs to which the change
applies, if the change does not apply to all MMFs in which the taxpayer holds shares

(and, to the extent applicable, whether the change applies only to shares of the MMF or
MMFs held in a particular account).
(c) No Form 3115 Required. In accordance with § 1.446-1(e)(3)(ii), a
taxpayer changing to the NAV method for shares in a stable-NAV MMF may change to
the NAV method on a federal tax return without filing a Form 3115 if the following
requirements are satisfied:
(i) the taxpayer has not used the NAV method for shares in the
MMF for any taxable year prior to the year of change; and
(ii) prior to the year of change, either
(A) the taxpayer's basis in each share of the MMF has been at
all times equal to the MMF's target share price, or
(B) the taxpayer has not realized any gain or loss with respect to
shares in the MMF.
(5) Multiple changes. A taxpayer making multiple changes under this section
15.16 for the same year of change on a short Form 3115 should file a single short Form
3115. The short Form 3115 will be treated as applying to all shares that the taxpayer
holds in any MMF unless the taxpayer specifies the MMFs to which the change applies.
If the taxpayer specifies an MMF, the short Form 3115 will be treated as applying to all
shares in that MMF held in any account by the taxpayer, unless the short Form 3115
specifies the accounts to which the change applies.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 15.16 is "227."

(7) Contact Information. For further information regarding a change under
this section, contact Grace Cho at (202) 317-6945 (not a toll-free number).
.17 Small business taxpayer changing the overall method of accounting to the
cash method, or to a method of accounting in which a small business taxpayer uses an
accrual method for purchases and sales of inventories and uses the cash method for
computing all other items of income and expense.
(1) Description of change. This change applies to a small business taxpayer,
as defined in section 15.17(4)(a) of this revenue procedure, that wants to make a
change in method of accounting described in section 15.17(2) of this revenue
procedure. This change includes a change to account for any exempt construction
contracts described in § 1.460-3(b)(1)(ii) under the cash method or, in the case of an
exempt construction contract described in § 1.460-3(b)(1)(ii) that includes the sale of
inventory, a method of accounting that uses an accrual method for purchases and sales
of such inventory and the cash method for computing all other items of income and
expense from such contract. A small business taxpayer may be required to use a
method of accounting other than the cash method for one or more items of income or
expense under certain provisions of the Code or regulations, including, for example
§§ 475 and 1272.
(2) Applicability. This change applies to a small business taxpayer that
wants to:
(a) change the overall method of accounting for a trade or business from
an accrual method to the cash method of accounting, and is otherwise not prohibited
from using the cash method or required to use another overall method of accounting;

(b) change the overall method of accounting for a trade or business from
an accrual method to an accrual method for purchases and sales of inventories
(inventories) and the cash method for computing all other items of income and expense,
and is otherwise not prohibited from using the cash method under § 448 or required to
use another overall method of accounting, such as an accrual method under § 447; or
(c) change the overall method of accounting for a trade or business from
the cash method to an accrual method for purchases and sales of inventories
(inventories) and the cash method for computing all other items of income and expense,
and is otherwise not prohibited from using the cash method under § 448 or required to
use another overall method of accounting, such as an accrual method under § 447.
(3) Inapplicability. This change does not apply to the following:
(a) Banks changing to hybrid method. This change does not apply to a
bank described in section 15.11(2)(a) of this revenue procedure. However, such a bank
may be eligible to change its overall method of accounting to the cash/hybrid method
under section 15.11 of this revenue procedure if it meets the requirements of that
section.
(b) Farmers changing to the cash method. This change does not apply
to a farming business changing its overall method of accounting to the cash method.
See, however, section 15.12 of this revenue procedure.
(4) Special rules for open accounts receivable. Notwithstanding § 1001 and
the accompanying regulations, a small business taxpayer that uses the cash method as
the overall method of accounting for a trade or business includes amounts attributable
to open accounts receivable, as defined in section 15.17(5)(c) of this revenue

procedure, in income as the amounts are actually or constructively received on the
receivables.
(5) Definitions.
(a) Small business taxpayer. "Small business taxpayer" means a
taxpayer, other than a tax shelter under § 448(d)(3) and § 1.448-2(b)(2) that meets the
§ 448(c) gross receipts test.
(b) Section 448(c) gross receipts test. The § 448(c) gross receipts test is
met if a taxpayer has average annual gross receipts for the three prior taxable years of
$25,000,000 or less (adjusted for inflation), as described in § 448(c) and § 1.448-2(c) or
§ 1.460-3(b)(3), as applicable. For a taxable year beginning in 2022, the inflation-
adjusted amount is $27,000,000. See Rev. Proc. 2021-45, 2021-48 I.R.B. 764. For a
taxable year beginning in 2023, the inflation-adjusted amount is $29,000,000. See Rev.
Proc. 2022-38, 2022-45 I.R.B. 445. For a taxable year beginning in 2024, the inflation-
adjusted amount is $30,000,000. See Rev. Proc. 2023-34, 2023-48 I.R.B. 1287. For a
taxable year beginning in 2025, the inflation-adjusted amount is $31,000,000. See Rev.
Proc. 2024-40, 2024-45 I.R.B. 1100.
(c) Open accounts receivable. For purposes of this section 15.17, an
open accounts receivable is any receivable that is due in full in 120 days or less and
that is not subject to § 475.
(6) Eligibility rule inapplicable. For a change described in section 15.17(2) of
this revenue procedure, any prior change in the overall method of accounting to an
accrual method that was made in the taxpayer's mandatory § 448 year (as defined in
§ 1.448-2(g)(1)), or a mandatory § 447 year (as defined in section 15.01(1)(a) of this

revenue procedure), as applicable, is disregarded for purposes of section 5.01(1)(e) of
Rev. Proc. 2015-13.
(7) Manner of making change.
(a) Acceleration of § 481(a) adjustment. If a taxpayer making a change
described in section 15.17(2)(a) or (b) of this revenue procedure has a § 481(a)
adjustment remaining on a prior overall change in method of accounting to an accrual
method, then it must take the remaining portion of such prior § 481(a) adjustment into
account in the year of change;
(b) Cut-off basis for exempt long-term contracts. A change to account
for exempt construction contracts described in § 1.460-3(b)(1)(ii) under this section
15.17 is made on a cut-off basis and applies only to contracts entered into on or after
the first day of the year of change. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(8) Concurrent automatic changes. A small business taxpayer making a
change under this section 15.17 and a change under section 12.16, 22.18 and/or 22.19
of this revenue procedure for the same year of change may file a single Form 3115 for
such changes, provided the taxpayer enters the designated automatic accounting
method change numbers for each change on the appropriate line of Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.
(9) Designated automatic accounting method change number.
(a) Change to the cash method. The designated automatic accounting
method change number for a change under section 15.17(2)(a) of this revenue
procedure is "233."

(b) Change to a method of accounting that uses an accrual method for
inventories, and the cash method for computing all other items of income and expense.
The designated automatic accounting method change number for a change under
section 15.17(2)(b) or (c) of this revenue procedure is "259."
(10) Contact information. For further information regarding a change under
this section, contact Max Fishman at (202) 317-7007 (not a toll-free number).
SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451)
.01 Accrual of interest on nonperforming loans.
(1) Description of change.
(a) This change applies to a taxpayer using an overall accrual method of
accounting that is a bank as defined in § 581 (or whose primary business is making or
managing loans) and wants to change its method of accounting to comply with § 451
and § 1.451-1(a) for qualified stated interest (as defined in § 1.1273-1(c)) on
nonperforming loans.
(b) Section 1.451-1(a) requires income to be accrued when all the events
have occurred that fix the right to receive the income and the amount thereof can be
determined with reasonable accuracy. A taxpayer may not stop accruing qualified
stated interest on a nonperforming loan for federal income tax purposes merely
because payments on the loan are overdue by a certain length of time, such as 90
days, even if a federal, state, or other regulatory authority having jurisdiction over the
taxpayer permits or requires that the overdue interest not be accrued for regulatory
purposes.
(c) Under § 451 and § 1.451-1(a), a taxpayer must continue accruing
qualified stated interest on any nonperforming loan until either (i) the loan is worthless

under § 166 and charged off as a bad debt, or (ii) the interest is determined to be
uncollectible. In order for interest to be determined uncollectible, the taxpayer must
substantiate, taking into account all the facts and circumstances, that it has no
reasonable expectation of payment of the interest. This substantiation requirement is
applied on a loan-by-loan basis.
(d) A taxpayer that changes its method of accounting under this section
16.01 must do so for all of its loans.
(2) Section 481(a) adjustment. In general, the § 481(a) adjustment for a
method change under this section 16.01 represents the amount of qualified stated
interest on the taxpayer's nonperforming loans outstanding as of the beginning of the
year of change that should have been accrued under § 451 and § 1.451-1(a) and was
not accrued. Interest for which the taxpayer, as of the beginning of the year of change,
has no reasonable expectation of payment is not taken into account in determining the
amount of the § 481(a) adjustment.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.01 is "36."
(4) Contact information. For further information regarding a change under
this section, contact K. Scott Brown at (202) 317-4423 (not a toll-free number).
.02 Advance rentals.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for advance rentals (other than advance rentals
subject to § 467 and the regulations thereunder) to include such advance rentals in
gross income in the taxable year received. See § 1.61-8(b).

(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.02 is "37."
(3) Contact information. For further information regarding a change under
this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).
.03 State or local income or franchise tax refunds.
(1) Description of change. This change applies to a taxpayer using an
overall accrual method of accounting that receives a state or local income or franchise
tax refund and wants to accrue the refund in the taxable year the taxpayer receives
payment or notice that the claim has been approved, whichever is earlier, as provided in
Rev. Rul. 2003-3, 2003-1 C.B. 252.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.03 is "38."
(3) Contact information. For further information regarding a change under
this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).
.04 Capital Cost Reduction Payments.
(1) Description of change. This change applies to a taxpayer that purchases
motor vehicles subject to leases and assumes the associated leases from the vehicles'
dealers and wants to use the safe harbor method of accounting for capital cost
reduction (CCR) payments specified in Rev. Proc. 2002-36, 2002-1 C.B. 993.
(2) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.04 is "39."

(3) Contact information. For further information regarding a change under
this section, contact Michael Finn at (202) 317-4718 (not a toll-free number).
.05 Credit card annual fees.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for credit card annual fees as described in Rev. Rul.
2004-52, 2004-1 C.B. 973, either to a method that satisfies the all events test in
accordance with Rev. Rul. 2004-52 or to the Ratable Inclusion Method for Credit Card
Annual Fees that is described in section 4 of Rev. Proc. 2004-32, 2004-1 C.B. 988.
Rev. Rul. 2004-52 holds that credit card annual fees are not interest for federal income
tax purposes and that such fees are includible in income by the card issuer when the all
events test under § 451 is satisfied. Rev. Proc. 2004-32 provides additional guidance
for taxpayers seeking to change their methods of accounting for such fees, including
guidance with respect to the Ratable Inclusion Method for Credit Card Annual Fees.
However, a taxpayer may make either change under this revenue procedure only if the
taxpayer uses an overall accrual method of accounting for federal income tax purposes
and issues credit cards to, and receives annual fees from, cardholders under
agreements that allow each cardholder to use a credit card to access a revolving line of
credit to make purchases of goods and services and, if so authorized, to obtain cash
advances.
(2) Manner of making change. In completing its Form 3115 to make this
change, a taxpayer must identify the specific method to which the taxpayer is changing.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.05 to a method that satisfies the all events test in accordance with Rev. Rul.

2004-52 is "80." The designated automatic accounting method change number for a
change under this section 16.05 to the Ratable Inclusion Method for Credit Card Annual
Fees is "81."
(4) Contact information. For further information regarding a change under
this section, contact Kate Sleeth at (202) 317-7053 (not a toll-free number).
.06 Retainages.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting for treating
retainages to a method consistent with the holding in Rev. Rul. 69-314, 1969-1 C.B.
139. A taxpayer changing its method of accounting for retainages under this section
16.06 must treat all retainages, that is both receivables and payables, in the same
manner.
(b) Inapplicability. This change does not apply to retainages (receivables
and payables) for long-term contracts that must be accounted for under the percentage-
of-completion method (PCM) under § 460. Nor does this change apply to long-term
contracts otherwise accounted for under the PCM or long-term contracts accounted for
under exempt percentage-of-completion method or the completed contract method. For
the treatment of retainages under such methods, see §§ 1.460-4(b)(4)(i)(A) and 1.460-
4(d)(3).
(2) Manner of making change.
(a) Except as provided in section 16.06(2)(b) of this revenue procedure,
a taxpayer changing its method of accounting under this section 16.06 must take into
account a § 481(a) adjustment.

(b) For retainages received and paid in connection with long term
contracts that are exempt construction contracts (as defined in § 1.460-3(b)(1))
accounted for using the taxpayer's overall accrual method of accounting, this change is
made on a cut-off basis and applies only to long-term contracts entered into on or after
the beginning of the year of change. See § 1.460-1(c)(2) for a description of when a
contract is treated as "entered into." Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.06 for retainages not received under long-term contracts is "130." The
designated automatic method change number for a change under this section 16.06 for
retainages received under long-term contracts is "217." A taxpayer making a change
under this section 16.06 that has both types of retainages must file a single Form 3115
and enter both change numbers on the appropriate line on Form 3115.
(4) Contact information. For further information regarding a change under
this section, contact Peter Cohn at (202) 317-7011 (not a toll-free number).
.07 Change in applicable financial statements (AFS) for purposes of applying
certain revenue recognition methods of accounting.
(1) Description of change.
(a) Applicability.
(i) This change applies to a taxpayer with an AFS, as defined in
§ 1.451-3(a)(5), that: (A) includes amounts in income in accordance with § 1.451-3; (B)
changes the manner in which the item, or portion thereof, is taken into account as AFS
revenue, as defined in § 1.451-3(a)(4), including, if applicable, a change in the manner

in which transaction price is allocated to performance obligations; and (C) wants to
change its method of accounting to use the new AFS method of taking into account the
item, or portion thereof, in AFS revenue for purposes of § 1.451-3(b)(1), including, if
applicable, a change in the manner in which transaction price is allocated for purposes
of § 1.451-3(d).
(ii) This change applies to a taxpayer with an AFS, as defined in
§ 1.451-3(a)(5), that: (A) receives an advance payment, as defined in § 1.451-8(a)(1);
(B) uses the deferral method described in § 1.451-8(c); (C) changes the manner in
which it recognizes advance payments in AFS revenue, as defined in § 1.451-8(a)(4),
including, if applicable, a change in the manner in which payments are allocated to
performance obligations; and (D) wants to change its method of accounting to use the
new AFS method of recognizing advance payments in AFS revenue for purposes of
determining the extent to which advance payments are included in income under
§ 1.451-8, including, if applicable, a change in the manner in which payments are
allocated for purposes of § 1.451-8(c)(8).
(b) Inapplicability.
(i) Changes relating to § 1.451-3 or § 1.451-8. A change described
in section 16.07(1)(a)(i) or (ii) of this revenue procedure does not apply to:
(A) a taxpayer whose present method of accounting is not
described in § 1.451-3, for a change described in section 16.07(1)(a)(i) of this revenue
procedure. A taxpayer that wants to change to a method of accounting described in
§ 1.451-3 must use section 16.08(2)(a)(i) of this revenue procedure to make such
change;

(B) a taxpayer whose present method of accounting for advance
payments is not the deferral method under § 1.451-8(c), for a change described in
section 16.07(1)(a)(ii) of this revenue procedure. For example, this change does not
apply to a taxpayer that uses the full inclusion method under § 1.451-8(b) or the non-
AFS deferral method under § 1.451-8(d). However, this change does apply to a
taxpayer that uses both the cost offset method under § 1.451-8(e) and the deferral
method under § 1.451-8(c);
(C) a taxpayer that wants to change its method for allocating
payments described in § 1.451-8(c)(8)(iii); or
(D) a taxpayer that wants to change its method for allocating
transaction price for contracts described in § 1.451-3(d)(5).
(c) Restatements of AFS. A taxpayer's restatement of its AFS for
financial accounting presentation does not affect the propriety of the taxpayer's method
of accounting for revenue recognized in the prior taxable year(s). For example, if the
taxpayer properly uses the deferral method described in § 1.451-8(c) for including
advance payments in gross income in accordance with its AFS, the taxpayer satisfies
the requirement of section 16.07(1)(a)(ii) of this revenue procedure even if the AFS for
that taxable year is later restated and may change its method of accounting under this
section 16.07 if it is otherwise eligible.
(2) Manner of making change.
(a) Cut-off basis or a § 481(a) adjustment.
(i) Cut-off basis for certain changes.
(A) In general. Except as provided in section 16.07(2)(a)(i)(B) of
this revenue procedure, a change made under section 16.07(1)(a)(ii) of this revenue

procedure is made on a cut-off basis and applies to advance payments received by the
taxpayer on or after the beginning of the year of change. Accordingly, any advance
payments received prior to the year of change (prior advance payments) are accounted
for under the taxpayer's former method of accounting, and any advance payments
received in the year of change and in subsequent taxable years are accounted for under
the taxpayer's new method of accounting. A taxpayer that changes its method of
allocating payments for purposes of § 1.451-8(c)(8)(i) must allocate any payments
received prior to the year of change using the taxpayer's former method of accounting.
Accordingly, a § 481(a) adjustment is neither permitted nor required.
(B) Section 481(a) adjustment for certain changes. If a taxpayer
makes a change under section 16.07(1)(a)(ii) of this revenue procedure, and the AFS
treatment of prior advance payments in the year of change or a subsequent taxable
year is relevant for purposes of determining the amount of such payments that is
required to be included in gross income in the year of change or a subsequent taxable
year, the taxpayer must implement the change with a § 481(a) adjustment as provided
in sections 7.02 and 7.03 of Rev. Proc. 2015-13.
(ii) Computing § 481(a) adjustments when the year of change is a
year in which the taxpayer implements a change in accounting principle with a retained
earnings adjustment. If the year of change is a year in which the taxpayer implements a
change in accounting principle for AFS purposes, including a change in the method of
applying an accounting principle for AFS purposes, and the change in accounting
principle is implemented with a retained earnings adjustment that is taken into account
during the year of change, the taxpayer is required to treat such adjustment as being

taken into account in the taxable year prior to the year of change for purposes of
computing the § 481(a) adjustment.
(iii) Example. Computing a § 481(a) adjustment when the taxpayer
presently uses the AFS cost offset method - related accounts. B is in the trade or
business of selling computers. B uses an accrual method of accounting and computes
Federal income tax on a calendar-year basis and has an AFS, as defined in § 1.451-
3(a)(5). B is not under examination within the meaning of section 3.18 of Rev. Proc.
2015-13. B does not receive advance payments. For 2022, B makes two changes in
method of accounting to comply with § 1.451-3. Specifically, pursuant to section
16.08(2)(a)(i)(A) of this revenue procedure, B changes its method of accounting for
gross income from the sale of computers to apply the AFS income inclusion rule and,
pursuant to section 16.08(2)(a)(i)(C) of this revenue procedure, changes its method of
accounting to apply the AFS cost offset method. For 2023, B changes the manner in
which income from the sale of computers is taken into account as AFS revenue, as
defined in § 1.451-3(a)(4), and changes its method of accounting under section
16.07(1)(a)(i) of this section to use the new AFS method. However, B continues to use
the AFS cost offset method. In computing the § 481(a) adjustment resulting from the
change to the new method of computing AFS revenue for 2023 under section
16.07(1)(a)(i) of this revenue procedure, B must take into account its continued use of
the AFS cost offset method. See section 3.15 of Rev. Proc. 2015-13.

(b) In accordance with § 1.446-1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is
authorized for a change made under this section 16.07. Notwithstanding the definition
of Form 3115 in section 3.07 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in
lieu of a Form 3115 that is permitted under this section 16.07 is considered a Form
3115 for purposes of the automatic change procedures of Rev. Proc. 2015-13.
However, the requirement to file the duplicate copy, under section 6.03(1)(a) of Rev.
Proc. 2015-13, is waived. The statement attached to the taxpayer's return for the year
of change must include the following information for each applicant:
(i) the designated automatic accounting change number for this
change, which is "153;"

(ii) the applicant's name, employer identification number (or social
security number in the case of an individual), and type of applicant, as would be
provided had a Form 3115 been required;
(iii) the year of change (both the beginning and ending dates);
(iv) the type of AFS used by the applicant, as defined in applicable
guidance, and which change the applicant is making under section 16.07(1)(a) of this
revenue procedure. See § 1.451-3(a)(5) and/or § 1.451-8(a)(5);
(v) a detailed and complete description of each item affected by the
change in AFS revenue recognition and the line number (or schedule) where the
affected item is reflected on the federal income tax return for the year of change, and if
applicable, the § 481(a) adjustment for each change; and
(vi) a detailed description of the basis used for AFS revenue
recognition (that is, the method the taxpayer uses in its AFS) both before and after the
AFS change.
(c) Concurrent automatic change. A taxpayer may make more than one
change under this section 16.07 on the same statement in lieu of a Form 3115 for the
same year of change. The taxpayer must separately provide all of the information
required for each change on that statement.
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13 does not apply to this change.
(4) No audit protection. A taxpayer does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for this change. See section 8.02(2) of Rev. Proc.
2015-13.

(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 16.07 is "153."
(6) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).
.08 Changes in the timing of income recognition under § 451(b) and (c).
(1) Description of change.
(a) In general. This change applies to an accrual method taxpayer with
an applicable financial statement (AFS) that wants to make certain changes in method
of accounting described in section 16.08(2)(a) of this revenue procedure. This change
also applies to a taxpayer without an AFS that wants to make certain changes in
method of accounting described in section 16.08(2)(b) of this revenue procedure.
(b) Applicable terms. For this section 16.08, the term "AFS" has the
meaning set forth in § 1.451-3(b)(5). Additionally, because a change to comply with
§§ 1.451-3, 1.451-8, and/or 1.1275-2(l), as applicable, is a change in method of
accounting to which the provisions of § 446 and the accompanying regulations apply,
the item being changed to comply with §§ 1.451-3, 1.451-8, and/or 1.1275-2(l), as
applicable, is determined by applying § 446 and the accompanying regulations. See
§§ 1.451-3(l)(1) and 1.451-8(g)(2). In that regard, while §§ 451(b) and (c) and the final
regulations use the term "item of gross income" to generally refer to income that arises
under a specific contract, the term "item of gross income" is not synonymous with the
terms "item" or "material item" as used throughout the regulations under § 446.
(2) Applicability.

(a) Taxpayer with an AFS. This change applies to an accrual method
taxpayer with an AFS that:
(i) wants to make one of the following changes under § 1.451-3:
(A) a change to comply with the AFS income inclusion rule in
§ 1.451-3(b) under which the taxpayer determines the amount of an item of gross
income that is treated as "taken into account as AFS revenue" by making the AFS
revenue adjustments provided in § 1.451-3(b)(2)(i) (including a change for specified
credit card fees under §§ 1.451-3(j)(2) and 1.1275-2(l)) (but see paragraph (8) of this
section);
(B) a change to comply with the AFS income inclusion rule in
§ 1.451-3(b) under which the taxpayer determines the amount of the item of gross
income that is "taken into account as AFS revenue" by making the AFS revenue
adjustments provided in § 1.451-3(b)(2)(ii) (including a change for specified credit card
fees under §§ 1.451-3(j)(2) and 1.1275(l)) (Alternative AFS Revenue Method) (but see
paragraph (8) of this section);
(C) except as provided in section 16.08(2)(a)(i)(E) of this
section, a change to apply the AFS cost offset method in § 1.451-3(c) to determine the
amount of an item of gross income from the sale of inventory that is required to be
included in gross income under the AFS income inclusion rule in § 1.451-3(b);
(D) a change from applying a cost offset method, including the
AFS cost offset method in § 1.451-3(c), to not applying a cost offset method to
determine the amount of an item of gross income from the sale of inventory that is
required to be included in gross income under the AFS income inclusion rule in § 1.451-
3(b);

(E) a change to comply with § 1.451-3(c)(5)(ii) as a result of a
concurrent cost-offset related inventory method change, as defined in section 5.06 of
Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of
goods in progress offset by reference to costs that the taxpayer has impermissibly
capitalized and/or allocated under its present method of accounting for inventory. This
section 16.08(2)(a)(i)(E) applies if the taxpayer presently uses a cost offset method,
including the AFS cost offset method under § 1.451-3(c). This section 16.08(2)(a)(i)(E)
does not apply if the taxpayer is proposing to make, for the same year of change, a
change to begin using the AFS cost offset method pursuant to section 16.08(2)(a)(i)(C)
of this revenue procedure;
(F) a change to comply with the transaction price allocation
rules in § 1.451-3(d); or
(G) a change to a method of accounting described in § 1.451-
3(h)(4) when a taxpayer's AFS covers mismatched reportable periods; or
(ii) wants to make one of the following changes in method of
accounting for advance payments under § 1.451-8:
(A) a change to the full inclusion method provided in § 1.451-
8(b);
(B) a change to the deferral method provided in § 1.451-8(c);
(C) a change to the specified goods § 451(c) method described
in § 1.451-8(f) to treat payments that otherwise qualify for the specified good exception,
as defined in § 1.451-8(a)(1)(ii)(H), as advance payments and account for such
payments either under the full inclusion method provided in § 1.451-8(b) or under the
deferral method provided in § 1.451-8(c);

(D) except as provided in section 16.08(2)(a)(ii)(F) of this
revenue procedure, a change to apply the advance payment cost offset method in
§ 1.451-8(e) to determine the amount of an advance payment from the sale of inventory
that is required to be included in gross income under either the full inclusion method in
§ 1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;
(E) a change from applying a cost offset method, including the
advance payment cost offset method in § 1.451-8(e), to not applying a cost offset
method to determine the amount of an advance payment from the sale of inventory that
is required to be included in gross income under either the full inclusion method in
§ 1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;
(F) a change to comply with § 1.451-8(e)(8)(ii) as a result of a
concurrent cost-offset related inventory method change, as defined in section 5.06 of
Rev. Proc. 2015-13 (or successor), or because the taxpayer presently determines its
cost of goods in progress offset by reference to costs that the taxpayer has
impermissibly capitalized and/or allocated under its present method of accounting for
inventory. This section 16.08(2)(a)(ii)(F) applies if the taxpayer presently uses a cost
offset method, including the advance payment cost offset method under § 1.451-8(e).
This section 16.08(2)(a)(ii)(F) does not apply if the taxpayer is proposing to make, for
the same year of change, a change to begin using the advance payment cost offset
method pursuant to section 16.08(2)(a)(ii)(D) of this revenue procedure;
(G) a change to a method of accounting described in § 1.451-
8(c)(7), which refers to the methods described in § 1.451-3(h)(4), when a taxpayer's
AFS covers mismatched reporting periods; or
(H) a change to comply with the payment allocation rules in § 1.451-8(c)(8).

(b) Taxpayer without an AFS. This change applies to a taxpayer that
does not have an AFS that wants to make one of the following changes in method of
accounting for advance payments under § 1.451-8:
(i) a change to the full inclusion method provided in § 1.451-8(b);
(ii) a change to the deferral method provided in § 1.451-8(d)(3);
(iii) except as provided in section 16.08(2)(b)(v) of this revenue
procedure, a change to apply the advance payment cost offset method in § 1.451-8(e)
to determine the amount of an advance payment from the sale of inventory that is
required to be included in gross income under either the full inclusion method in
§ 1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;
(iv) a change from applying a cost offset method, including the
advance payment cost offset method in § 1.451-8(e), to not applying a cost offset
method to determine the amount of an advance payment from the sale of inventory that
is required to be included in gross income under either the full inclusion method in
§ 1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;
(v) a change to comply with § 1.451-8(e)(8)(ii) as a result of a
concurrent cost-offset related inventory method change, as defined in section 5.06 of
Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of
goods in progress offset by reference to costs that the taxpayer has impermissibly
capitalized and/or allocated under its present method of accounting for inventory. This
section 16.08(2)(b)(v) applies if the taxpayer presently uses a cost offset method,
including the advance payment cost offset method under § 1.451-8(e). This section
16.08(2)(b)(v) does not apply if the taxpayer is proposing to make, for the same year of

change, a change to begin using the advance payment cost offset method pursuant to
section 16.08(2)(b)(iii) of this revenue procedure; or
(vi) a change to a payment allocation method described in § 1.451-
8(d)(4)(ii).
(3) Inapplicability. Section 16.08(2) of this revenue procedure does not apply
to:
(a) a change to comply with the all events test in § 1.451-1(a);
(b) a change in method of accounting to use a special method of
accounting, as defined in § 1.451-3(a)(13);
(c) a change in method of allocating transaction price between an item of
gross income that is accounted for under § 1.451-3 and an item of gross income that is
accounted for under a special method of accounting, as defined in § 1.451-3(a)(14),
including a change to comply with § 1.451-3(d)(5);
(d) a change described in section 16.08(2)(a)(i)(E), section
16.08(2)(a)(ii)(F) or section 16.08(2)(b)(v) of this revenue procedure, as applicable, if,
immediately after such change is made, the taxpayer's method of accounting for cost
offsets does not otherwise comply with the AFS cost offset method under § 1.451-3(c)
and/or the advance payment cost offset method under § 1.451-8(e), as applicable;
(e) a change described in section 16.08(2)(a)(i)(E), section
16.08(2)(a)(ii)(F) or section 16.08(2)(b)(v) of this revenue procedure, including a change
to comply with § 1.451-3(c)(5)(ii) or § 1.451-8(e)(8)(ii) because the taxpayer determines
its cost of goods in progress offset by reference to costs that the taxpayer has
impermissibly capitalized and/or allocated under its present method of accounting for

inventory, unless the taxpayer makes, for the same year of change, the cost-offset
related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13;
(f) a change to use the AFS cost offset method if the taxpayer receives
advance payments from the sale of inventory and does not also make a change to apply
the advance payment cost offset method, or a change to use the advance payment cost
offset method if the taxpayer is required to include gross income from the sale of
inventory under § 1.451-3 and does not also make a change to apply the AFS cost
offset method;
(g) a change to use the deferral method in § 1.451-8(c) for allocable
payments described in § 1.451-8(c)(8)(iii)(A) (other than allocable payments described
in § 1.451-8(c)(8)(iii)(B));
(h) a taxpayer that presently uses the deferral method in § 1.451-8(c) for
allocable payments described in § 1.451-8(c)(8)(iii)(A) that wants to change its payment
allocation method to an allocation method that is not described in § 1.451-8(c)(8)(iii)(B);
(i) a change to use the deferral method in § 1.451-8(d)(3) for allocable
payments described in § 1.451-8(d)(4)(i) other than either allocable payments described
in § 1.451-8(d)(4)(ii) or allocable payments that are wholly attributable to two or more
items described in § 1.451-8(a)(1)(i)(C);
(j) a taxpayer that presently uses the deferral method in § 1.451-8(d)(3)
for allocable payments described in § 1.451-8(d)(4)(i) that wants to change its payment
allocation method to an allocation method that is not described in § 1.451-8(d)(4)(ii);
(k) a taxpayer without an AFS that wants to change its method of
accounting for advance payments to the deferral method under § 1.451-8(d)(3) under
which the taxpayer determines the extent to which an advance payment is earned by

using the following: (i) a statistical basis if adequate data are available to the taxpayer;
or (ii) the use of any other basis that in the opinion of the Commissioner results in a
clear reflection of income;
(l) a change in method of accounting for specified fees, as defined in
§ 1.451-3(j)(2), other than specified credit card fees;
(m) a change in method of accounting that qualifies under another
automatic change provided in this revenue procedure including, for example, a change
described in section 16.07 of this revenue procedure;
(n) a change in method of accounting for a liability, as defined in § 1.446-
1(c)(1)(ii)(B);
(o) a change in a taxpayer's mismatched reporting periods method
described in § 1.451-3(h)(4) if the taxpayer uses the deferral method for advance
payments under § 1.451-8(c) and does not also change to the same mismatched
reporting periods method for purposes of accounting for advance payments pursuant to
§ 1.451-8(c)(7) for the same year of change; or, if applicable, a change in a taxpayer's
mismatched reporting periods method pursuant to § 1.451-8(c)(7) if the taxpayer uses
the deferral method for advance payments under § 1.451-8(c) and does not also
change to the same mismatched reporting periods method for purposes of § 1.451-
3(h)(4) for the same year of change; and
(p) a change in method of accounting for payments within the scope of
the specified good exception, as defined in § 1.451-8(a)(1)(ii), if the proposed method of
accounting is to include such payments in gross income under § 1.451-3 in one or more
taxable years following the taxable year of receipt.
(4) Manner of making change.

(a) Special rules relating to § 481(a) adjustment.
(i) Section 481(a) adjustment generally.
(A) Members of a consolidated group. Changes under this
section 16.08 with regard to taxpayers who are members of consolidated groups
generally are governed by this section 16.08, rather than by § 1.1502-17(b)(2)
(applicable to changes in the application of the timing rules of § 1.1502-13 in accounting
for intercompany transactions (within the meaning of § 1.1502-13(b)(1)(i)). See
§ 1.1502-17(a) and (b)(1).
(B) Computing § 481(a) adjustments when the year of change is
a year in which the taxpayer implements a change in accounting principle with a
retained earnings adjustment. If the year of change is a year in which the taxpayer
implements a change in accounting principle for AFS purposes, including a change in
the method of applying an accounting principle for AFS purposes, and the change in
accounting principle is implemented with a retained earnings adjustment that is taken
into account during the year of change, the taxpayer is required to treat such
adjustment as being taken into account in the taxable year prior to the year of change
for purposes of computing the § 481(a) adjustment.
(ii) Netting of the § 481(a) adjustment.
(A) Required netting for changes made under § 1.451-3 related
to inventory sales. A taxpayer that makes a change described in section
16.08(2)(a)(i)(C) or (D) of this revenue procedure and one or more changes described
in section 16.08(2)(a)(i)(A), (B), and/or (G) of this revenue procedure for gross income
from inventory sales for the same year of change must provide a single net § 481(a)

adjustment for all such changes. The § 481(a) adjustment period described in section
7.03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.
(B) Required netting for changes made under § 1.451-8 related
to inventory sales for taxpayers with an AFS. A taxpayer that makes a change
described in section 16.08(2)(a)(ii)(D) or (E) of this revenue procedure and one or more
changes described in section 16.08(2)(a)(ii)(A), (B), (C), and/or (G) of this revenue
procedure for advance payments from the sale of inventory for the same year of change
must provide a single net § 481(a) adjustment for all such changes. The § 481(a)
adjustment period described in section 7.03 of Rev. Proc. 2015-13 is determined based
on the net § 481(a) adjustment.
(C) Required netting for changes made under § 1.451-8 related
to inventory sales for taxpayers without an AFS. A taxpayer that makes a change
described in section 16.08(2)(b)(iii) or (iv) of this revenue procedure and one or more
changes in method of accounting described in section 16.08(2)(b)(i) or (ii) of this
revenue procedure for advance payments from the sale of inventory for the same year
of change must provide a single net § 481(a) adjustment for all such changes. The
§ 481(a) adjustment period described in section 7.03 of Rev. Proc. 2015-13 is
determined based on the net § 481(a) adjustment.
(D) Required netting for non-automatic method changes under
§ 1.451-3 and/or § 1.451-8 related to inventory sales. The rules in section
16.08(4)(a)(iii) of this revenue procedure generally will apply to a non-automatic change
under § 1.451-3 and/or § 1.451-8 for which the netting rules of section 16.08(4)(a)(iii) of
this revenue procedure would otherwise apply if the taxpayer were eligible to make the
change under section 16.08 of this revenue procedure.

(iii) Special § 481(a) adjustment rules for cost offset method
change(s) under § 1.451-3 and/or § 1.451-8 made with corresponding cost-offset
related inventory method change(s).
(A) Required netting rule for changes described in section
16.08(2)(a)(i)(E). A taxpayer that makes more than one method change under section
16.08(2)(a)(i)(E) of this revenue procedure for the same year of change must provide a
single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for
this net § 481(a) adjustment is determined by applying the rules in section
16.08(4)(a)(iii)(D) of this revenue procedure.
(B) Required netting rule for changes described in section
16.08(2)(a)(ii)(F). A taxpayer that makes more than one method change under section
16.08(2)(a)(ii)(F) of this revenue procedure for the same year of change must provide a
single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for
this net § 481(a) adjustment is determined by applying the rules in section
16.08(4)(a)(iii)(D) of this revenue procedure.
(C) Required netting rule for changes described in section
16.08(2)(b)(v) of this revenue procedure. A taxpayer that makes more than one method
change under section 16.08(2)(b)(v) of this revenue procedure for the same year of
change must provide a single net § 481(a) adjustment for all such changes. The
§ 481(a) adjustment period for this net § 481(a) adjustment is determined by applying
the rules in section 16.08(4)(a)(iii)(D) of this revenue procedure.
(D) Special § 481(a) adjustment period. For purposes of
sections 7.02 and 7.03 of Rev. Proc. 2015-13, the § 481(a) adjustment period for a cost
offset change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section

16.08(2)(b)(v) of this revenue procedure, whether the § 481(a) adjustment is positive or
negative, is the same as the § 481(a) adjustment period for the corresponding cost-
offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-
13, as modified by section 4.02 of Rev. Proc. 2021-34. The rules of section 7.02 and
7.03 of Rev. Proc. 2015-13, including the short period rule and the accelerated
adjustment period rules, apply to determine the § 481(a) adjustment period for the
§ 481(a) adjustment for the cost-offset related inventory method change, which is used
to determine the § 481(a) adjustment period for a positive or negative § 481(a)
adjustment for the corresponding cost offset change described in section
16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue
procedure. If the taxpayer must net the § 481(a) adjustments for cost offset changes
under section 16.08(4)(a)(iii)(A), (B), or (C) of this revenue procedure, as applicable, the
§ 481(a) adjustment period for any such net § 481(a) adjustment is the same as the
§ 481(a) adjustment period for the corresponding cost-offset related inventory method
changes, determined by netting the § 481(a) adjustments from such corresponding
cost-offset related inventory method changes. The requirement that the taxpayer net
the § 481(a) adjustments for such corresponding cost-offset related inventory method
changes is solely for purposes of determining the § 481(a) adjustment period for the net
§ 481(a) adjustment determined under section 16.08(4)(a)(iii)(A), (B), or (C), as
applicable. This section 16.08(4)(a)(iii)(D) does not apply if, after applying the netting
rules in section 16.08(4)(a)(iii)(A), (B), or (C), as applicable, the § 481(a) adjustment for
the corresponding cost offset change(s) is zero. For example, if the taxpayer makes a
cost-offset related inventory method change that is implemented on a cut-off basis and
the § 481(a) adjustment for the taxpayer's corresponding change described in section

16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue
procedure is zero as a result, this section 16.08(4)(a)(iii)(D) does not apply.
(iv) Examples. For each of the following examples, the taxpayer
uses an accrual method of accounting, is on a fiscal year ending October 31, and has
an AFS, as defined in § 1.451-3(a)(5).
(A) Example 1. Netting rules. A is engaged in a single trade or
business of selling and servicing computers. A is not under examination within the
meaning of section 3.18 of Rev. Proc. 2015-13. A does not receive advance payments.
For its 2024 taxable year, A makes multiple changes in method of accounting to apply
§ 1.451-3. Specifically, A changes its method of accounting for gross income from the
sale of computers to apply the AFS income inclusion rule pursuant to section
16.08(2)(a)(i)(A) of this revenue procedure and to apply the AFS cost offset method
pursuant to section 16.08(2)(a)(i)(C) of this revenue procedure. A also changes its
method of accounting for gross income from computer services to apply the AFS
income inclusion rule pursuant to section 16.08(2)(a)(i)(A) of this revenue procedure.
Since A made a change described in section 16.08(2)(a)(i)(C) of this revenue procedure
and a change described in section 16.08(2)(a)(i)(A) of this revenue procedure for gross
income from computer sales for the same year of change, A must net the § 481(a)
adjustments resulting from these changes in the manner required by section
16.08(4)(a)(ii)(A) of this revenue procedure. The § 481(a) adjustment resulting from A's
change in method of accounting for income from computer services under section
16.08(2)(a)(i)(A) of this revenue procedure is not netted with the § 481(a) adjustments
resulting from the computer sales method changes.

(B) Example 2. Special § 481(a) adjustment period under
section 16.08(4)(a)(iii) of this revenue procedure. The facts are the same as in Example
1. For its 2024 taxable year, A changes its inventory method under section 12.01 of this
revenue procedure and, as a result, also changes its cost offset method to comply with
§ 1.451-3(c)(5)(ii) pursuant to section 16.08(2)(a)(i)(E) of this revenue procedure. The
cost-offset related inventory method change under section 12.01 of this revenue
procedure results in a positive § 481(a) adjustment that is spread over four taxable
years under section 7.01 and 7.03 of Rev. Proc. 2015-13. The cost offset method
change under section 16.08(2)(a)(i)(E) of this revenue procedure results in a negative
§ 481(a) adjustment. Section 16.08(4)(a)(iii)(D) of this revenue procedure requires A to
spread the negative § 481(a) adjustment over four taxable years consistent with the
§ 481(a) adjustment period for the concurrent cost-offset related inventory method
change under section 12.01 of this revenue procedure.

(b) Certain cost offset changes made on an amended return.

(i) In general. Notwithstanding section 6.03(1)(a) of Rev. Proc. 2015-
13, a taxpayer making a change described in section 16.08(2)(a)(i)(E), section
16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure, as applicable,
which corresponds to a cost-offset related inventory method change filed under the non-
automatic change procedures of Rev. Proc. 2015-13 for the same year of change may
make the corresponding cost offset change described in section 16.08(2)(a)(i)(E),
section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) on an amended federal income tax
return for the cost offset year of change (as defined in section 16.08(4)(b)(ii) of this
revenue procedure) provided:
(A) the taxpayer received consent for the cost-offset related
inventory method change filed under the non-automatic change procedures for the year
of change after the time the taxpayer was required to file the original Form 3115 for the
corresponding cost offset change under section 16.08(2)(a)(i)(E), section
16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure, as applicable, in
accordance with section 6.03(1)(a)(i)(A) of Rev. Proc. 2015-13 for the cost offset year of
change;
(B) the taxpayer timely signs and returns the Consent
Agreement for the non-automatic corresponding cost-offset related inventory method
change in accordance with section 11.03(2)(c)(i) of Rev. Proc. 2015-13, and timely
implements such non-automatic change in accordance with section 11.03(2)(c)(ii)(A) or
(B) of Rev. Proc. 2015-13;
(C) the taxpayer implements the corresponding cost offset
method change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or
section 16.08(2)(b)(v) of this revenue procedure, as applicable, on the same amended

federal income tax return that the taxpayer implements the cost-offset related inventory
method change described in section 16.08(4)(b)(i)(A) of this revenue procedure; and
(D) the taxpayer's amended federal income tax return for the
year of change includes any adjustments to taxable income or tax liability resulting from
the change(s) in method of accounting for the cost-offset related inventory method
change(s) specified in the letter ruling and the corresponding cost offset method
change(s).
(ii) Cost offset year of change. For purposes of this section
16.08(4)(b), a taxpayer's cost offset year of change is the same year of change that the
taxpayer received consent under the non-automatic change procedures for the cost-
offset inventory related change.
(iii) Filing requirements. Notwithstanding section 6.03(1)(a) of Rev.
Proc. 2015-13, a taxpayer making a change under section 16.08(2)(a)(i)(E), section
16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure in accordance with
section 16.08(4)(b) of this revenue procedure must attach the original Form 3115 to the
taxpayer's timely filed amended federal income tax return for the cost offset year of
change and must file the duplicate copy (with signature) of the Form 3115 with the IRS
in Ogden, UT, no later than the date the taxpayer timely files the amended federal
income tax return that implements the cost-offset related inventory method described in
section 16.08(4)(b)(i)(A) of this revenue procedure, as provided in section
11.03(2)(c)(ii)(A) or (B) of Rev. Proc. 2015-13.
(5) Eligibility rules inapplicable.
(a) Certain cost offset method changes. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a change under section

16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue
procedure.
(b) Example. Application of section 5.01(1)(f) of Rev. Proc. 2015-13. B,
a calendar year taxpayer, is engaged in a single trade or business of selling computers.
B is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. B
does not receive advance payments. B presently recognizes gross income from the
sale of computers in the taxable year it begins manufacturing the computer without
regard to whether there is a contract with a customer, and does not apply a cost offset
method. For 2021, B makes a change in method of accounting for gross income from
the sale of computers under section 16.10(2)(a)(iii)(A) of Rev. Proc. 2022-14 to apply
the AFS income inclusion rule under § 1.451-3(b). Unless a waiver of eligibility applies,
section 5.01(1)(f) of Rev. Proc. 2015-13 applies to prevent B from automatically
changing its method of accounting for gross income from the sale of computers under
section 16.08(2)(a)(i)(C) of this revenue procedure to apply the AFS cost offset method
under § 1.451-3(c) for any of the four taxable years succeeding the 2021 year of change
(taxable year 2022 through 2025) because the 2021 change was for the same item.

(6) No audit protection for taxpayers under examination for certain cost offset
changes. For a taxpayer under examination that makes a change in method of
accounting under section 16.08(2)(a)(i)(E), section 16.08(a)(ii)(F), or section
16.08(2)(b)(v) of this revenue procedure, the taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for such change if, at the time of filing, the
taxpayer's method of accounting for the item being changed by the corresponding cost-
offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-
13, as modified by section 4.02 of Rev. Proc. 2021-34 (or successor), is an issue under
consideration for the taxable year under examination. However, if the taxpayer
ultimately receives audit protection for the corresponding cost-offset related inventory
method change under section 8.02(1)(f) of Rev. Proc. 2015-13, then the preceding
sentence does not apply and the normal audit protection rules in section 8 of Rev. Proc.
2015-13 apply.
(7) Concurrent automatic changes.

(a) Changes under this section 16.08 and change to overall accrual
method. A taxpayer that wants to make one or more concurrent changes in method of
accounting under this section 16.08 and a change in overall method of accounting to an
accrual method under section 15.01 of this revenue procedure for the same year of
change may file a single Form 3115 that includes all of the changes. Except as
otherwise required by section 16.08(4)(a)(ii) of this revenue procedure, the taxpayer
may not net the § 481(a) adjustment from one change with the § 481(a) adjustment
from another change, and must separately state the § 481(a) adjustment for each
change. If a taxpayer makes a concurrent change in method of accounting to allocate
transaction price and/or payments under section 16.08(2)(a)(i), (ii), or section
16.08(2)(b) of this revenue procedure, the taxpayer is required to make the allocation
change before any other change described in section 16.08(2)(a)(i), (ii), or section
16.08(2)(b) of this revenue procedure, as applicable.
(b) Concurrent cost-offset related inventory method change and change
to apply a cost offset method. A taxpayer that implements a cost-offset related
inventory method change(s) (as defined in section 5.06 of Rev. Proc. 2015-13, as
modified by section 4.02 of Rev. Proc. 2021-34) in the same year of change it
implements a change(s) to apply a cost offset method under section 16.08(2)(a)(i)(C),
section 16.08(2)(a)(ii)(D), or section 16.08(2)(b)(iii) of this revenue procedure, is
required to implement the cost-offset related inventory method change(s) before it
implements the change to apply a cost offset method under section 16.08(2)(a)(i)(C),
section 16.08(2)(a)(ii)(D), or section 16.08(2)(b)(iii)) of this revenue procedure, as
applicable.

(c) Concurrent cost-offset related inventory method change and
corresponding change to cost offset method. See section 6.03(1)(b) of Rev. Proc.
2015-13 for a taxpayer that makes one or more change(s) under section
16.08(2)(a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure and one or more cost-
offset related inventory method change(s), as defined in section 5.06 of Rev. Proc.
2015-13, under this revenue procedure in the same year of change. The taxpayer may
file a single Form 3115 that includes both the cost-offset related inventory method
change and the corresponding cost offset change. Additionally, such taxpayer is
required to implement the cost-offset related inventory method change(s) under this
revenue procedure before it implements the corresponding cost offset change(s) under
section 16.08(2)(a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure, as applicable.
(d) Examples. For each of the following examples, the taxpayer is on a
calendar year, uses an accrual method of accounting, and has an AFS, as defined in
§ 1.451-3(a)(5).
(i) Example 1. Ordering Rule: Cost-Offset Related Inventory Method
Change Before Change to Cost Offset Method. A is engaged in a single trade or
business of manufacturing and selling computers. A is not under examination within the
meaning of section 3.18 of Rev. Proc. 2015-13. A uses the AFS income inclusion rule
to account for gross income from the sale of computers and uses the deferral method to
account for advance payments received from the sale of computers. A makes multiple
changes in method of accounting in 2023. Specifically, A changes its method of
accounting to apply the AFS cost offset method and the advance payment cost offset
method pursuant to sections 16.08(2)(a)(i)(C) and 16.08(2)(a)(ii)(D) of this revenue
procedure. A also changes its UNICAP method under section 12.02 of this revenue
procedure. Pursuant to section 16.08(7)(b) of this revenue procedure, A is required to
implement the UNICAP method change under section 12.02 before it implements the
changes to the AFS cost offset method and advance payment cost offset method under
sections 16.08(2)(a)(i)(C) and 16.08(2)(a)(ii)(D).

(ii) Example 2. Ordering Rule: Cost-Offset Related Inventory Method
Change Before Corresponding Change to Cost Offset Method. The facts are the same
as in Example 1. A makes multiple changes in method of accounting in 2024. A
changes its UNICAP method under section 12.02 of this revenue procedure. A also

makes a corresponding change to the AFS cost offset method under section
16.08(2)(a)(i)(E) and a corresponding change to the advance payment cost offset
method section 16.08(2)(a)(ii)(F) of this revenue procedure. Pursuant to section
16.08(7)(c) of this revenue procedure, A is required to implement the UNICAP method
change under section 12.02 before it implements the corresponding change to the AFS
cost offset method under section 16.08(2)(a)(i)(E) and the corresponding change to the
advance payment cost offset method under section 16.08(2)(a)(ii)(F).

(8) Limited applicability. Notwithstanding the inapplicability rules in section
16.08(3) of this revenue procedure, the changes described in section 16.08(2)(a)(i)(A)
and (B) of this revenue procedure are applicable only for a taxpayer's first, second, or
third taxable year beginning after December 31, 2020.
(9) Designated automatic accounting method change number. See the
following table for the designated automatic method change number (DCN) for the
changes in method of accounting under this section 16.08.
Changes Section DCN
Changes related to § 1.451-3 other than cost
offset 16.08(2)(a)(i)(A), (B), (F), (G) 250
Changes related to cost offset under § 1.451-
3, except concurrent cost-offset related
inventory method changes
16.08(2)(a)(i)(C), (D) 251
Changes related to the deferral method for
advance payments - § 1.451-8 other than
cost offset
16.08(2)(a)(ii)(B), (C), (G) and
(H), 16.08(2)(b)(ii) or (vi) 252
Changes related to cost offset under § 1.451-
8, except concurrent cost-offset related
inventory method changes
16.08(2)(a)(ii)(D), (E),
16.08(2)(b)(iii) or (iv) 253
Changes related to full-inclusion method
under § 1.451-8(b)
16.08(2)(a)(ii)(A) and (C),
16.08(2)(b)(i) 254
Changes related to cost offsets resulting from
concurrent cost-offset related inventory
changes
16.08(2)(a)(i)(E),
16.08(2)(a)(ii)(F), and
16.08(2)(b)(v)

(10) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number). For
further information regarding a change under this section for OID and specified fees

(including specified credit card fees), contact Chris Lieu at (202) 317-6945 (not a toll-
free number).
SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)
.01 Series E, EE or I U.S. savings bonds.
(1) Description of change. This change applies to a taxpayer that uses the
overall cash receipts and disbursements (cash) method of accounting and that wants to
change its method of accounting for interest income on Series E, EE, or I U.S. savings
bonds. However, this change only applies to a taxpayer that previously made an
election under § 454 to report as interest income the increase in redemption price on a
bond occurring in a taxable year, and that now wants to report this income in the taxable
year in which the bond is redeemed, disposed of, or finally matures, whichever is
earliest.
(2) Manner of making change and designated automatic accounting method
change number.
(a) This change is made on a cut-off basis and is effective for any
increase in redemption price occurring after the beginning of the year of change for all
Series E, EE and I U.S. savings bonds held by the taxpayer on or after the beginning of
the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor
required.
(b) In accordance with § 1.446-1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is
authorized for this change. Notwithstanding the definition of Form 3115 in section 3.07
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in lieu of a Form 3115 that is
permitted under this section 17.01 is considered a Form 3115 for purposes of the

automatic change procedures of Rev. Proc. 2015-13. However, the requirement to file
the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived. The
statement must include the following information:
(i) the designated automatic accounting method change number for
this change, which is "131";
(ii) the taxpayer's name and employer identification number or social
security number, as applicable;
(iii) the year of change (both the beginning and ending dates);
(iv) the Series E, EE or I U.S. savings bonds for which this change in
accounting method is requested;
(v) a statement that the taxpayer will report all interest on any U.S.
savings bonds acquired during or after the year of change when the interest is realized
upon disposition, redemption, or final maturity, whichever is earliest; and
(vi) a statement that the taxpayer will report all interest on the U.S.
savings bonds acquired before the year of change when the interest is realized upon
disposition, redemption, or final maturity, whichever is earliest, with the exception of any
interest income previously reported in prior taxable years.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 17.01 is "131."
(4) Contact information. For further information regarding a change under
this section, contact Steven Harrison at (202) 317-6842 (not a toll-free number).
SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455)
.01 Prepaid subscription income.

(1) Description of change. This change applies to a taxpayer using an
overall accrual method of accounting that wants to change its method of accounting for
prepaid subscription income to the method described in § 455 and the regulations
thereunder, including an eligible taxpayer that wants to make the "within 12 months"
election under § 1.455-2.
(2) Manner of making change and designated automatic accounting method
change number.
(a) Cut-off basis. This change is made on a cut-off basis and applies
only to prepaid subscription income received on or after the beginning of the year of
change. The taxpayer must continue to account for prepaid subscription income
received prior to the year of change under the taxpayer's present method of accounting.
Accordingly, a § 481(a) adjustment is neither permitted nor required.
(b) Short Form 3115 in lieu of a standard Form 3115. In accordance with
§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is
waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is
authorized for a change described in section 18.01(a) of this revenue procedure. The
requirement in § 1.455-6 to file a statement requesting consent is satisfied by filing such
short Form 3115. The short Form 3115 (Rev. December 2022) must include the
following information:
(i) the identification section of page 1 (above Part I);
(ii) the signature section at the bottom of page 1;
(iii) Part I, line 1(a);
(iv) the information described in § 1.455-6(a); and

(v) if the taxpayer wants to make a "within 12 months" election under
§ 1.455-6(c), the information described in § 1.455-6(c)(2).
(c) Section 455 election made with consent. The consent granted in
section 9 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, satisfies the consent required under
§ 455(c)(3) and § 1.455-6(b).
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 18.01 is "132."
(4) Contact information. For further information regarding a change under
this section, contact Minho Seo at (202) 317-5100 (not a toll-free number).
SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)
.01 Small business taxpayer exceptions from requirement to account for certain
long-term contracts under § 460 or to capitalize costs under § 263A for certain home
construction contracts.
(1) Description of change. This change applies to a taxpayer that (a) wants
to change its method of accounting for exempt long-term construction contracts
described in § 460(e)(1)(B) from the percentage-of-completion method of accounting
described in § 1.460-4(b) to an exempt contract method of accounting described in
§ 1.460-4(c); or (b) chooses to stop capitalizing costs under § 263A for home
construction contracts described in § 460(e)(1)(A) and meets the requirements of
§ 460(e)(1)(B)(i) and (ii).
(2) Inapplicability. A taxpayer can use a method of accounting for its exempt
long-term contracts that is different from the method used for contracts that are not
exempt. Thus, a taxpayer must use the percentage-of-completion method of

accounting for nonresidential long-term construction contracts that do not meet the
requirements of § 460(e)(1)(B) or § 1.460-3(b)(1)(ii) in the first taxable year it enters into
such a contract, but must continue to use its exempt contract method of accounting for
its existing exempt long-term construction contracts. Similarly, in the first taxable year
that a taxpayer enters into a nonresidential long-term construction contract that meets
the requirements of § 460(e)(1)(B) or § 1.460-3(b)(1)(ii) the taxpayer can use a
permissible exempt contract method of accounting for such a contract. Rev. Rul. 92-28,
1992-1 C.B. 153. Accordingly, only a taxpayer who previously adopted the percentage-
of-completion method of accounting for exempt long-term construction contracts and
wants to change to another permissible exempt contract method of accounting is
required to request consent to change under this section 19.01. Similarly, a taxpayer
that enters into a home construction contract described in § 460(e)(1)(A) and that meets
the requirements of § 460(e)(1)(B)(i) and (ii) requires consent to change its method of
accounting to not capitalize costs under § 263A only if the taxpayer has previously
applied § 263A to home construction contracts exempt from the capitalization
requirement under § 460(e)(1).
(3) Manner of making change. This change is made on a cut-off basis and
applies only to long-term construction contracts entered into on or after the first day of
the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor
required.
(4) Reduced filing requirement. A taxpayer is required to complete only the
following information on Form 3115 (Rev. December 2022) to make this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;

(c) Part I;
(d) Part II, all lines except line 16;
(e) Part IV, line 25; and
(f) Schedule D, Part I.
(5) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 19.01 is "236."
(6) Contact information. For further information regarding changes under
this section, contact Christina Glendening at (202) 317-7006 (not a toll-free number).
.02 Change to rely on the interim guidance provided in section 8 of Notice 2023-
63, 2023-39 I.R.B. 919.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting under § 460 to rely on the interim guidance provided in
section 8 of Notice 2023-63, 2023-39 I.R.B. 919, so that the costs allocable to a long-
term contract accounted for using the PCM include amortization deductions for specified
research or experimental (SRE) expenditures, as defined in §174(b) and section 4.02(2)
of Notice 2023-63, as applicable, under §174(a)(2)(B), rather than the capitalized
amount of such expenditures, and the amortization deductions for such expenditures
are treated as incurred for purposes of determining the percentage of contract
completion in the taxable year the amortization is deducted. For purposes of
determining the percentage of contract completion, estimated total allocable contract
costs include either (1) all amortization of SRE expenditures that directly benefit or are
incurred by reason of the performance of the long-term contract, or (2) only that portion
of such amortization expected to be incurred and deducted during the term of the

contract. A taxpayer using the first alternative is required to report any portion of the
contract price not previously reported by the taxable year following the taxable year in
which the contract is completed, notwithstanding that some portion of the SRE
expenditures remain unamortized. See § 460(b)(1).
(2) Inapplicability. This change does not apply to:
(a) A change in method of accounting under § 460 with respect to
expenditures capitalized under § 59(e)(2)(B), or under § 174(b) prior to its amendment
by § 13206(a) of the TCJA.
(b) A change in method of accounting for independent research and
development expenditures, as defined § 460(c)(5), which are not allocable contract
costs.
(c) Any contract not accounted for under the PCM, as described in
§ 460(b)(1) and § 1.460-4(b)(2), as of the beginning of the year of change.
(3) Manner of making change.
(a) Modified § 481(a) adjustment or cut-off basis. Except as provided in
section 19.02(3)(b) of this revenue procedure, a change under section 19.02(1) of this
revenue procedure is made with a modified § 481(a) adjustment that takes into account
the § 460 treatment of SRE expenditures paid or incurred in taxable years beginning
after December 31, 2021. Such change applies to all long-term contracts for which an
SRE expenditure is an allocable contract cost, including long-term contracts entered
into before the beginning of the year of change.
(b) Exception for negative modified § 481(a) adjustment. If a change
described in section 19.02(3)(a) of this revenue procedure results in a modified § 481(a)

adjustment that is negative, the taxpayer may instead choose to implement the change
on a cut-off basis.
(4) Certain eligibility rules inapplicable. The eligibility rules in section
5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a change
described in section 19.02(1) of this revenue procedure for the taxpayer's first or second
taxable year beginning after December 31, 2021.
(5) Limited audit protection. A taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13 for a change under section 19.02(1) of this
revenue procedure with respect to the § 460 treatment of expenditures paid or incurred
in taxable years beginning on or before December 31, 2021.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under section
19.02 of this revenue procedure is "271."
(7) Contact information. For further information regarding a change under
section 19.02 of this revenue procedure, contact Kyle Griffin at (202) 317-7006 (not a
toll-free number).
SECTION 20. TAXABLE YEAR INCURRED (§ 461)
In general. Applicable provisions of the Code, regulations and other guidance published
in the Internal Revenue Bulletin may prescribe the manner in which a taxpayer takes
into account a liability that has been incurred. For example, for a taxpayer with
inventories and subject to § 263A, the taxpayer must include direct and indirect costs in
inventory costs, which may be recovered through cost of goods sold. See § 1.263A-
1(e)(2)(i)(B). A taxpayer may not rely on any provision in this section 20 to take a

current year deduction if another applicable provision requires the taxpayer to take the
liability into account in a year other than the year incurred.
.01 Timing of incurring liabilities for employee compensation.
(1) Self-insured employee medical benefits.
(a) Description of change.
(i) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting for self-
insured liabilities (including any amounts not covered by insurance, such as a
"deductible" amount under an insurance policy) relating to employee medical expenses
(including liabilities resulting from medical services provided to retirees whom the
employer reimburses for the cost of medical services, or for whom the employer directly
pays a third party medical provider, no later than the 15
th day of the 3rd calendar month
after the end of the taxable year of the retirement, and to employees and former
employees who have filed claims under a workers' compensation act) that are not paid
from a welfare benefit fund within the meaning of § 419(e) to a method as follows:
(A) If the taxpayer has a liability to pay an employee for medical
expenses incurred by the employee, the taxpayer will treat the liability as incurred in the
taxable year in which the employee files the claim with the employer. See United States
v. General Dynamics Corp., 481 U.S. 239 (1987), 1987-2 C.B. 134.
(B) If the taxpayer has a liability to pay a third party for medical
services provided to its employees, the taxpayer will treat the liability as incurred in the
taxable year in which the services are provided.
(ii) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this
section 20.01(1) if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A taxpayer making both this change
and a change to a UNICAP method described in section 20.01(1)(a)(ii) of this revenue
procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on
making concurrent changes.
(c) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.01(1) is "42."
(2) Bonuses.
(a) Description of change.
(i) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting to treat
bonuses as incurred in the taxable year in which all events have occurred that establish
the fact of the liability to pay a bonus and the amount of the liability can be determined
with reasonable accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a taxpayer may change
its method of accounting under this section 20.01(2) to one of the following methods:

(A) If all the events that establish the fact of the liability to pay a
bonus have occurred by the end of the taxable year in which the related services are
provided, and the bonus is received by the employee no later than the 15th day of the 3rd
calendar month after the end of the taxable year in which the related services are
provided, the taxpayer will treat the bonus liability as incurred in that taxable year. See
Rev. Rul. 55-446, 1955-2 C.B. 531, as modified by Rev. Rul. 61-127, 1961-2 C.B. 36.
(B) If all the events that establish the fact of the liability to pay a
bonus occur in the taxable year subsequent to the taxable year in which the related
services are provided, the taxpayer will treat the bonus liability as incurred in such
subsequent taxable year.
(ii) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 20.01(2) if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A taxpayer making both this change
and a change to a UNICAP method described in section 20.01(2)(a)(ii) of this revenue
procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes.
(c) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.01(2) is "133."
(3) Vacation pay, sick pay, and severance pay.
(a) Description of change.
(i) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting to treat
vacation pay, sick pay, and severance pay as incurred in the taxable year in which all
events have occurred that establish the fact of the liability to pay vacation pay, sick pay,
and severance pay and the amount of the liability can be determined with reasonable
accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a taxpayer may change its method of
accounting under this section 20.01(3) to one of the following methods:
(A) If all the events that establish the fact of the liability to pay
vacation pay, sick pay, and severance pay have occurred by the end of the taxable year
in which the related services are provided, the vacation pay, sick pay, and severance
pay vests in the taxable year the related services are provided, and the vacation pay,
sick pay, and severance pay is received by the employee no later than the 15
th day of
the 3rd calendar month after the end of the taxable year in which the related services are
provided, the taxpayer will treat the vacation pay, sick pay, and severance pay liability
as incurred in the taxable year in which the related services are provided.
(B) If all the events that establish the fact of the liability to pay
vacation pay, sick pay, and severance pay occur in the taxable year subsequent to the

taxable year in which the related services are provided, the taxpayer will treat the
vacation pay, sick pay, and severance pay liability as incurred in such subsequent
taxable year.
(ii) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 20.01(3) if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A taxpayer making both this change
and a change to a UNICAP method described in section 20.01(3)(a)(ii) of this revenue
procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes.
(c) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.01(3) is "134."
(4) Commissions.
(a) Description of change.

(i) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting to treat
commissions as incurred in the taxable year in which all events have occurred that
establish the fact of the liability to pay a commission, and the amount of the liability can
be determined with reasonable accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a
taxpayer may change its method of accounting under this section 20.01(4) to one of the
following methods:
(A) If all the events that establish the fact of the liability to pay a
commission have occurred by the end of the taxable year in which the related services
are provided, and the commission is received by the employee no later than the 15
th
day of the 3rd calendar month after the end of the taxable year in which the related
services are provided, the taxpayer will treat the commission liability as incurred in that
taxable year.
(B) If all the events that establish the fact of the liability to pay a
commission occur in the taxable year subsequent to the taxable year in which the
related services are provided, the taxpayer will treat the commission liability as incurred
in such subsequent taxable year.
(ii) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 20.01(4) if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A taxpayer making both this change
and a change to a UNICAP method described in section 20.01(4)(a)(ii) of this revenue
procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting
method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes.
(c) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.01(4) is "249."
(5) Contact information. For further information regarding a change under
this section, contact Maria Castillo Valle or Alicia Lee-Won at (202) 317-7003 (not a toll-
free number).
.02 Timing of incurring liabilities for real property taxes, personal property taxes,
state income taxes, and state franchise taxes.
(1) Background. A taxpayer using an overall accrual method of accounting
generally incurs a liability in the taxable year that all the events have occurred that
establish the fact of the liability, the amount of the liability can be determined with
reasonable accuracy, and economic performance has occurred with respect to the
liability. See § 1.446-1(c)(1)(ii). Under § 1.461-4(g)(6), if the liability of the taxpayer is
to pay a tax, economic performance occurs as the tax is paid to the government
authority that imposed the tax.
(2) Description of change.

(a) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting to:
(i) treat liabilities (for which the all events test of § 461(h)(4) is
otherwise met) for real property taxes, personal property taxes, state income taxes, or
state franchise taxes as incurred in the taxable year in which the taxes are paid, under
§ 461 and § 1.461-4(g)(6);
(ii) account for real property taxes, personal property taxes, state
income taxes, or state franchise taxes under the recurring item exception method under
§ 461(h)(3) and § 1.461-5(b)(1); or
(iii) revoke an election under § 461(c) (ratable accrual election).
(b) Inapplicability. This change does not apply to:
(i) a taxpayer's liability for a tax subject to the limitation on
acceleration of accrual of taxes under § 461(d); or
(ii) a taxpayer that is required under § 263A and the regulations
thereunder to capitalize the costs with respect to which the taxpayer wants to change its
method of accounting under this section 20.02 if the taxpayer is not capitalizing these
costs, unless the taxpayer concurrently changes its method to capitalize these costs in
conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or
12.12 of this revenue procedure (as applicable).
(3) Concurrent automatic change. A taxpayer making both this change and a
change to a UNICAP method described in section 20.02(2)(b)(ii) of this revenue
procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as
applicable) for the same year of change should file a single Form 3115 for both
changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on
making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.02 is "43."
(5) Contact information. For further information regarding a change under
this section, contact Elizabeth Choi at (202) 317-5100 (not a toll-free number).
.03 Timing of incurring liabilities under a workers' compensation act, tort, breach
of contract, or violation of law.
(1) Description of change.
(a) Applicability. This change applies to a taxpayer using an overall
accrual method of accounting that wants to change its method of accounting for self-
insured liabilities (including any amounts not covered by insurance, such as a
"deductible" amount under an insurance policy) arising under any workers'
compensation act or out of any tort, breach of contract, or violation of law, to treating the
liability for the workers' compensation, tort, breach of contract, or violation of law as
being incurred in the taxable year in which all the events have occurred that establish
the fact of the liability, the amount of the liability can be determined with reasonable
accuracy, and payment is made to the person to which the liability is owed. See § 461
and § 1.461-4(g)(1) and (2). If the taxpayer has self-insured liabilities resulting from
medical services provided to employees who have filed claims under a workers
compensation act, the taxpayer may change its method of accounting for those liabilities
under section 20.01(1) of this revenue procedure (if the taxpayer is otherwise eligible).

(b) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 20.03 if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Concurrent automatic change. A taxpayer making both this change and
change to either a method provided in section 20.01(1) of this revenue procedure for
self-insured employee medical expenses or a UNICAP method described in section
20.03(1)(b) of this revenue procedure under section 12.01, 12.02, 12.08, or 12.12 of this
revenue procedure (as applicable) for the same year of change should file a single
Form 3115, in which case the taxpayer must enter the designated automatic accounting
method change numbers for each change on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on
making concurrent changes.
(3) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under this
section 20.03 is "44."
(4) Contact information. For further information regarding a change under
this section, contact Elizabeth Choi at (202) 317-5100 (not a toll-free number).
.04 Timing of incurring certain liabilities for payroll taxes.
(1) Description of change.
(a) Applicability. This change applies to:

(i) an employer using an overall accrual method of accounting that
wants to change its method of accounting for:
(A) FICA and FUTA taxes to a method consistent with the
holding in Rev. Rul. 96-51, 1996-2 C.B. 36. Rev. Rul. 96-51 permits an accrual method
employer to take into account in Year 1, under the all events test of § 461, its otherwise
deductible FICA and FUTA taxes imposed with respect to year-end wages properly
accrued in Year 1, but paid in Year 2, if the requirements of the recurring item exception
are met; and
(B) state unemployment taxes and, in the event the taxpayer is
an employer within the meaning of the Railroad Retirement Tax Act (RRTA) (see
§ 3231(a)), RRTA taxes to a method under which the taxpayer may take into account in
Year 1 its otherwise deductible state unemployment taxes and railroad retirement taxes
(if applicable) imposed with respect to year-end wages properly accrued in Year 1, but
paid in Year 2, if the requirements of the recurring item exception are met (including the
requirement that, as of the end of the taxable year, all events have occurred that
establish the fact of the liability and the amount of the liability can be determined with
reasonable accuracy, see § 1.461-5(b));
(ii) an accrual method employer that utilizes a method of accounting
for FICA and FUTA taxes that is consistent with the holding in Rev. Rul. 96-51 and
wants to change its method of accounting for state unemployment taxes and, in the
event the employer is an employer within the meaning of RRTA (see § 3231(a)), RRTA
taxes to a method under which the taxpayer may take into account in Year 1 its
otherwise deductible state unemployment taxes and railroad retirement taxes (if
applicable) imposed with respect to year-end wages properly accrued in Year 1, but

paid in Year 2, if the requirements of the recurring item exception are met (including the
requirement that, as of the end of the taxable year, all events have occurred that
establish the fact of the liability and the amount of the liability can be determined with
reasonable accuracy, see § 1.461-5(b)); or
(iii) a taxpayer using an overall accrual method of accounting that
wants to change its method of accounting for FICA and FUTA taxes to the safe harbor
method provided in Rev. Proc. 2008-25, 2008-1 C.B. 686. Rev. Proc. 2008-25 provides
that for purposes of the recurring item exception, a taxpayer will be treated as satisfying
the requirement in § 1.461-5(b)(1)(i) for its payroll tax liability in the same taxable year in
which all events have occurred that establish the fact of the related compensation
liability and the amount of the related compensation liability can be determined with
reasonable accuracy.
(b) Inapplicability. This change does not apply to a taxpayer that is
required under § 263A and the regulations thereunder to capitalize the costs with
respect to which the taxpayer wants to change its method of accounting under this
section 20.04 if the taxpayer is not capitalizing these costs, unless the taxpayer
concurrently changes its method to capitalize these costs in conjunction with a change
to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Recurring item exception. A taxpayer that previously has not changed to
or adopted the recurring item exception for FICA taxes, FUTA taxes, state
unemployment taxes, and RRTA taxes (if applicable) must change to the recurring item
exception method for FICA taxes, FUTA taxes, state unemployment taxes, and RRTA
taxes (if applicable) as specified in § 461(h)(3) as part of this change.

(3) Concurrent automatic change. A taxpayer making both this change and a
change to a UNICAP method described in section 20.04(1)(b) of this revenue procedure
under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as applicable) for
the same year of change should file a single Form 3115 for both changes, in which case
the taxpayer must enter the designated automatic accounting method change numbers
for both changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.
(4) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change under section
20.04(1)(a)(i) or (ii) of this revenue procedure is "45." The designated automatic
accounting method change number for a change under section 20.04(1)(a)(iii) of this
revenue procedure is "113."
(5) Contact information. For further information regarding a change under
this section, contact Joseph Denker at (202) 317-5100 (not a toll-free number).
.05 Cooperative advertising.
(1) Description of change. This change applies to a taxpayer using an
overall accrual method of accounting that wants to change its method of accounting for
cooperative advertising costs to a method consistent with the holding in Rev. Rul. 98-
39, 1998-2 C.B. 198. Rev. Rul. 98-39 generally provides that, under the all events test
of § 461, an accrual method manufacturer's liability to pay a retailer for cooperative
advertising services is incurred in the year in which the services are performed,
provided the manufacturer is able to reasonably estimate this liability, and even though
the retailer does not submit the required claim form until the following year.