General Rule for Methods of Accounting (Permissible v. Not Permissible)

ID:
Office:
UILC:
CCA_2010072214512650
---
446.00-00
Number: 201033038
Release Date: 8/20/2010
From: ---
Sent: Thursday, July 22, 2010 2:51:34 PM
To: ---
Cc: ---
Subject: Issue pending CAM
As you know, we received a request for advance consent from Taxpayer to make a protective change in its method of accounting (“CAM”) for certain obligations for the Year 4 tax year. For the reasons stated below, we will not process Taxpayer's request. If you have any questions, please contact me at ------.

# BACKGROUND

Taxpayer and the Director disagree as to whether, for the Year 1 taxable year, Taxpayer requested consent to change its method of accounting for certain obligations from Method A to Method B under the automatic method change procedures. Taxpayer began using Method B for the obligations in Year 1, and continued to use Method B for the obligations in succeeding taxable years. However, for the Year 4 taxable year, Taxpayer is requesting permission to “change” its method of accounting to continue using Method B for the obligations.

# ISSUE

Can the Service grant Taxpayer’s request to change its method of accounting in Year 4?

# ANALYSIS

Rev. Proc. 97-27, 1997-1 C.B. 680, as modified by Rev. Proc. 2002-19, 2002-1 C.B. 696, only applies to a taxpayer that is requesting permission to change its method of accounting. Sec. 4.01 of Rev. Proc. 97-
27. In this case, Taxpayer has been using Method B since Year 1 (and therefore is considered to have adopted Method B by virtue of having used it on two consecutive tax returns). Sec. 2.01(2) of Rev. Proc.
2002-18, 2002-1 C.B. 678. Therefore, Taxpayer’s request does not involve a “change” because
Taxpayer wishes to continue using Method B. Taxpayer argues that its current method of accounting is Method A because that is the method the Director argues Taxpayer should be using. However, a Service-imposed change is not considered final (and therefore a taxpayer is not treated as using the Service-imposed method) by virtue of the Director’s position on audit. See section 7.02(1) of Rev. Proc.
2002-18. Accordingly, Taxpayer is outside the scope of Rev. Proc. 97-27.

# CONCLUSION

Taxpayer’s Year 4 application to change its method of accounting for certain obligations is outside the scope of Rev. Proc. 97-27 and, therefore, will be returned to Taxpayer.