Rev. Proc. 1999-17 — Rev. Proc. 1999-17

# preamble

Part III
Administrative, Procedural and Miscellaneous
26 CFR 601.204: Changes in accounting periods and in methods of
accounting.
(Also Part I, §§ 446, 475; 1.446/c661.)
Rev. Proc. 99/c6617

# SECTION 1. PURPOSE

This revenue procedure provides the exclusive procedure for
dealers in commodities and traders in securities or commodities
to make an election to use the mark-to-market method of
accounting under § 475(e) or (f) of the Internal Revenue Code.

# SECTION 2. BACKGROUND

.01 Section 475(e) allows a dealer in commodities to elect
mark-to-market accounting for commodities. Mark-to-market
accounting under the election, however, does not apply to
commodities that meet certain criteria and are identified under
§ 475(b)(2) and (e). Such an identification is ineffective
unless it is made before the close of the day on which the
commodity was acquired, originated, or entered into. Section
475(f) grants similar treatment to traders in securities and
commodities.

.02 The legislative history to § 475(e) and (f) states that
the mark-to-market election will be made in the time and manner
prescribed by the Secretary and will be effective for the taxable
year for which it is made and all subsequent taxable years,
unless revoked with the consent of the Secretary. H.R. Rep.
No. 148, 105th Cong., 1st Sess. 446 (1997).
.03 Use of mark-to-market accounting under § 475(e) or (f)
is a method of accounting. Generally, a taxpayer must obtain the
consent of the Commissioner to change a method of accounting for
federal income tax purposes. To obtain this consent, a Form
3115, Application for Change in Accounting Method, generally must
be filed during the taxable year in which the taxpayer desires to
make the change in method of accounting. The Commissioner,
however, is authorized to prescribe administrative procedures
setting forth the limitations, terms, and conditions the
Commissioner deems necessary to obtain consent. See § 446(e) and
the regulations thereunder.
.04 In computing taxable income, § 481(a) requires a
taxpayer to take into account those adjustments necessary to
prevent amounts from being duplicated or omitted when the
taxpayer's taxable income is computed under a method of
accounting different from the method used to compute taxable
income for the preceding taxable year.
.05 For a taxpayer who elects under § 475(e) or (f) to
change its method of accounting for the taxable year that
includes August 5, 1997, § 1001(d)(4) of the Taxpayer Relief Act

of 1997 (the Act), Pub. L. No. 105/c6634, 111 Stat. 788 (August 5,
1997), provides: (1) that any identification required with
respect to securities and commodities held on August 5, 1997, is
treated as timely made if made on or before September 4, 1997;
and (2) that the net amount of the adjustments required to be
taken into account by the taxpayer under § 481 is taken into
account ratably over the 4-taxable-year period beginning with the
taxable year that includes August 5, 1997. The Conference Report
to the Act states that any elections made for a year after the
taxable year that includes August 5, 1997, will be governed by
rules and procedures established by the Secretary. H.R. Conf.
Rep. No. 220, 105th Cong., 1st Sess. 516 (1997).

# SECTION 3. SCOPE

This revenue procedure applies to commodities dealers,
securities traders, and commodities traders that want to make an
election to use the mark-to-market method of accounting under
§ 475(e) or (f).

# SECTION 4. EFFECT OF ELECTION

An election under § 475(e) or (f) determines the method of
accounting that an electing taxpayer is required to use for
federal income tax purposes for securities or commodities subject
to the election. Thus, beginning with the first taxable year for
which the election is effective (the election year) and
continuing for all subsequent taxable years (unless the election
is revoked with the consent of the Commissioner), a method of
accounting for securities or commodities subject to the election

is impermissible for an electing taxpayer unless the method is in
accordance with § 475 and the regulations thereunder. If a
taxpayer described in section 3 of this revenue procedure makes
an election under section 5 of this revenue procedure, and the
taxpayer's method of accounting for its taxable year immediately
preceding the election year is inconsistent with § 475, the
taxpayer is required to change its method of accounting to comply
with its election. Section 6 of this revenue procedure contains
procedures for effecting this change. A taxpayer that makes a
§ 475(e) or (f) election but fails to change its method of
accounting to comply with that election is using an impermissible
method.

# SECTION 5. PROCEDURES FOR MAKING THE MARK-TO-MARKET ELECTIONS

.01 Elections effective for taxable years for which the
original federal income tax return was filed before March 18,
1999. For a taxpayer to make a § 475(e) or (f) election that is
effective for a taxable year for which the original federal
income tax return was filed before March 18, 1999, the taxpayer
must either:
(1) have properly reflected the application of § 475
(including any required § 481(a) adjustment) in the calculation
of the taxpayer's tax liability on its original federal income
tax return for the election year; or
(2) have failed to properly reflect the application of § 475
(including any required § 481(a) adjustment) in the calculation
of the taxpayer's tax liability on its original federal income

tax return for the election year, but clearly demonstrated on
that return its intent to make the election for that year (for
example, by a statement on, or attachment to, the return), and
file an amended return for the election year on or before June
16, 1999, that properly reflects the application of § 475
(including any required § 481(a) adjustment).
.02 Elections effective for other taxable years beginning
before January 1, 1999. For a taxpayer to make a § 475(e) or (f)
election that is effective for a taxable year which begins before
January 1, 1999, and for which the original federal income tax
return is filed on or after March 18, 1999, the taxpayer must
make the election by attaching a statement that satisfies the
requirements in section 5.04 of this revenue procedure to an
original federal income tax return for the election year that is
timely filed (including extensions).
.03 Elections effective for a taxable year beginning on or
after January 1, 1999.
(1) General procedure. Except as provided in section
5.03(2) of this revenue procedure, for a taxpayer to make a
§ 475(e) or (f) election that is effective for a taxable year
beginning on or after January 1, 1999, the taxpayer must file a
statement that satisfies the requirements in section 5.04 of this
revenue procedure. The statement must be filed not later than
the due date (without regard to extensions) of the original
federal income tax return for the taxable year immediately
preceding the election year and must be attached either to that

return or, if applicable, to a request for an extension of time
to file that return.
(2) New taxpayers
. A new taxpayer is a taxpayer for which
no federal income tax return was required to be filed for the
taxable year immediately preceding the election year. A new
taxpayer makes the election by placing in its books and records
no later than 2 months and 15 days after the first day of the
election year a statement that satisfies the requirements in
section 5.04 of this revenue procedure. To notify the Service
that the election was made, the new taxpayer must attach a copy
of the statement to its original federal income tax return for
the election year.
.04 Required statement
. The statement must describe the
election being made, the first taxable year for which the
election is effective, and, in the case of an election under
§ 475(f), the trade or business for which the election is made.

# SECTION 6. CHANGE IN METHOD OF ACCOUNTING

.01 Consent
. A change in a taxpayer's method of accounting
to mark-to-market accounting is a change in method of accounting
to which the provisions of §§ 446 and 481 and the regulations
thereunder apply. The Commissioner hereby grants consent for a
taxpayer to change its method of accounting for securities or
commodities, as appropriate, if the following conditions are
satisfied:
(1) the taxpayer is described in section 3 of this revenue
procedure;

(2) the taxpayer complies with the election requirements set
forth in section 5 of this revenue procedure;
(3) the method of accounting to which the taxpayer is
changing is in accordance with its election under § 475;
(4) the year of change is the election year; and
(5) the taxpayer complies with the applicable requirements
of this section 6.
.02 Filing requirements
.
(1) Taxpayers electing under section 5.01. A taxpayer
described in sections 3 and 5.01(1) of this revenue procedure
that changed its method of accounting to properly reflect the
application of § 475 on its original federal income tax return
for the election year has satisfied the filing requirements of
this section 6.02. A taxpayer described in section 3 that is
required to change its method of accounting to comply with its
election under section 5.01(2) must comply with the requirements
of section 6.02(2) of this revenue procedure (substituting the
amended return required by section 5.01(2) for the original
return referred to in section 6.02(2)).
(2) Taxpayers electing under section 5.02 or 5.03(1)
. A
taxpayer described in section 3 of this revenue procedure that
makes an election under section 5.02 or 5.03(1) of this revenue
procedure and is required to change its method of accounting must
complete and file a Form 3115 for the year of change pursuant to
the filing requirements in section 6.02 of Rev. Proc. 98/c6660,
1998/c6651 I.R.B. 16. Thus, the original Form 3115 must be attached

to the taxpayer's timely filed (including extensions) original
federal income tax return for the year of change, and a copy of
the Form 3115 must be filed with the national office no later
than when the original Form 3115 is filed with the federal income
tax return for the year of change. The label described in
section 6.02(3) of Rev. Proc. 98/c6660, however, should refer to
this revenue procedure rather than to the APPENDIX of Rev. Proc.
98/c6660. Further, in the additional statement described in section
6.02(5) of Rev. Proc. 98/c6660, the taxpayer must agree to all the
terms and conditions in this revenue procedure rather than those
in Rev. Proc. 98/c6660.
.03 Section 481(a) adjustment
. If a taxpayer changes its
method of accounting under section 6.01 of this revenue
procedure, the taxpayer must take into account the net amount of
the § 481(a) adjustment in the manner provided in section 5.04 of
Rev. Proc. 98-60. Thus, the § 481(a) adjustment generally is
taken into account ratably over four taxable years beginning with
the year of change. For purposes of § 481, a change in method of
accounting made under this revenue procedure is a change in
method of accounting initiated by the taxpayer.

# SECTION 7. EFFECTIVE DATE

This revenue procedure is effective February 8, 1999, the
date this revenue procedure was made available to the public.

# SECTION 8. PAPERWORK REDUCTION ACT

The collections of information contained in this revenue
procedure have been reviewed and approved by the Office of

Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545-1641.
The collections of information in this revenue procedure are
in sections 5 and 6 of this revenue procedure. This information
is required by the IRS to facilitate monitoring taxpayers that
make the elections under § 475(e) or (f). This information will
be used if a taxpayer making the election is audited. The likely
recordkeepers and respondents are businesses or other for-profit
institutions.
The reporting burden for the collection of information in
section 6.02 of this revenue procedure is reflected in the burden
of Form 3115. The burden of the requirement to file amended
returns in section 5.01 of this revenue procedure is reflected in
the burden of Forms 1120X and 1040X. The estimated total annual
reporting and/or recordkeeping burden for the collection of
information described in section 5.01/c665.04 of this revenue
procedure is 500 hours.
The estimated annual burden per respondent/recordkeeper
varies from 15 minutes to 1 hour, depending on individual
circumstances, with an estimated average of 30 minutes. The
estimated number of respondents and/or recordkeepers is 1,000.
The estimated annual frequency of responses is once in the
existence of each respondent.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it

displays a valid control number assigned by the Office of
Management and Budget.
Books or records relating to a collection of information
must be retained as long as their contents may become material in
the administration of any internal revenue law. Generally, tax
returns and tax return information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue procedure is Jo Lynn
Ricks of the Office of the Assistant Chief Counsel (Financial
Institutions and Products). For further information regarding
this revenue procedure, contact Ms. Ricks on (202) 622/c663920 (not
a toll-free call).