Rev. Proc. 2009-39

Notice 2009–74 Table 1
APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION
Calendar Year

Applicable Percentage

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The principal author of this notice
is Brian J. Americus of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries).
For further
information regarding this notice, contact
Mr. Americus at (202) 622–3110 (not a
toll-free call).

26 CFR 601.204: Changes in accounting periods and
in methods of accounting.
(Also: Part I, §§ 118, 162, 167, 168, 263A, 446,
451; 461, 471, 472, 481, 904, 953; 1.118–2, 1.162–3,
1.162–4, 1.446–1, 1.446–5, 1.461–1, 1.471–2.)

Rev. Proc. 2009–39
SECTION 1. PURPOSE
This revenue procedure amplifies, clarifies, and modifies Rev. Proc. 2008–52,
2008–2 C.B. 587, which provides procedures for taxpayers within the scope of
that revenue procedure to obtain automatic
consent for the changes in method of accounting described in its APPENDIX. This
revenue procedure also clarifies and modifies Rev. Proc. 97–27, 1997–1 C.B. 680,
as amplified and modified by Rev. Proc.
2002–19, 2002–1 C.B. 696, as amplified
and clarified by Rev. Proc. 2002–54,
2002–2 C.B. 432, and as modified by Rev.
Proc. 2007–67, 2007–2 C.B. 1072, which
provides the general procedures for ob-

2009–38 I.R.B.

15
18
19
20
21
20
16
17
24
19
15
15
15
15
15
15
15
15
15
taining the advance consent of the Commissioner of Internal Revenue to change a
method of accounting.
SECTION 2. CHANGES TO REV.
PROC. 2008–52
.01 Change to section 2.05, Method
change with a § 481(a) adjustment. Section 2.05(1) of Rev. Proc. 2008–52 is
clarified to read as follows:
(1) Need for adjustment. Section 481(a)
requires those adjustments necessary to
prevent amounts from being duplicated or
omitted to be taken into account 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.
When there is a change in method of accounting to which § 481(a) is applied,
income for the taxable year preceding the
year of change must be determined under
the method of accounting that was then
employed, and income for the year of
change and the following taxable years
must be determined under the new method
of accounting as if the new method had
always been used. The § 481(a) adjustment is computed notwithstanding that the
period of limitations on assessment and
collection of tax may have closed on the
years (closed years) in which the events
giving rise to the need for an adjustment

371

percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent
percent

occurred. See Superior Coach of Fla., Inc.
v. Commissioner, 80 T.C. 895, 912 (1983).
In computing the net § 481(a) adjustment,
a taxpayer must take into account all relevant accounts. For example, the § 481(a)
adjustment for a change in the proper time
for deducting salary bonuses under § 461
should reflect any necessary adjustments
for amounts of salary bonuses capitalized
to inventory under § 263A.
Example. A taxpayer that is not required to
use inventories uses the overall cash receipts and
disbursements method and changes to an overall accrual method. The taxpayer has $120,000 of income
earned but not yet received (accounts receivable)
and $100,000 of expenses incurred but not yet paid
(accounts payable) as of the end of the taxable year
preceding the year of change. A positive § 481(a)
adjustment of $20,000 ($120,000 accounts receivable less $100,000 accounts payable) is required as a
result of the change.

.02 Changes to section 3.08, Definition
of “under examination.”
(1) Change to section 3.08(1)(a). Section 3.08(1)(a) of Rev. Proc. 2008–52 is
modified to read as follows:
(1) In general.
(a) Except as provided in sections
3.08(2), (3), (4), (5) and (6) of this revenue
procedure, an examination of a taxpayer
with respect to a federal income tax return
begins on the date the taxpayer is contacted in any manner by a representative
of the Internal Revenue Service (Service)
for the purpose of scheduling any type of

September 21, 2009

examination of the return. An examination
ends:
***
(2) New sections 3.08(4), 3.08(5) and
3.08(6). Section 3.08 of Rev. Proc.
2008–52 is modified by adding new sections 3.08(4) and 3.08(5) and is clarified
by adding a new section 3.08(6) to read as
follows:
(4) Certain foreign corporations. A foreign corporation that is not required to file
a federal income tax return is under examination if any of its controlling domestic shareholders, as defined in § 6.02(3)(b)
of this revenue procedure, is under examination for a taxable year(s) in which
it was a United States shareholder of the
foreign corporation. For purposes of this
revenue procedure, a foreign corporation
is no longer under examination when the
controlling domestic shareholders are no
longer under examination, as defined in
section 3.08 of this revenue procedure.
(5) Taxpayer before Joint Committee on
Taxation. If an examination of a taxpayer
involves a refund or credit in excess of the
statutory sum that is subject to review by
the Joint Committee on Taxation pursuant
to § 6405, then, for purposes of this revenue procedure, the taxpayer is under examination while the taxpayer has a refund
or credit under review by the Joint Committee on Taxation and continues to be under examination until Joint Committee on
Taxation review procedures and any necessary follow-up are complete. See Rev.
Proc. 2005–32, 2005–1 C.B. 1206.
(6) Taxpayer in Compliance Assurance
Process. For purposes of this revenue
procedure, a taxpayer participating in the
Compliance Assurance Process (CAP) is
considered to be under examination as of
the date the taxpayer executes the Memorandum of Understanding for the CAP.
.03 Change to section 3.09, Definition
of “issue under consideration.” Section
3.09 of Rev. Proc. 2008–52 is modified
by adding a new section 3.09(4) at the end
of section 3.09 to read as follows:
(4) Certain foreign corporations. In
the case of a controlled foreign corporation (CFC) as defined in § 953(c)(1)(B)
or § 957 or a noncontrolled section 902
corporation as defined in § 904(d)(2)(E)
(10/50 corporation), a foreign corporation’s method of accounting for an item
is an issue under consideration if any of
the corporation’s controlling domestic

September 21, 2009

shareholders receives notification described in section 3.09(1), (2) or (3) that
the treatment of a distribution or deemed
distribution from the foreign corporation,
or the amount of its earnings and profits
or foreign taxes deemed paid, is an issue
under consideration.
.04 Change to section 4.02, Scope “Inapplicability”. Section 4.02(1) of Rev.
Proc. 2008–52 is modified and section
4.02(4) of Rev. Proc. 2008–52 is clarified
to read as follows:
(1) Under examination. If, on the date
the taxpayer (or if section 6.02(3)(b) of
this revenue procedure applies, the designated shareholder) would otherwise file a
copy of the application with the national
office, the taxpayer is under examination
(as provided in section 3.08 of this revenue
procedure), except as provided in sections
6.03(2) (90-day window), 6.03(3) (120day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), and 6.03(6) (issue pending) of this
revenue procedure;
***
(4) Section 381(a) transaction. Except as otherwise provided in this section
4.02(4) or in final regulations issued under
§ 381, if the taxpayer engages in a transaction to which § 381(a) applies within
the proposed taxable year of change (determined without regard to any potential
closing of the year under § 381(b)(1)):
***
.05 Changes to section 5, TERMS AND
CONDITIONS OF CHANGE, and section
6, GENERAL APPLICATION PROCEDURES.
(1) Changes to sections 5.06(4) and
6.02(3)(b).
Section 5.06(4) of Rev.
Proc.
2008–52 is clarified by deleting the reference to the temporary regulations under § 1.964–1T(c)(3) and
inserting reference to the final regulations under §§ 1.964–1(c)(3). Section
6.02(3)(b) is clarified by deleting the references to the temporary regulations under
§§ 1.964–1T(c)(3) and 1.964–1T(c)(5) and
inserting references to the final regulations
under §§ 1.964–1(c)(3) and 1.964–1(c)(5),
respectively.
(2) Changes to sections 6.02(1)(b),
6.02(11), 6.03, 6.04 and 6.05 of Rev. Proc.
2008–52. Sections 6.02(1)(b) of Rev.
Proc. 2008–52 is clarified and sections
6.02(11), 6.03, 6.04 and 6.05 of Rev. Proc.
2008–52 are modified to read as follows:

372

.02 Filing requirements.
(1) Applications.
***
(b) Separate applications.
(i) In general. Ordinarily, a taxpayer
must submit a separate application for each
change in method of accounting.
(ii) Single application for two or more
changes. In some cases, the provisions of
this revenue procedure or other guidance
published in the IRB applicable to particular changes in method of accounting may
require or allow a taxpayer to file a single application for two or more concurrent
changes. See, for example, section 14.03
of the APPENDIX of this revenue procedure.
When the taxpayer is required or allowed to file a single Form 3115 for two
or more concurrent changes, the taxpayer
must attach to the single Form 3115 the information required by Part II, line 12, and
Part IV, line 25 (including the amount of
any § 481(a) adjustment), of Form 3115 for
each change in method of accounting included on that single Form 3115. Also attach an explanation for any other line(s) on
the single Form 3115 where the taxpayer’s
answer is different for any of the concurrent changes to which the single Form
3115 relates.
***
(11) Additional copies required.
(a) Scope restrictions waived for taxpayer under examination. If (i) one or
more of the scope limitation provisions
of section 4.02 of this revenue procedure
would otherwise preclude a taxpayer from
making a change under this revenue procedure, but (ii) the scope limitation provisions of section 4.02 of this revenue procedure do not apply to the change sought
by the taxpayer (see, for example section
2.01 of the APPENDIX of this revenue
procedure), and (iii) the taxpayer is under
examination (as provided in section 3.08
of this revenue procedure) on the date it
files the copy of its application with the national office, then the taxpayer (or if section 6.02(3)(b) of this revenue procedure
applies, the designated shareholder) must
provide a copy of the application to the
examining agent(s) at the same time that
it files a copy of the application with the
national office. The application must contain the name(s) and telephone number(s)
of the examining agent(s).

2009–38 I.R.B.

(b) Taxpayer before an appeals office or
a federal court and issue not under consideration. If a taxpayer that is otherwise
within the scope of this revenue procedure
(or if section 6.02(3)(b) of this revenue
procedure applies, any controlling domestic shareholder of a CFC or 10/50 corporation) is before an appeals office or a federal court and the present method to be
changed is not an issue under consideration by the appeals office or the federal
court on the date the copy of its application is filed with the national office, then
the taxpayer (or if section 6.02(3)(b) of
this revenue procedure applies, the designated shareholder) must provide a copy of
the application to the appeals officer(s) or
counsel(s) for the government, as applicable, at the same time that it files a copy
of the application with the national office.
The application must contain the name(s)
and telephone number(s) of the appeals officer(s) or counsel(s) for the government,
as applicable.
.03 Taxpayer under examination.
(1) In general. Except as otherwise provided in the APPENDIX of this revenue
procedure (see, for example, section 2.01
of the APPENDIX of this revenue procedure), a taxpayer that is under examination (as provided in section 3.08 of this
revenue procedure) may file an application to change a method of accounting under section 6 of this revenue procedure
only if the taxpayer is within the provisions of section 6.03(2) (90-day window),
6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking
audit protection), or 6.03(6) (issue pending) of this revenue procedure. A taxpayer
(or if section 6.02(3)(b) of this revenue
procedure applies, the designated shareholder) that files an application beyond the
time periods provided in the 90-day and
120-day windows is not eligible for the automatic extension of time and will not be
granted an extension of time to file under
§ 301.9100, except in unusual and compelling circumstances.
(2) 90-day window period.
(a) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the designated shareholder) may file a copy of
the application with the national office to
change a method of accounting under this
revenue procedure during the first 90-days
of any taxable year (the 90-day window)
if the taxpayer has (or in the case of a tax-

2009–38 I.R.B.

payer that is a CFC or 10/50 corporation,
all of its controlling domestic shareholders
that are under examination have) been under examination for at least 12 consecutive
months as of the first day of the taxable
year. This 90-day window is not available
if the method of accounting the taxpayer is
changing is an issue under consideration at
the time the taxpayer (or designated shareholder) would otherwise file the copy of
the application or an issue the examining
agent(s) has placed in suspense at the time
the taxpayer (or designated shareholder)
would otherwise file the copy of the application.
(b) A taxpayer changing a method of
accounting under this 90-day window (or
if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder)
must provide a copy of the application to
the examining agent(s) at the same time it
files the copy of the application with the
national office. The application must contain the name(s) and telephone number(s)
of the examining agent(s).
(3) 120-day window period.
(a) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the designated shareholder) may file a copy of
the application with the national office to
change a method of accounting under this
revenue procedure during the 120-day period following the date an examination of
the taxpayer (or in the case of a taxpayer
that is a CFC or 10/50 corporation, of
each of its controlling domestic shareholders that were under examination) ends (the
120-day window), regardless of whether a
subsequent examination has commenced.
This 120-day window is not available if
the method of accounting the taxpayer is
changing is an issue under consideration at
the time the taxpayer (or designated shareholder) would otherwise file a copy of
the application or an issue the examining
agent(s) has placed in suspense at the time
the taxpayer (or designated shareholder)
would otherwise file a copy of the application.
(b) A taxpayer changing a method of accounting under this 120-day window (or if
section 6.02(3)(b) of this revenue procedure applies, the designated shareholder)
must provide a copy of the application to
the examining agent(s) for any examination that is in process at the same time it
files the copy of the application with the
national office. The application must con-

373

tain the name(s) and telephone number(s)
of the examining agent(s).
(4) Consent of director.
(a) A taxpayer under examination may
change its method of accounting under this
revenue procedure if the director consents
to the filing of the application. The director will consent to the filing of the application unless, in the opinion of the director,
the method of accounting to be changed
would ordinarily be included as an item
of adjustment in the year(s) for which the
taxpayer is under examination. For example, the director will consent to the filing of an application to change from a
clearly permissible method of accounting,
or from an impermissible method of accounting where the impermissible method
was adopted subsequent to the years under examination. The director’s consent is
limited to the director’s consent to file the
application and does not constitute the director’s agreement to, or approval of, the
requested change in method of accounting. The question of whether the method
of accounting from which the taxpayer is
changing is permissible or was adopted
subsequent to the years under examination
may be referred to the national office as a
request for technical advice under the provisions of Rev. Proc. 2009–2 (or any successor).
(b) A taxpayer changing a method of
accounting under this revenue procedure
with the consent of the director (or if section 6.02(3)(b) of this revenue procedure
applies, the designated shareholder) must
attach to the copy of the application filed
with the national office a statement from
the director consenting to the filing of the
application. In addition, the taxpayer (or
designated shareholder) must attach to its
original application attached to its timely
filed original federal income tax return a
statement certifying that it has obtained the
written consent of the director to the filing of the application and that the taxpayer
(or designated shareholder) will maintain a
copy of such consent available for inspection. The taxpayer (or designated shareholder) must provide a copy of the application to the director at the same time it
files a copy of the application with the national office. The application must contain the name(s) and telephone number(s)
of the examining agent(s).
(5) Changes lacking audit protection.

September 21, 2009

(a) A taxpayer under examination may
change its method of accounting under this
revenue procedure if the description of the
change in the APPENDIX of this revenue
procedure provides that the change is not
subject to the audit protection provisions
of section 7 of this revenue procedure.
(b) A taxpayer changing a method of accounting under this section 6.03(5) (or if
section 6.02(3)(b) of this revenue procedure applies, the designated shareholder)
must provide a copy of the application to
the examining agent(s) for any examination that is in process at the same time it
files the copy of the application with the
national office. The application must contain the name(s) and telephone number(s)
of the examining agent(s).
(6) Issue pending.
(a) A taxpayer that is under examination
with respect to any income tax issue may
request to change a method of accounting
if the method of accounting to be changed
is an issue pending for any taxable year under examination. However, the audit protection provisions of section 7 of this revenue procedure do not apply to a taxpayer
changing its method of accounting under
this section 6.03(6). For purposes of this
section 6.03(6), an issue is pending for a
taxable year under examination if the Service has given the taxpayer (or if section
6.02(3)(b) of this revenue procedure applies, any controlling domestic shareholders of a CFC or 10/50 corporation) written notification indicating an adjustment is
being made or will be proposed with respect to the taxpayer’s method of accounting. The notification by the Service may
result from an inquiry by the Joint Committee on Taxation. This notification normally will occur after the Service or the
Joint Committee on Taxation has gathered
information sufficient to determine that an
adjustment is appropriate and justified, although the exact amount of the adjustment
may not yet be determined.
(b) A taxpayer that requests to change
a method of accounting under this section 6.03(6) (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) must provide a copy of the
application to the examining agent(s) at the
same time it files a copy of the application
with the national office. The application
must contain the name(s) and telephone
number(s) of the examining agent(s).

September 21, 2009

.04 Taxpayer before an appeals office.
A taxpayer otherwise within the scope of
this revenue procedure that is before an
appeals office with respect to any income
tax issue (or if section 6.02(3)(b) of this
revenue procedure applies, a CFC or 10/50
corporation with a controlling domestic
shareholder that is before an appeals office
with respect to any income tax issue) may
request a change in method of accounting.
However, the audit protection provisions
of section 7 of this revenue procedure do
not apply if the method of accounting to
be changed is an issue under consideration
by the appeals office. A taxpayer that
requests to change a method of accounting under this section 6.04 (or if section
6.02(3)(b) of this revenue procedure applies, the designated shareholder) must
provide a copy of the application to the
appeals officer at the time it files a copy
of the application with the national office.
The application must contain the name(s)
and telephone number(s) of the appeals
officer(s).
.05 Taxpayer before a federal court. A
taxpayer otherwise within the scope of this
revenue procedure that is before a federal
court with respect to any income tax issue (or if section 6.02(3)(b) of this revenue
procedure applies, a CFC or 10/50 corporation with a controlling domestic shareholder that is before a federal court with
respect to any income tax issue) may request a change in method of accounting.
However, the audit protection provisions
of section 7 of this revenue procedure do
not apply if the method of accounting to
be changed is an issue under consideration
by the federal court. A taxpayer (or designated shareholder) that requests to change
a method of accounting under this section
6.05 must provide a copy of the application to the counsel(s) for the government
at the time it files a copy of the original
application with the national office. The
application must contain the name(s) and
telephone number(s) of the counsel(s) for
the government.
.06 Change to section 13, EFFECT
ON OTHER DOCUMENTS. Rev. Proc.
2008–52 is clarified by inserting a new
paragraph at the end to read as follows:
Rev. Proc. 2008–18, 2008–10 I.R.B.
573, is modified, and, as modified, is superseded.
.07 New section 3.05 of the APPENDIX,
Materials and supplies. Section 3 of the

374

APPENDIX of Rev. Proc. 2008–52 is
modified by adding a new section 3.05 to
read as follows:
.05 Materials and supplies.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for materials and
supplies on hand to the method of treating
the cost of materials and supplies as a deferred expense to be taken into account in
the taxable year in which they are actually
consumed and used in operation, consistent with § 1.162–3.
(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 section 3.05 of this APPENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable).
(2) Amounts taken into account. Applicable provisions of the Code, regulations,
and other guidance published in the IRB
prescribe the manner in which a liability
that has been incurred is taken into account. For example, for a taxpayer with
inventories, certain indirect material costs
must be included in inventory costs and
may be recovered through the cost of
goods sold. See § 1.263A–1(e)(3)(ii)(E).
A taxpayer may not rely on the provisions
of section 3.05 of this APPENDIX to take
a current deduction.
(3) Concurrent automatic change. A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year
of change should 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.
(4) Proposed regulations. The Department of the Treasury has published
proposed regulations that address the definition and treatment of materials and
supplies under § 162. See Guidance Regarding Deduction and Capitalization of
Expenditures Related to Tangible Property, REG–168745–03, 73 FR 12838–01
(March 10, 2008), 2008–18 I.R.B. 871.

2009–38 I.R.B.

The proposed regulations are not effective
until publication of a Treasury decision
adopting them as final regulations in the
Federal Register. Thus, taxpayers may not
change a method of accounting in reliance
upon the rules contained in the proposed
regulations until the rules are published
as final regulations in the Federal Register. If final regulations are adopted with
positions that are inconsistent with the
method of accounting implemented by
the taxpayer under section 3.05 of this
APPENDIX, that method will no longer
be regarded as proper. In such event, the
taxpayer will be required to follow any instructions in the final regulations or other
guidance published in the IRB concerning
methods of accounting for materials and
supplies for future taxable years.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under section 3.05 of this APPENDIX
is “143.” See section 6.02(4) of this revenue procedure.
(6) Contact information. For further
information regarding a change under
this section, contact Justin G. Meeks at
202–622–5020 (not a toll-free call).
.08 New section 3.06 of the APPENDIX,
Repair and maintenance costs. Section 3
of the APPENDIX of Rev. Proc. 2008–52
is modified by adding a new section 3.06
to read as follows:
.06 Repair and maintenance costs.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting from capitalizing
under § 263(a) costs paid or incurred to
repair and maintain tangible property (including network assets) to treating the
repair and maintenance costs as ordinary
and necessary business expenses under
§ 162 and § 1.162–4. This change also
applies to a taxpayer that wants to change
the unit of property it uses to determine the
deductibility of repair and maintenance
costs to a unit of property that is permissible under applicable legal authority.
(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 section 3.06 of this AP-

2009–38 I.R.B.

PENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable);
(ii) A taxpayer that wants to change its
method of accounting for dispositions of
depreciable property, including a change in
the unit of property used for such dispositions (but see sections 6.24 and 6.25 of this
APPENDIX); or
(iii) Any property subject to the repair allowance under § 1.167(a)–11(d)(2)
(including expenditures incurred after
December 31, 1980, for the repair, maintenance, rehabilitation, or improvement of
property placed in service before January
1, 1981).
(2) Manner of making change. A taxpayer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of tangible property to which this change
applies;
(b) A detailed description of the types
of repair and maintenance costs to which
this change applies;
(c) If the taxpayer is changing any unit
of property determination, a detailed description of the unit(s) of property under
its present method of accounting for determining the deductibility of repair and
maintenance costs and a detailed description of the unit(s) of property it will use
under its proposed method of determining
the deductibility of repair and maintenance
costs, together with a description of the
legal authority supporting the taxpayer’s
proposed unit(s) of property for determining the deductibility of repair and maintenance costs;
(d) The following statements regarding
the costs to which this change applies:
(i) “The taxpayer represents that the repair and maintenance costs are incurred to
keep the taxpayer’s property in ordinarily
efficient operating condition.”
(ii) “The taxpayer represents that the repair and maintenance costs do not materially increase the value or substantially prolong the useful life of any unit of property
compared to the value or useful life of the
property before the general wear or tear or
particular event that led to the repairs or
maintenance.”
(iii) “The taxpayer represents that the
repair and maintenance costs do not adapt

375

any unit of property to a new or different
use.”
(iv) “The taxpayer represents that the
repair and maintenance costs do not include costs to replace any unit of property or any major components or substantial structural parts of any unit of property.”
(v) “The taxpayer represents that the
repair and maintenance costs are not incurred as part of a plan of rehabilitation,
modernization, or improvement to any unit
of property.”
(vi) “The taxpayer represents that the
repair and maintenance costs do not result
from any prior owner’s use of any unit of
property.”
(3) Additional copy of Form 3115 required. A taxpayer changing its method of
accounting under section 3.06 of this APPENDIX must, in addition to the timely
duplicate filing requirements in section
6.02(3) of Rev. Proc. 2008–52, send a
copy of its completed Form 3115 (including attachments) to the following address
on or before the date the taxpayer files a
copy of the Form 3115 with the national
office: Internal Revenue Service, 1973
North Rulon White Blvd., Mail Stop 4917,
Ogden, UT 84404.
(4) Amounts taken into account. Applicable provisions of the Code, regulations, and other guidance published in the
IRB prescribe the manner in which a liability that has been incurred is taken into account. For example, for a taxpayer with inventories, certain repair and maintenance
costs must be included in inventory costs
and may be recovered through the cost of
goods sold. See § 1.263A–1(e)(3)(ii)(E).
A taxpayer may not rely on the provisions
of section 3.06 of this APPENDIX to take
a current deduction.
(5) No ruling on unit of property. The
consent granted under this revenue procedure for this change is not a determination by the Commissioner that the taxpayer
is using the appropriate unit of property
in determining the deductibility of repair
and maintenance costs and does not create
any presumption that the proposed unit of
property is permissible. The director will
ascertain whether the taxpayer’s determination of its unit of property is correct.
(6) Concurrent automatic change. A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year

September 21, 2009

of change should 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.
(7) Proposed regulations. The Department of the Treasury has published proposed regulations that address the application of §§ 162 and 263 to expenditures
paid or incurred to repair, maintain, or
improve tangible property. See Guidance
Regarding Deduction and Capitalization
of Expenditures Related to Tangible Property, 73 FR 12838–01 (March 10, 2008),
2008–1 C.B. 871. The proposed regulations are not effective until publication
of a Treasury decision adopting them as
final regulations in the Federal Register.
Thus, taxpayers may not change a method
of accounting in reliance upon the rules
contained in the proposed regulations until the rules are published as final regulations in the Federal Register. If final regulations are adopted with positions that are
inconsistent with the method of accounting
implemented by the taxpayer under section 3.06 of this APPENDIX, that method
will no longer be regarded as proper. In
such event, the taxpayer will be required
to follow any instructions in the final regulations or other guidance published in
the IRB concerning methods of accounting
for the repair, maintenance, or improvement of tangible property for future taxable years.
(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under section 3.06 of this APPENDIX
is “144.” See section 6.02(4) of this revenue procedure.
(9) Contact information.
For further information regarding a change under this section, contact Mon Lam at
202–622–4950 (not a toll-free call).
.09 New section 6.23 of the APPENDIX,
Tenant construction allowances. Section 6
of the APPENDIX of Rev. Proc. 2008–52
is modified by adding a new section 6.23
to read as follows:
.23 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:

September 21, 2009

(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 section
6.23 of this APPENDIX, 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) The change in method of accounting
under section 6.23 of this APPENDIX is
made using a cut-off method and only applies to leases entered into on or after the
beginning of the year of change. See section 2.06 of this revenue procedure.
(b) If a taxpayer wants to change its
method of accounting for tenant construction allowances under existing leases, the
taxpayer must file a Form 3115 with the
Commissioner in accordance with the requirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27. A change involving tenant construction allowances under existing
leases will require a § 481(a) adjustment.
Consent to change a method of accounting
for tenant construction allowances under
existing leases is granted only if the taxpayer’s treatment of the property subject to
the tenant construction allowances is consistent with the treatment of such property
by the counterparty for federal income tax
purposes. The following information must
be submitted with a Form 3115 submitted
under Rev. Proc. 97–27:

376

(i) If a lessee is filing the Form 3115, the
lessee must submit with the Form 3115:
(A) a statement 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; and (B) a representation,
signed under penalties of perjury, from
such lessor that provides the amount of the
tenant construction allowance provided to
the lessee and an explanation as to how
the lessor is treating the property subject to such tenant construction allowance
for federal income tax purposes. If the
lessor capitalized the tenant construction
allowance (or any portion thereof) provided to the lessee and depreciated the
property subject to such tenant construction allowance, the representation must
also include the amount that was capitalized by the lessor, the Internal Revenue
Code section under which the property is
depreciated by the lessor, and the life over
which the property is depreciated by the
lessor.
(ii) If a lessor is filing the Form 3115,
the lessor must submit with the Form 3115:
(A) a statement that provides the amount
of the tenant construction allowance provided to a lessee and the name of the
lessee that received such tenant construction allowance; and (B) a representation,
signed under penalties of perjury, from
such lessee that provides the amount of
the tenant construction allowance received
from the lessor, the amount of such tenant construction allowance recognized as
gross income by the lessee, the amount
of the tenant construction allowance expended by the lessee on property, and
an explanation as to how the lessee is
treating the property subject to the tenant
construction allowance for federal income
tax purposes. If the lessee capitalized the
tenant construction allowance (or any portion thereof) received from the lessor and
depreciated the property subject to such
tenant construction allowance, the representation must also include the amount
that was capitalized by the lessee, the Internal Revenue Code section under which
the property is depreciated by the lessee,
and the life over which the property is
depreciated by the lessee.
(4) No audit protection. A taxpayer
does not receive audit protection under

2009–38 I.R.B.

section 7 of this revenue procedure in connection with this change.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.23
of this APPENDIX is “145.” See section
6.02(4) of this revenue procedure.
(6) Contact information. For further
information regarding a change under
this section, contact Ruba Nasrallah at
202–622–4930 (not a toll-free call).
.10 New section 6.24 of the APPENDIX,
Dispositions of structural components of a
building (section 168). Section 6 of the
APPENDIX of Rev. Proc. 2008–52 is
modified by adding a new section 6.24 to
read as follows:
.24 Dispositions of structural components of a building (section 168).
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change to a unit
of property that is permissible under applicable legal authority for determining when
the taxpayer has disposed of a building (as
defined in § 1.48–1(e)(1), except as otherwise provided under any other applicable provision of the Code or regulations relating to depreciation or amortization (for
example, § 1400I(f)(3))) and its structural
components (as defined in § 1.48–1(e)(2))
for depreciation purposes. This change
also will affect the determination of gain
or loss from the disposition of the building
(including its structural components).
(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 section 6.24 of this APPENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable);
(ii) any property that is not depreciated
under § 168 under the taxpayer’s present
and proposed methods of accounting;
(iii) any section 1245 property or depreciable land improvement (but see section
6.25 of this APPENDIX for making this
change);
(iv) any leasehold improvement,
whether made by the lessor or the lessee

2009–38 I.R.B.

(unless the taxpayer leased land and constructed a building on such leased land,
and such building (including its structural
components) is the leasehold improvement and is the unit of property under the
taxpayer’s proposed method of accounting
under section 6.24 of this APPENDIX);
(v) 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));
(vi) any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder;
(vii) any building with multiple condominium or cooperative units (unless each
condominium or cooperative unit is the
unit of property under the taxpayer’s proposed method of accounting under section
6.24 of this APPENDIX); or
(viii) any multiple buildings (including their structural components) that are
treated as a single building (single unit
of property) under the taxpayer’s present
method of accounting or will be treated as
a single building (single unit of property)
under the taxpayer’s proposed method of
accounting.
(2) Manner of making change. A taxpayer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of property to which this change applies;
(b) A detailed description of the unit
of property under the taxpayer’s present
and proposed methods of accounting for
determining when the building (including
its structural components) is disposed of
by the taxpayer for depreciation purposes
(when depreciation ends);
(c) A detailed description of how the
taxpayer determined the unit of property
under its present method of accounting for
determining when the building (including
its structural components) is disposed of
by the taxpayer for depreciation purposes
and will determine the unit of property
under its proposed method of accounting
for determining when the building (including its structural components) is disposed
of by the taxpayer for depreciation purposes. If this proposed unit of property
is not each building (including its structural components) (except as provided in
section 6.24(1)(b)(vii) of this APPENDIX
regarding condominium or cooperative
units), also provide the legal authority

377

supporting the taxpayer’s proposed unit of
property for determining when the building (including its structural components)
is disposed of by the taxpayer for depreciation purposes; and
(d) A statement as to whether the taxpayer’s proposed unit of property for determining when the building (including its
structural components) is disposed of by
the taxpayer for depreciation purposes is
the same as the taxpayer’s present unit of
property for determining when the building (including its structural components) is
placed in service by the taxpayer (when depreciation begins). If not, also provide the
unit of property for determining when the
building (including its structural components) is placed in service by the taxpayer
and explain why the taxpayer is using a
different unit of property for determining
when the building (including its structural
components) is placed in service.
(3) Additional copy of Form 3115 required. A taxpayer changing its method of
accounting under section 6.24 of this APPENDIX must, in addition to the timely
duplicate filing requirements in section
6.02(3) of Rev. Proc. 2008–52, send a
copy of its completed Form 3115 (including attachments) to the following address
on or before the date the taxpayer files a
copy of the Form 3115 with the national
office: Internal Revenue Service, 1973
North Rulon White Blvd., Mail Stop 4917,
Ogden, UT 84404
(4) No ruling on unit of property. The
consent granted under this revenue procedure for this change is not a determination by the Commissioner that the taxpayer
is using the appropriate unit of property
for determining when the building (including its structural components) is placed in
service or disposed of by the taxpayer for
depreciation purposes and does not create any presumption that the proposed unit
of property is permissible for depreciation purposes. The director will ascertain
whether the taxpayer’s determination of its
unit of property for depreciation purposes
is correct.
(5) Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of
this APPENDIX (as applicable) for the
same year of change should file a single
Form 3115 for both changes and enter the
designated automatic accounting method

September 21, 2009

change numbers for both changes on the
appropriate line on that Form 3115.
(b) A taxpayer that wants to make both
this change and a change under section
6.25 of this APPENDIX for the same year
of change should 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.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under section 6.24 of this APPENDIX
is “146.” See section 6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under
this section, contact Charles Magee at
202–622–4930 (not a toll-free call).
.11 New section 6.25 of the APPENDIX, Dispositions of tangible depreciable
assets (other than a building or its structural components) (section 168). Section 6
of the APPENDIX of Rev. Proc. 2008–52
is modified by adding a new section 6.25
to read as follows:
.25 Dispositions of tangible depreciable
assets (other than a building or its structural components) (section 168).
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change to a
unit of property that is permissible under applicable legal authority for determining when the taxpayer has disposed
of a section 1245 property or a depreciable land improvement for depreciation purposes. This change also will affect the determination of gain or loss from the disposition of the section 1245 property or the
depreciable land improvement.
(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 section 6.25 of this APPENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable);

September 21, 2009

(ii) any property that is not depreciated
under § 168 under the taxpayer’s present
and proposed methods of accounting;
(iii) any building (including its structural components) (but see section 6.24 of
this APPENDIX for making this change);
(iv) any leasehold improvement,
whether made by the lessor or the lessee
(unless each leasehold improvement is the
unit of property under the taxpayer’s proposed method of accounting under section
6.25 of this APPENDIX);
(v) 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));
(vi) any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder;
(vii) any property subject to a mass
asset account election under former
§ 168(d)(2)(A); or
(viii) any property subject to the repair allowance under § 1.167(a)–11(d)(2)
(including expenditures incurred after December 31, 1980, for the repair, maintenance, rehabilitation, or improvement of
property placed in service before January
1, 1981).
(2) Manner of making change. A taxpayer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of property to which this change applies;
(b) A detailed description of the unit of
property under the taxpayer’s present and
proposed methods of accounting for determining when the property is disposed of
by the taxpayer for depreciation purposes
(when depreciation ends);
(c) A detailed description of how the
taxpayer determined the unit of property
under its present method of accounting for
determining when the property is disposed
of by the taxpayer for depreciation purposes and will determine the unit of property under its proposed method of accounting for determining when the property is
disposed of by the taxpayer for depreciation purposes. If this proposed unit of
property is not determined using only the
functional interdependence standard (see,
e.g., Armstrong World Industries, Inc. v.
Commissioner, T.C. Memo. 1991–326,
aff’d, 974 F.2d 422 (3rd Cir. 1992); Hawaiian Independent Refinery, Inc. v. United
States, 697 F.2d 1063, 1069 (Fed. Cir.

378

1983)), also provide the legal authority
supporting the taxpayer’s proposed unit of
property for determining when the property is disposed of by the taxpayer for depreciation purposes; and
(d) A statement as to whether the taxpayer’s proposed unit of property for determining when the property is disposed
of by the taxpayer for depreciation purposes is the same as the taxpayer’s present
unit of property for determining when the
property is placed in service by the taxpayer (when depreciation begins). If not,
also provide the unit of property for determining when the property is placed in service by the taxpayer and explain why the
taxpayer is using a different unit of property for determining when the property is
placed in service.
(3) Additional copy of Form 3115 required. A taxpayer changing its method of
accounting under section 6.25 of this APPENDIX must, in addition to the timely
duplicate filing requirements in section
6.02(3) of Rev. Proc. 2008–52, send a
copy of its completed Form 3115 (including attachments) to the following address
on or before the date the taxpayer files a
copy of the Form 3115 with the national
office: Internal Revenue Service, 1973
North Rulon White Blvd., Mail Stop 4917,
Ogden, UT 84404.
(4) No ruling on unit of property. The
consent granted under this revenue procedure for this change is not a determination by the Commissioner that the taxpayer is using the appropriate unit of property for determining when the property is
placed in service or disposed of by the taxpayer for depreciation purposes and does
not create any presumption that the proposed unit of property is permissible for
depreciation purposes. The director will
ascertain whether the taxpayer’s determination of its unit of property for depreciation purposes is correct.
(5) Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of
this APPENDIX (as applicable) for the
same year of change should 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.
(b) A taxpayer that wants to make both
this change and a change under section

2009–38 I.R.B.

6.24 of this APPENDIX for the same year
of change should 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.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under section 6.25 of this APPENDIX
is “147.” See section 6.02(4) of this revenue procedure.
(7) Contact information. For further
information regarding a change under
this section, contact Charles Magee at
202–622–4930 (not a toll-free call).
.12 Changes to section 11.01 of the APPENDIX, Certain uniform capitalization
(UNICAP) methods used by resellers and
reseller-producers.
(1) Section 11.01(1)(a) of the APPENDIX, Applicability.
(a) Section 11.01(1)(a)(vi) of the APPENDIX. Section 11.01(1)(a)(vi) of the
APPENDIX is modified to apply to a reseller-producer and is also clarified to read
as follows:
(vi) a reseller or reseller-producer that
wants to change to a UNICAP method
(or methods) specifically described in the
regulations and includes any necessary
changes in the identification of costs subject to § 263A that will be accounted for
using the new method in any taxable year,
other than the first taxable year, that it does
not qualify as a small reseller. However,
this does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (or vice versa)
under the simplified resale method; or
(b) New section 11.01(1)(a)(vii) of the
APPENIDX. Section 11.01(1)(a) of the
APPENDIX is modified by adding a new
section 11.01(1)(a)(vii) to read as follows:
(vii) a reseller or reseller-producer that
wants to change from not capitalizing a
cost subject to § 263A to capitalizing that
cost, if the reseller or reseller-producer
is otherwise already using a UNICAP
method (or methods) specifically described in the regulations.
(2) Section 11.01(1)(b)(ii) of the APPENDIX. Section 11.01(1)(b)(ii) of the
APPENDIX is clarified to read as follows:
(ii) Historic absorption ratio. This
change does not apply to a taxpayer that
wants to make an historic absorption

2009–38 I.R.B.

ratio election under §§ 1.263A–2(b)(4)
or 1.263A–3(d)(4), or to a taxpayer
that wants to revoke an election to
use the historic absorption ratio with
the simplified resale method (see
§ 1.263A–3(d)(4)(iii)(B)), including a taxpayer using the simplified resale method
with an historic absorption ratio that wants
to change to a UNICAP method specifically described in the regulations that does
not include the historic absorption ratio.
However, this change applies to a small
reseller that wants to change from the historic absorption ratio with the simplified
resale method to a permissible non-UNICAP inventory capitalization method
under section 11.01(1)(a)(i) of this APPENDIX.
(3) Section 11.01(1)(c) of the APPENDIX. Section 11.01(1)(c) of the APPENDIX of Rev. Proc. 2008–52 is modified
to read as follows:
(c) Scope limitation inapplicable. The
scope limitation of § 4.02(7) of this revenue procedure does not apply to the
changes described in §§ 11.01(1)(a)(i) and
(ii) of the APPENDIX of this revenue
procedure.
(4) Section 11.01(2), Definitions. Section 11.01(2)(g) of the APPENDIX of Rev.
Proc. 2008–52 is clarified to read as follows:
(g) “A UNICAP method specifically
described in the regulations” includes
the 90–10 de minimis rule to allocate
a mixed service department’s costs to
resale activities (§ 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)), 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)),
the specific identification method
(§ 1.263A–1(f)(2)), the burden rate
method (§ 1.263A–1(f)(3)), the standard cost method (§ 1.263A–1(f)(3)),
the
direct
reallocation
method
(§ 1.263A–1(g)(4)(iii)(A)), the step-allocation method (§ 1.263A–1(g)(4)(iii)(B)),
the simplified service cost method
(§ 1.263A–1(h)) (with a labor-based
allocation ratio), and the simplified resale
method without the historic absorption
ratio election (§ 1.263A–3(d)), but does
not include any other reasonable allocation method within the meaning of
§ 1.263A–1(f)(4).

379

.13 Changes to section 11.02 of the APPENDIX, Certain uniform capitalization
(UNICAP) methods used by producers and
reseller-producers.
(1) Section 11.02(1)(a) of the APPENDIX. Section 11.02(1)(a) of the APPENDIX is modified by adding a new second
sentence and is also clarified to read as follows:
(a) Applicability. This change applies to a producer (as defined in section 11.01(2)(d) of this APPENDIX) or
a reseller-producer (as defined in section 11.01(2)(e) of this APPENDIX) 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
new method. This change also includes a
change from not capitalizing a cost subject
to § 263A to capitalizing that cost for a
producer or a reseller-producer that is otherwise already using a UNICAP method
(or methods) specifically described in
the regulations. However, this change
does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (or vice versa)
under the simplified production method.
(2) Section 11.02(1)(b) of the APPENDIX. Section 11.02(1)(b) of the APPENDIX is clarified to read as follows:
(b) Inapplicability. This change does
not apply to a producer or reseller-producer that wants to revoke an election
to use the historic absorption ratio with
the simplified production method (see
§ 1.263A–2(b)(4)(iii)(B)), including a
taxpayer using the simplified production
method with an historic absorption ratio
changing to a UNICAP method specifically described in the regulations that does
not include the historic absorption ratio.
This change also does not apply to a taxpayer that wants to use either the simplified service cost method or the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D)
and 1.263A–2(b)(2)(i)(D). Also, this
change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capitalization.
.14 Change to section 14.01 of the APPENDIX, Change in overall method from
the cash method to an accrual method.

September 21, 2009

(1) Change to section 14.01(1)(a) of the
APPENDIX. The second paragraph of section 14.01(1)(a) of the APPENDIX is clarified to read as follows:
***
If the year of change is the first taxable
year the taxpayer is required by § 448 to
change from the cash method (the first
§ 448 year) and the taxpayer qualifies
to make this change under the automatic
consent procedures of § 1.448–1(g) and
(h)(2) as well as this revenue procedure,
the taxpayer may make the change under this revenue procedure provided the
taxpayer complies with the provisions of
§ 1.448–1(h)(2) and the requirements of
this revenue procedure. For a hospital, defined in § 1.448–1(g)(2)(ii)(B), that makes
the change for the first § 448 year under
the provisions of this revenue procedure,
see § 1.448–1(g)(2)(ii) for the applicable
§ 481(a) adjustment period. If a taxpayer
does not change from the cash method for
the first § 448 year under the provisions of
this revenue procedure, the taxpayer must
make the change under the provisions of
§ 1.448–1(g) and (h)(2).
(2) Change to section 14.01(1)(b) of
the APPENDIX, Inapplicability. Section
14.01(1)(b) is clarified by inserting a new
section 14.01(1)(b)(viii) to read as follows:
(viii) a taxpayer making a change from
a hybrid method of accounting to an overall accrual method of accounting. For purposes of section 14.01 of this APPENDIX,
a hybrid method of accounting is a combination of the cash and accrual methods under which one or more items of income or
expense are reported on the cash method
and one or more items of income or expense are reported on an accrual method.
(3) Change to section 14.01(2) of the
APPENDIX, Scope limitations inapplicable. Section 14.01(2) of the APPENDIX
is modified to read as follows:
(2) Scope limitation inapplicable. If
the year of change is the first taxable year
the taxpayer is required by § 448 to change
from the cash method (first § 448 year),
the scope limitation in section 4.02(6) of
this revenue procedure does not apply to
a change in method of accounting request
made under section 14.01 of this APPENDIX. For all other changes in method
of accounting requests made under section 14.01 of this APPENDIX, any prior
change to the overall cash method under
the provisions of Rev. Proc. 2001–10,

September 21, 2009

2001–1 C.B. 272, or Rev. Proc. 2002–28,
2002–1 C.B. 815, is disregarded for purposes of section 4.02(6) of this revenue
procedure.
.15 Change to section 14.14 of the APPENDIX, Nonshareholder contributions to
capital under § 118. Section 14.14 of the
APPENDIX of Rev. Proc. 2008–52 is
modified to read as follows:
.14 Nonshareholder contributions to
capital under § 118.
(1) Description of change.
(a) Water and sewerage disposal utilities.
(i) This change applies to a regulated
public utility described in § 118(c) that
wants to change its method of accounting for payments received from customers
as customer connection fees, which are
not contributions to the capital of the regulated public utility within the meaning
of § 118(c), from excluding the payments
from gross income as nontaxable contributions to capital under § 118 to including the
payments in gross income under § 61. See
Rev. Rul. 2008–30, 2008–1 C.B. 1156.
(ii) This change applies to a regulated
public utility described in § 118(c) that
wants to change its method of accounting for payments or property received that
are contributions in aid of construction under § 118(c) and § 1.118–2 and that meet
the requirements of §§ 118(c)(1)(B) and
118(c)(1)(C) from including the payments
or the fair market value of the property in
gross income under § 61 to excluding the
payments or the fair market value of the
property from income as nontaxable contributions to capital under § 118(a).
(b) Other payments or property received. This change applies to a taxpayer
that wants to change its method of accounting for payments or property received
(other than the payments received by a
public utility described in § 118(c) that
are addressed in section 14.14(1)(a)(i) of
this APPENDIX) 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. In addition
to the other filing requirements of this rev-

380

enue procedure, a taxpayer that is making a
change described in section 14.14(1)(a)(i)
or (1)(b) must complete Schedule E of
Form 3115 for the depreciable property to
which the change relates.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.14
of this APPENDIX is “129.” See section
6.02(4) of this revenue procedure.
(4) Contact information. For further
information regarding a change under this
section, contact David H. McDonnell at
202–622–3040 (not a toll-free call).
.16 New section 14.15 of the APPENDIX, Debt issuance costs. Section 14 of
the APPENDIX of Rev. Proc. 2008–52 is
modified by adding a new section 14.15 to
read as follows:
.15 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.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.15
of this APPENDIX is “148.” See section
6.02(4) of this revenue procedure.
(3) Contact information. For further
information regarding a change under
this section, contact Sonja Kotlica at
202–622–3950 (not a toll-free number).
.17 Change to section 15.07 of the APPENDIX, Advance payments. Sections
15.07(1) and (3) of the APPENDIX of
Rev. Proc. 2008–52 are modified and
section 15.07(2) of the APPENDIX of
Rev. Proc. 2008–52 is clarified to read as
follows:
(1) Description of change. This change
applies to a taxpayer using or changing
to an overall accrual method of accounting that receives advance payments, as
defined in Rev. Proc. 2004–34, 2004–1
C.B. 991, and wants to use either the full
inclusion or deferral method, as described
in Rev. Proc. 2004–34. See also Announcement 2004–48, 2004–1 C.B. 998.
This change includes a change by a taxpayer that changes the way it recognizes
advance payments in revenues in its applicable financial statement (AFS) and wants
to change its method of accounting to use

2009–38 I.R.B.

its new AFS in determining the extent to
which advance payments are included in
gross income under Rev. Proc. 2004–34.
For example, a taxpayer that changes its
AFS from one deferral method to a different deferral method must change its
method of accounting under this revenue
procedure (if otherwise eligible) to use
that different deferral method for tax purposes under Rev. Proc. 2004–34.
(2) Manner of making change. In lieu of
providing the information and documentation required by line 1 of Schedule B of
the Dec. 2003 version of Form 3115, a
taxpayer changing to the deferral method
must: (i) state whether the taxpayer uses
an applicable financial statement and, if
so, identify the type; (ii) describe the basis used for deferral (that is, the method
the taxpayer uses in its applicable financial
statement or how the taxpayer determines
amounts earned, as applicable); and (iii) if
the taxpayer makes an allocation to which
section 5.02(4)(c) of Rev. Proc. 2004–34
applies, include a statement that the allocation method is based on payments the
taxpayer regularly receives for an item or
items it regularly provides separately. See
Rev. Proc. 2004–34 and Announcement
2004–48.
(3) Concurrent automatic change to an
overall accrual method. A taxpayer that
wants to make both a change to the deferral method under section 15.07 of this
APPENDIX and a change to an overall
accrual method under section 14.01 of this
APPENDIX for the same year of change
must 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.
.18 Change to section 15.10 of the APPENDIX, Retainages. Section 15.10(1)(a)
of the APPENDIX of Rev. Proc. 2008–52
is modified to read as follows:
(a) Applicability. This change applies
to an accrual method taxpayer 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 section
15.10 of this APPENDIX must treat all retainages (receivables and payables) in the
same manner.
.19 Change to section 19.01(1) of the
APPENDIX, Self-insured employee medi-

2009–38 I.R.B.

cal benefits. Section 19.01(1)(a)(i) of the
APPENDIX of Rev. Proc. 2008–52 is amplified and clarified to read as follows:
(i) Applicability.
This change applies to an accrual method taxpayer 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 and
to 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:
***
.20 Change to section 19.01(2) of the
APPENDIX, Bonuses. Section 19.01(2)(a)
of the APPENDIX of Rev. Proc. 2008–52
is amplified and clarified to read as follows:
(a) Description of change.
(i) Applicability. This change applies
to an accrual method taxpayer 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 section 19.01(2) of this
APPENDIX 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, 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:
(A) if the bonus is not received by the
employee by the 15th day of the 3rd calendar month after the end of the taxable year

381

in which the related services are provided;
or
(B) 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 section 19.01(2) of this
APPENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable).
.21 Change to section 19.01(3) of
the APPENDIX, Vacation pay. Section
19.01(3)(a) of the APPENDIX of Rev.
Proc. 2008–52 is amplified and clarified
to read as follows:
(a) Description of change.
(i) Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
vacation pay as incurred in the taxable year
in which all 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)). Specifically, a taxpayer may change its method of
accounting under section 19.01(3) of this
APPENDIX to one of the following methods:
(A) If all the events that establish the
fact of the liability to pay vacation pay
have occurred by the end of the taxable
year in which the related services are provided, the taxpayer will treat the vacation pay liability as incurred in that taxable year. A taxpayer may change to this
method of accounting only if the vacation
pay vests in that taxable year.
(B) If all the events that establish the
fact of the liability to pay vacation 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 liability as incurred in such
subsequent taxable year.
(ii) Inapplicability. This change does
not apply:
(A) if the vacation pay is not received
by the employee by the 15th day of the 3rd
calendar month after the end of the taxable
year in which the related services are provided; or
(B) to a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which

September 21, 2009

the taxpayer wants to change its method of
accounting under section 19.01(3) of this
APPENDIX 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 11.01 or
11.02 of this APPENDIX (as applicable).
.22 Changes to section 19.03 of the APPENDIX, Timing of incurring liabilities
under a workers’ compensation act, tort,
breach of contract, or violation of law.
(1) Section 19.03(1)(a) of the APPENDIX. Section 19.03(1)(a) of the APPENDIX of Rev. Proc. 2008–52 is amplified
and clarified to read as follows:
(a) Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for selfinsured 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 19.01(1) of
this APPENDIX.
(2) Section 19.03(3) of the APPENDIX.
Section 19.03(3) of the APPENDIX of
Rev. Proc. 2008–52 is amplified and clarified to read as follows:
(3) Concurrent automatic changes. A
taxpayer that wants to make both this
change and change to either a method
provided in section 19.01(1) of this APPENDIX for self-insured employee medical expenses or a UNICAP method under
section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year of
change should file a single Form 3115 and
enter the designated automatic accounting
method change number for each change
on the appropriate line on that Form 3115.

September 21, 2009

.23 New section 19.08 of the APPENDIX, Ratable accrual of real property
taxes. Section 19 of the APPENDIX of
Rev. Proc. 2008–52 is modified by adding
a new section 19.08 to read as follows:
.08 Ratable accrual of real property
taxes.
(1) Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of accounting
for real property taxes to the method described in § 461(c) and § 1.461–1(c)(1)
(ratable accrual election). This change applies to real property taxes that relate to a
definite period of time. This change does
not apply to a taxpayer’s first taxable year
in which the taxpayer incurs real property
taxes, in which case the change is made using the provisions of § 1.461–1(c)(3)(i).
(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 real property
taxes accrued on or after the beginning
of the year of change. Any real property taxes accrued prior to the year of
change are accounted for under the taxpayer’s former method of accounting. See
§ 1.461–1(c)(6), Examples (2) - (5). See
also section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. 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 an application
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The taxpayer’s request (Form
3115 or statement) to make the change
under this section of the APPENDIX must
include all of the following:
(i) the designated automatic accounting
method change number for this change,
which is “149”;
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual);
(iii) the year of change (both the beginning and ending dates); and
(iv) the information described in
§ 1.461–1(c)(3)(ii)(a) through (f).
(c) The consent granted under this
revenue procedure satisfies the consent required under § 461(c)(2)(B) and
§ 1.461–1(c)(3)(ii).

382

(3) Contact information. For further
information regarding a change under
this section, contact Daniel Cassano at
202–622–7900 (not a toll-free call).
.24 Change to section 20 of the APPENDIX, Rent.
(1) Heading of section 20.01 of the APPENDIX. The heading of section 20.01 of
the APPENDIX of Rev. Proc. 2008–52 is
modified to read as follows:
.01 Change from an improper method
of inclusion of rental income or expense
to inclusion in accordance with the rent
allocation.
(2) Section 20.01(1)(a) of the APPENDIX. Section 20.01(1)(a) of the APPENDIX of Rev. Proc. 2008–52 is modified by deleting section 20.01(1)(a)(ii),
and renumbering section 20.01(1)(a)(iii)
as section 20.01(1)(a)(ii).
(3) Section 20.01(3) of the APPENDIX.
Section 20.01(3) of the APPENDIX of
Rev. Proc. 2008–52 is clarified to read as
follows:
(3) Audit protection limited. Audit
protection under section 7 of this revenue
procedure does not apply to this change
for any § 467 rental agreement determined
by the Commissioner to be a disqualified leaseback or long-term agreement
described in § 1.467–3(b).
.25 Change to section 21.01 of the
APPENDIX, Cash discounts.
Section
21.01(3) of the APPENDIX of Rev. Proc.
2008–52 is clarified to read as follows:
(3) Computation of § 481(a) adjustment
for changes to gross invoice method. In
the case of a taxpayer changing from the
net invoice method to the gross invoice
method, a positive adjustment is required
to prevent omissions arising from the fact
that the net invoice method did not report income upon timely payment for some
or all of the goods that remain in inventory, and a negative adjustment is required
to prevent duplications arising from the
fact that the net invoice method included
the invoice price, adjusted for the cash
discounts, of some or all goods in cost
of goods sold and the discount will be
earned by payment in a subsequent taxable year. The net § 481(a) adjustment can
be computed by deducting the “Available
Discount” at the beginning of the year of
change from the “Applicable Discount” at
the beginning of the year of change. The
Available Discount is equal to the difference between the accounts payable bal-

2009–38 I.R.B.

ance under the gross invoice method and
the net invoice method. The Applicable
Discount is equal to the difference between
the beginning inventory value under the
gross invoice method and the net invoice
method.
Example. Taxpayer’s accounts payable balance
at the beginning of the year of change was $980
under the net invoice method and $1,000 under the
gross invoice method. Taxpayer’s inventory value
was $2,955 under the net invoice method and $3,000
under the gross invoice method. The Applicable
Discount is $45 ($3,000 - $2,955) and the Available
Discount is $20 ($1,000 - $980). Thus, Taxpayer’s
net § 481(a) adjustment is a positive $25 ($45 - $20).

.26 Change to section 21.05 of the APPENDIX, Impermissible methods of identification and valuation. Section 21.05(1) of
the APPENDIX of Rev. Proc. 2008–52 is
modified to add a new section 21.05(1)(c)
to read as follows:
(c) changing from a method that is not
in accordance with § 1.471–2(c) for determining the value of “subnormal” goods.
.27 Change to section 21.11 of the APPENDIX, Permissible methods of identification and valuation. Section 21.11(1) of
the APPENDIX of Rev. Proc. 2008–52 is
clarified to read as follows:
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from
one permissible method of identifying and
valuing inventories to another permissible
method of identifying and valuing inventories. For example, a taxpayer using firstin, first-out (FIFO) as its inventory-identification method may change its inventory-valuation method from cost to cost or
market, whichever is lower (LCM). (Note,
however, a real estate developer may not
value land at LCM because land is not
inventoriable property under § 1.471–1.
Also, a taxpayer who meets the definition of a “dealer in securities” under both
§ 1.471–5 and § 475 is required to account
for securities, as defined in § 475, under
§ 475 and may not use the rules described
in § 1.471–5 for those securities.) Furthermore, a taxpayer may change to a permissible method of valuing “subnormal” goods
under § 1.471–2(c).
However, this change does not apply to
any change described in another section
of the APPENDIX of this revenue procedure or in other guidance published in the
IRB, or to any changes within the last-in,
first-out (LIFO) inventory method. For example, this change does not apply to a tax-

2009–38 I.R.B.

payer that wants to change to a rolling-average method (see section 21.14 of this
APPENDIX).
(b) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method (identification or valuation, or both) specifically
permitted by the Code, the regulations,
a decision of the United States Supreme
Court, a revenue ruling, a revenue procedure, or other guidance published in the
IRB for inventories. However, an otherwise permissible inventory method is
not permissible under this section of the
APPENDIX of this revenue procedure
for a specific taxpayer if that taxpayer is
prohibited from using that method or if
that taxpayer is required to use a different
method.
.28 New section 22.01(6) of the APPENDIX, Change from the LIFO inventory
method. Sections 22.01(6) and 22.01(7) of
the APPENDIX of Rev. Proc. 2008–52
are renumbered 22.01(7) and 22.01(8), respectively. Section 22.01 of the APPENDIX is clarified by adding a new section
22.01(6) to read as follows:
(6) Pool split and partial termination.
If a taxpayer must remove goods from a
pool because those goods are not within
the scope of that pool (for example, removing resale goods from a manufacturing
pool), and if the taxpayer wants to change
from the LIFO inventory method for those
removed goods, the taxpayer may split the
pool pursuant to section 22.10 of this APPENDIX and then may change from the
LIFO method pursuant to section 22.01 of
this APPENDIX. See section 22.10(2) of
this APPENDIX. The taxpayer must file a
separate Form 3115 for each such change.
.29 Changes to section 22.07 of the
APPENDIX, Changes within the inventory
price index computation (IPIC) method.
(1) Changes to section 22.07(1).
(a) Change to section 22.07(1)(f). Section 22.07(1)(f) of the APPENDIX is modified to read as follows:
(f) change the assignment of one or
more inventory items to BLS categories
under either Table 3 (Consumer Price Index for All Urban Consumers (CPI-U):
U.S. City average, detailed expenditure
categories) of the monthly CPI Detailed
Report or Table 6 (Producer price indexes
and percent changes for commodity groupings and individual items, not seasonally
adjusted) of the monthly PPI Detailed

383

Report. See § 1.472–8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to BLS categories under
the IPIC method. As part of this change,
a taxpayer may separate a reassigned item
from an inappropriate pool and combine
the reassigned item with items in an appropriate pool. See § 1.472–8(g)(2) for
principles concerning the manner of combining and separating dollar-value pools;
(b) New section 22.07(1)(h). Section
22.07(1) of the APPENDIX of Rev. Proc.
2008–52 is modified by adding a new
section 22.07(1)(h) at the end of section
22.07(1) to read as follows:
(h) change from using preliminary
BLS price indexes to using final BLS
price indexes to compute an inventory price index, or vice versa. See
§ 1.472–8(e)(3)(iii)(D)(2) for principles
concerning the selection of BLS price indexes under the IPIC method.
(2) New section 22.07(2). Sections
22.07(2), 22.07(3) and 22.07(4) of the
APPENDIX of Rev. Proc. 2008–52
are renumbered 22.07(3), 22.07(4) and
22.07(5), respectively. Section 22.07 of
the APPENDIX is modified by adding a
new section 22.07(2) to read as follows:
(2) Certain scope limitation inapplicable. The scope limitation in section 4.02(7)
of this revenue procedure does not apply to the changes described in sections
22.07(1)(d) and (g) of this APPENDIX.
.30 Changes to section 22.10 of the APPENDIX, Changes to dollar-value pools of
manufacturers.
(1) Change to section 22.10(1)(b). Section 22.10(1)(b) of the APPENDIX of Rev.
Proc. 2008–52 is clarified to read as follows:
(b) wants to change from using multiple
pools described in § 1.472–8(b)(3) to using natural business unit (NBU) pools described in § 1.472–8(b)(1), or vice versa;
or
(2) Change to section 22.10(2). Section
22.10(2) of the APPENDIX of Rev. Proc.
2008–52 is clarified to read as follows:
(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending inventories after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required. A taxpayer that changes

September 21, 2009

its method of pooling pursuant to section
22.10 of this APPENDIX must combine or
separate pools as required by § 1.472–8(g).
If a taxpayer splits a pool into two or
more permissible pools pursuant to section
22.10 of this APPENDIX, which must
be implemented on a cut-off basis, the
taxpayer then may file a separate Form
3115 to change from the LIFO inventory
method for one or more of the resulting
pools pursuant to section 22.01 of this
APPENDIX, which must be implemented
with a § 481(a) adjustment.
.31 Change to section 28.01 of the
APPENDIX, Transactions involving computer programs. Section 28.01 of the
APPENDIX of Rev. Proc. 2008–52 is
modified to delete the current text as obsolete, and to substitute the following:
.01 Reserved.
.32 Change in contact name information.
(1) Section 11.01 of the APPENDIX,
Certain uniform capitalization (UNICAP)
methods used by resellers and reseller-producers. Section 11.01(7) of the APPENDIX of Rev. Proc. 2008–52 is modified to
read as follows:
(7) Contact information. For further
information regarding a change under this
section, contact Kari Fisher or W. Thomas
McElroy, Jr. at 202–622–4970 (not a tollfree call).
(2) Section 11.02 of the APPENDIX,
Certain uniform capitalization (UNICAP)
methods used by producers and resellerproducers. Section 11.02(5) of the APPENDIX of Rev. Proc. 2008–52 is modified to read as follows:
(5) Contact information. For further
information regarding a change under this
section, contact Kari Fisher or W. Thomas
McElroy, Jr. at 202–622–4970 (not a tollfree call).
(3) Section 11.03 of the APPENDIX,
Change to no longer capitalize research
and experimental expenditures under
§ 263A. Section 11.03(5) of the APPENDIX of Rev. Proc. 2008–52 is modified to
read as follows:
(5) Contact information. For further
information regarding a change under this
section, contact Kari Fisher or W. Thomas
McElroy, Jr. at 202–622–4970 (not a tollfree call).

September 21, 2009

(4) Section 14.01 of the APPENDIX,
Change in overall method from the cash
method to an accrual method. Section
14.01(8) of the APPENDIX of Rev. Proc.
2008–52 is modified to read as follows:
(8) Contact information.
For further information regarding a change under this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
(5) Section 14.03 of the APPENDIX, Taxpayers changing to overall cash
method. Section 14.03(7) of the APPENDIX of Rev. Proc. 2008–52 is modified to
read as follows:
(7) Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
(6) Section 14.07 of the APPENDIX,
Deduction of incentive payments to health
care providers. Section 14.07(4) of the
APPENDIX of Rev. Proc. 2008–52 is
modified to read as follows:
(4) Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky at
202–622–3970 (not a toll-free call).
(7) Section 14.12 of the APPENDIX,
Change to overall cash/hybrid method for
certain banks. Section 14.12(7) of the APPENDIX of Rev. Proc. 2008–52 is modified to read as follows:
(7) Contact information. For further
information regarding a change under
this section, contact David B. Silber at
202–622–3930 (not a toll-free call).
(8) Section 15.05 of the APPENDIX,
Credit card annual fees. Section 15.05(4)
of the APPENDIX of Rev. Proc. 2008–52
is modified to read as follows:
(4) Contact information.
For further information regarding a change under this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
(9) Section 15.06 of the APPENDIX,
Credit card late fees. Section 15.06(5) of
the APPENDIX of Rev. Proc. 2008–52 is
modified to read as follows:
(5) Contact information.
For further information regarding a change under this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
(10) Section 15.08, Credit card cash advance fees. Section 15.08(5) of the APPENDIX of Rev. Proc. 2008–52 is modified to read as follows:

384

(5) Contact information.
For further information regarding a change under this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
(11) Change to section 24.01, Changing from the § 585 reserve method to the
§ 166 specific charge-off method. Section
24.01(6) of the APPENDIX of Rev. Proc.
2008–52 is modified to read as follows:
(6) Contact information.
For further information regarding a change under this section, contact David B. Silber at 202–622–3930 or Laura Fields at
202–622–3050 (not a toll-free call).
(12) Section 25.01, Safe harbor method
of accounting for premium acquisition expenses. Section 25.01(4) of the APPENDIX of Rev. Proc. 2008–52 is modified to
read as follows:
(4) Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky at
202–622–3970 (not a toll-free call).
(13) Change to section 26.01 of the APPENDIX, Composite method for discounting unpaid losses. Section 26.01(3) of the
APPENDIX of Rev. Proc. 2008–52 is
modified to read as follows:
(3) Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky at
202–622–3970 (not a toll-free call).
(14) Change to section 27.01 of the APPENDIX, REMIC inducement fees. Section 27.01(4) of the APPENDIX of Rev.
Proc. 2008–52 is modified to read as follows:
(4) Contact information. For further information regarding a change under this
section, contact John W. Rogers, III at
202–622–4695 (not a toll-free call).
(15) Change to section 29.01 of the APPENDIX, Change in functional currency.
Section 29.01(4) of the APPENDIX of
Rev. Proc. 2008–52 is modified to read as
follows:
(4) Contact information. For further
information regarding a change under this
section, contact Sheila Ramaswamy at
202–622–3870 (not a toll-free call).
(16) APPENDIX Contact List. The APPENDIX Contact List is modified for the
following sections to read as follows:

2009–38 I.R.B.

APPENDIX
Section
Number

Designated
Automatic
Accounting
Change Number

3.05
3.06
6.23
6.24
6.25
11.01

143
144
145
146
147
22

11.02

23

11.03

24

14.01
14.03
14.07
14.12
14.14
14.15
15.05
15.06
15.08
19.08
24.01

122, 123
32, 33
90
127
129
148
80, 81
82
94
149
66

25.01
26.01
27.01
29.01

67
68
79
70

The APPENDIX Contact List is also
modified to delete APPENDIX Section
Number 28.01.
SECTION 3. CHANGES TO REV.
PROC. 97–27
.01 Section 3.07 of Rev. Proc. 97–27
is modified by adding new section 3.07(3)
and is clarified by adding a new section
3.07(4) to read as follows:
(3) Taxpayer before Joint Committee on
Taxation. If an examination of a taxpayer
involves a refund or credit in excess of the
statutory sum that is subject to review by
the Joint Committee on Taxation pursuant
to § 6405, then, for purposes of this revenue procedure, the taxpayer is under examination while the taxpayer has a refund
or credit under review by the Joint Committee on Taxation and continues to be under examination until Joint Committee on
Taxation review procedures and any necessary follow-up are complete. See Rev.
Proc. 2005–32, 2005–1 C.B. 1206.
Further, for purposes of section 6.01(5)
(issue pending), an issue is pending for a

2009–38 I.R.B.

Contact Name

Telephone
Number

Office

Justin G. Meeks
Mon Lam
Ruba Nasrallah
Charles Magee
Charles Magee
Kari Fisher
W. Thomas McElroy, Jr.
Kari Fisher
W. Thomas McElroy, Jr.
Kari Fisher
W. Thomas McElroy, Jr.
Kari Fisher
W. Thomas McElroy, Jr.
Kay Hossofsky
David B. Silber
David H. McDonnell
Sonja Kotlica
Jon Silver
Jon Silver
Jon Silver
Daniel Cassano
David B. Silber
Laura Fields
Kay Hossofsky
Kay Hossofsky
John W. Rogers, III
Sheila Ramaswamy

202–622–5020
202–622–4950
202–622–4930
202–622–4930
202–622–4930
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–4970
202–622–3970
202–622–3930
202–622–3040
202–622–3950
202–622–3930
202–622–3930
202–622–3930
202–622–7900
202–622–3930
202–622–3050
202–622–3970
202–622–3970
202–622–4695
202–622–3870

IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
FI&P
FI&P
P&SI
FI&P
FI&P
FI&P
FI&P
IT&A
FI&P
P&SI
FI&P
FI&P
FI&P
INTL

taxable year under examination if the Service has given the taxpayer written notification indicating an adjustment is being
made or will be proposed with respect to
the taxpayer’s method of accounting. The
notification by the Service may result from
an inquiry by the Joint Committee on Taxation. This notification normally will occur
after the Service or the Joint Committee
on Taxation has gathered information sufficient to determine that an adjustment is
appropriate and justified, although the exact amount of the adjustment may not yet
be determined.
(4) Taxpayer in Compliance Assurance
Process. For purposes of this revenue
procedure, a taxpayer participating in the
Compliance Assurance Process (CAP) is
considered to be under examination as of
the date the taxpayer executes the Memorandum of Understanding for the CAP.
.02 Certain Foreign Corporations.
With respect to a foreign corporation that
is not required to file a federal income tax
return, sections 3.07 (definition of under
examination), 3.08 (definition of issue
under consideration), 4.02(2) (scope, in-

385

applicability when under examination),
6 (under examination, or before an appeals office, or a federal court), 7 (section
481(a) adjustment period), and 8.08 (signature requirements) of Rev. Proc. 97–27,
as amplified and modified by Rev. Proc.
2002–19, are clarified and modified in the
same manner as the comparable provisions of sections 3.08, 3.09, 4.02(1), 5.06,
6.02(3)(b) (applies to the Form 3115 filed
under Rev. Proc. 97–27), 6.02(3)(c)(ii),
6.02(5), 6.02(10), 6.02(11), 6.03, 6.04 and
6.05 of Rev. Proc. 2008–52, as modified
by sections, 2.02(2) (relating to certain foreign corporations), 2.03, 2.04 and 2.05(2)
of this revenue procedure.
.03 Change “district director” to “director.”
(1) Section 3 of Rev. Proc. 97–27 is
modified by adding a new section 3.10 to
read as follows:
.10 Director. The term “director” has
the same meaning as this term has in Rev.
Proc. 2009–1, 2009–1 I.R.B. 1 (or any
successor).

September 21, 2009

(2) Rev. Proc. 97–27 is clarified by replacing the term “district director” wherever it appears with the term “director.”
SECTION 4. EFFECT ON OTHER
DOCUMENTS
.01 Rev. Proc. 2008–52 is amplified,
clarified, and modified.
.02 Rev. Proc. 97–27 is clarified and
modified.
.03 Rev. Proc. 2005–63, 2005–2 C.B.
491, is modified to provide that taxpayers
within the scope of Rev. Proc. 2008–52,
that desire to make the change in method
of accounting described in § 1.461–1(c)
must follow the procedures in Rev. Proc.
2008–52 instead of the procedures in the
regulations and Rev. Proc. 2005–63.
SECTION 5. EFFECTIVE DATE
.01 In general.
(a) Rev. Proc. 2008–52. Except as
provided in section 5.02 of this revenue
procedure, this revenue procedure is effective for applications filed under Rev. Proc.
2008–52 on or after August 27, 2009, for a
year of change ending on or after December 31, 2008.
(b) Rev. Proc. 97–27. This revenue
procedure is effective for Forms 3115 filed
under Rev. Proc. 97–27, as amplified
and modified by Rev. Proc. 2002–19,
as amplified and clarified by Rev. Proc.
2002–54, and as modified by Rev. Proc.
2007–67, filed on or after August 27, 2009,
for a year of change ending on or after
August 27, 2009.
.02 Transition rules.
(1) No application filed by August 27,
2009. For a year of change ending on
or after December 31, 2008, and on or
before July 31, 2009, a taxpayer may
choose not to apply the following sections
of this revenue procedure: 2.07; 2.08;
2.09; 2.10; 2.11; 2.12(1)(a); 2.12(1)(b);
2.12(3); 2.12(4); 2.13(1); 2.14(3); 2.16;
2.17 (section 15.07(1) of the APPENDIX
of Rev. Proc. 2008–52, without regard
to section 15.07(3) of the APPENDIX, as
modified by this revenue procedure); 2.18;
2.19; 2.20; 2.21; 2.22; 2.23; 2.24; 2.26;
2.29(1)(a); 2.29(1)(b); 2.29(2).
For a taxpayer filing an application
under Rev. Proc. 2008–52, as amplified,
clarified, and modified by this revenue
procedure, and choosing not to apply sec-

September 21, 2009

tions 2.12(3), 2.17 (section 15.07(1) of
the APPENDIX of Rev. Proc. 2008–52,
without applying section 15.07(3) of the
APPENDIX, as modified by this revenue
procedure), and 2.18 of this revenue procedure (transition application), the timely
duplicate filing requirement of section
6.02(3)(a) of Rev. Proc. 2008–52 is modified to require the copy of the application
to be submitted to the national office on
or before September 15, 2009. A taxpayer
filing such a transition application under
this section 5.02(1) must otherwise be
eligible to make the change under Rev.
Proc. 2008–52, as amplified, clarified,
and modified by this revenue procedure,
and should write on the top of page 1 of
the national office copy of the application
“FILED UNDER SECTION 5.02(1) OF
REV. PROC. 2009–39.”
(2) Form 3115 filed under Rev. Proc.
97–27. If before August 27, 2009, a
taxpayer within the scope of Rev. Proc.
97–27 timely filed a Form 3115 under
Rev. Proc. 97–27 for a year of change
ending on or after December 31, 2008,
requesting consent for a change in method
of accounting described in the APPENDIX of Rev. Proc. 2008–52, as amplified,
clarified, and modified by this revenue
procedure, and the Form 3115 is pending
with the national office on August 27,
2009, the taxpayer may choose to convert the Form 3115 to make the change
under Rev. Proc. 2008–52, as amplified,
clarified, and modified by this revenue
procedure, but without regard to the modifications to the non-APPENDIX sections
of Rev. Proc. 2008–52 in sections 2.02
(adding new sections 3.08(4) and 3.08(5)
of Rev. Proc. 2008–52), 2.03 (adding new
section 3.09 of Rev. Proc. 2008–52), 2.04
(modifying section 4.02(1) of Rev. Proc.
2008–52), and 2.05(2) (modifying sections 6.02(11), 6.03, 6.04 and 6.05 of Rev.
Proc. 2008–52) of this revenue procedure (these modifications apply to certain
foreign corporations), if the taxpayer is
otherwise eligible under the APPENDIX
of Rev. Proc. 2008–52, as amplified,
clarified, and modified by this revenue
procedure. The taxpayer must notify the
national office of its intent to convert the
Form 3115 under this section 5.02(2) prior
to the later of October 26, 2009, or the
issuance of a letter ruling granting or denying consent for the change filed under Rev.
Proc. 97–27. If the taxpayer timely noti-

386

fies the national office that it will convert
the Form 3115 under this section 5.02(2),
the national office will return the Form
3115 to the taxpayer to make the necessary
modifications to comply with the applicable provisions of Rev. Proc. 2008–52, as
amplified, clarified, and modified by this
revenue procedure, and will refund the
user fee submitted with the Form 3115.
A taxpayer may convert a Form 3115
that is returned to the taxpayer under this
section 5.02(2) to an application under
Rev. Proc. 2008–52, as amplified, clarified, and modified by this revenue procedure, if the taxpayer resubmits the Form
3115 with the necessary modifications,
along with a copy of the national office
letter sent with the returned Form 3115,
to the national office within 30 calendar
days after the date of the Service’s letter
returning the Form 3115 to the taxpayer.
For purposes of the timely duplicate filing
requirement in section 6.02(3) of Rev.
Proc. 2008–52, the national office copy of
the Form 3115 will be considered filed as
of the date the taxpayer originally filed the
Form 3115 under Rev. Proc. 97–27.
A Form 3115 filed under Rev. Proc.
97–27 that is pending with the national
office on August 27, 2009, will be disregarded for purposes of the prior 5 year
change rules in sections 4.02(6) and (7) of
Rev. Proc. 2008–52, in the following circumstances:
(a) the taxpayer converts the Form 3115
under this section 5.02(2); or
(b) the taxpayer withdraws the Form
3115 and files an application under Rev.
Proc. 2008–52, as amplified, clarified, and
modified by this revenue procedure, for the
same change in method of accounting for
a year of change ending on or before December 31, 2009.
(3) Option to amend an application
filed under Rev. Proc. 2008–52 before
August 27, 2009. If before August 27,
2009, a taxpayer properly filed an application under Rev. Proc. 2008–52 for a
year of change that is the taxpayer’s first
taxable year ending on or after December
31, 2008, the taxpayer may choose to file
an amended application for that year of
change under Rev. Proc. 2008–52, as
amplified, clarified, and modified by this
revenue procedure (amended application)
if, within 6 months from the due date of
the federal income tax return for the year
of change (excluding any extension), the

2009–38 I.R.B.

taxpayer (i) files an original or amended
return using the new method of accounting pursuant to Rev. Proc. 2008–52,
as amplified, clarified, and modified by
this revenue procedure; (ii) attaches the
original amended application filed under
this revenue procedure to its original or
amended return for the year of change; (iii)
writes on the top of page 1 of the national
office copy of the amended application
“FILED UNDER SECTION 5.02(3) OF
REV. PROC. 2009–39”; and (iv) sends
the national office copy of the amended
application to the following address no
later than the date the original amended
application is filed with the original or
amended return: Internal Revenue Service, P.O. Box 14095, Benjamin Franklin
Station, Washington, DC 20044, Attention: CC:ITA:B8.
A Form 3115 filed under Rev. Proc
2008–52 prior to August 27, 2009, for a
taxable year ending on or after December
31, 2008, that is amended under this section 5.02(3) will be disregarded for purposes of the prior 5 year change rules in
sections 4.02(6) and (7) of Rev. Proc.
2008–52.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been

2009–38 I.R.B.

reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control numbers
1545–1551 and 1545–1541. Responses to
this collection of information are necessary and will be used to determine whether
the taxpayer properly changed to a permitted method of accounting. The estimated
annual frequency of responses is on occasion. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information unless the collection of information displays
a valid OMB control number.
The collections of information in this
revenue procedure are in sections 2.02,
2.05, 2.08, 2.09, 2.10, 2.11, 2.23, 3.01,
and 3.02. The likely respondents are the
following: individuals, farms, business or
other for-profit institutions, nonprofit institutions, and small businesses or organizations.
Sections 2.02, 2.05, 2.08, 2.09, 2.10,
2.11 and 2.23 will increase the estimated
number of responses and burden hours
for the control number 1545–1551. The
estimated annual burden per respondent/recordkeeper for control number
1545–1551 varies from 1/6 hour to 8 1/2
hours, depending on individual circumstances, with an estimated average of 1
1/4 hours. The estimated number of respondents is 14,060. The estimated total

387

annual reporting and/or recordkeeping
burden for control number 1545–1551 is
15,206 hours.
Sections 2.09, 3.01 and 3.02 will increase the estimated number of responses
and burden hours for the control number
1545–1541. The estimated annual burden
for control number 1545–1541 per respondent/recordkeeper varies from 1/6 hour to
5 hours, depending on individual circumstances, with an estimated average of 3 1/4
hours. The estimated number of respondents is 3,070. The estimated total annual
reporting and/or recordkeeping burden for
control number 1545–1541 is 9,743 hours.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Karla M. Meola of the
Office of Chief Counsel (Income Tax
& Accounting). For further information
concerning this revenue procedure, please
contact Ms. Meola at (202) 622–4930.

September 21, 2009