Revenue Procedure 97-43

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 446, 475; 1.446–1, 1.475(c)–1.)

Rev. Proc. 97–43
SEC. 1. PURPOSE
This revenue procedure tells taxpayers
how to request consent to change methods
of accounting to comply with elections
out of certain exemptions from dealer status for purposes of § 475 of the Internal
Revenue Code. See § 1.475(c)–1(a)(3) of
the Income Tax Regulations (concerning
taxpayers buying securities from or selling securities to members of the same
consolidated group); § 1.475(c)–1(b)
(concerning sellers of nonfinancial goods
and services); and § 1.475(c)–1(c) (concerning taxpayers that engage in no more
than negligible sales of securities).
SEC. 2. BACKGROUND
.01 Under § 475(a), dealers in securities must use a mark-to-market accounting method for securities other than certain securities timely identified as exempt
under § 475(b)(2). Section 475(c)(1) defines dealer in securities for purposes of
§ 475.
.02 One component of the definition of
dealer in securities in § 475(c)(1) is entering into transactions in securities with
customers. Members of the same consolidated group are ordinarily not each
other ’s customers for purposes of
§ 475(c)(1). Section 1.475(c)–1(a)(3)(ii).
A consolidated group may, however, elect
to treat its members as potential customers of one another for purposes of
§ 475(c)(1) (the intragroup-customer
election). Unless the Commissioner otherwise prescribes, the election is made by
filing a specified statement with a timely
filed consolidated federal income tax return. Section 1.475(c)–1(a)(3)(iii)(B).
.03 A taxpayer is ordinarily exempt
from treatment as a dealer in securities if
the taxpayer would not be a dealer in securities but for its purchases and sales of
debt instruments that are customer paper
as defined in § 1.475(c)–1(b)(2) with respect to the taxpayer or another member
of its consolidated group (the customer
paper exemption). Section 1.475
(c)–1(b)(1). Taxpayers may elect not to

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be governed by the customer paper exemption. Section 1.475(c)–1(b)(4). Unless the Commissioner otherwise prescribes, the election generally is made by
filing a specified statement with a timely
filed federal income tax return (or, in limited cases, an amended return). Section
1.475(c)–1(b)(4)(i); see also Rev. Rul.
97–39, page 4, this Bulletin, Holding 13.
.04 A taxpayer’s purchases of securities
from customers do not make the taxpayer
a dealer in securities if the taxpayer engages in no more than negligible sales of
securities as defined in § 1.475(c)–1(c)(2)
(the negligible sales exemption). Section
1.475(c)–1(c)(1)(i). Taxpayers may elect
not to be governed by the negligible sales
exemption. This is done on a timely filed
original federal income tax return (or, in
limited cases, on an amended return).
Section 1.475(c)–1(c)(1)(ii); see also Rev.
Rul. 97–39, Holding 12.
.05 In general, making one of these
elections results in the taxpayer being required to change its method of accounting
to reflect the application of § 475(a). But
see Rev. Rul. 97-39, Holding 17 (discussing circumstances in which more than
one election must be made for § 475(a) to
apply). A taxpayer must obtain the consent of the Commissioner to change an
accounting method. Section 446(e).
.06 A taxpayer that accounts for securities under § 475(a) may change that
method only with the consent of the Commissioner. Section 446(e). See Rev. Rul.
97–39, Holding 20; see also Rev. Proc.
97–27, 1997–21 I.R.B. 10, or its successor on how to request consent to change.
SEC. 3. SCOPE
This revenue procedure applies to taxpayers required to change methods of accounting as a result of elections under
§ 1.475(c)–1(a)(3)(iii), –1(b)(4), or
–1(c)(1)(ii) (including taxpayers that
made those elections prior to September
10, 1997).
SEC. 4. PROCEDURE
.01 If a taxpayer elects to be governed
by the intragroup-customer election and
the election results in the taxpayer being
required to change its method of accounting, then the taxpayer must attach both

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the statement described in § 1.475(c)–
1(a)(3)(iii)(B) and the additional documents required by section 4.07 of this revenue procedure to the taxpayer’s timely
filed original federal income tax return for
the first year subject to the election. If
that return is filed on or before October
31, 1997, however, the additional documents may be filed at a later date in accordance with section 4.04. In addition, a
copy of those documents must be filed as
required by section 4.05 and, if applicable, section 4.06.
.02 If a taxpayer elects not to be governed by the customer paper exemption
and the election results in the taxpayer
being required to change its method of accounting, then the taxpayer must attach
both the statement described in
§ 1.475(c)–1(b)(4)(i) and the additional
documents required by section 4.07 of
this revenue procedure to a timely filed
federal income tax return or to an
amended return, as appropriate under
§ 1.475(c)–1(b)(4)(i)(A) or (B) or Holding 13 of Rev. Rul. 97-39. If that return is
filed on or before October 31, 1997, however, the additional documents may be
filed at a later date in accordance with section 4.04. In addition, a copy of those documents must be filed as required by section
4.05 and, if applicable, section 4.06.
.03 If a taxpayer elects not to be governed by the negligible sales exemption
and the election results in the taxpayer
being required to change its method of accounting, then the taxpayer must attach
the documents required by section 4.07 of
this revenue procedure to the timely filed
original federal income tax return described in § 1.475(c)–1(c)(1)(ii) or the
amended return described in Rev. Rul.
97–39, Holding 12 (discussing when the
election not to be governed by the negligible sales exemption may be made by filing an amended return). If that return is
filed on or before October 31, 1997, however, the additional documents may be
filed at a later date in accordance with section 4.04. In addition, a copy of those documents must be filed as required by section
4.05 and, if applicable, section 4.06.
.04 A taxpayer that files the return described in section 4.01, 4.02, or 4.03 of
this revenue procedure on or before October 31, 1997, need not attach the docu-

1997–39 I.R.B.

ments required by section 4.07 to that return if the taxpayer instead attaches these
documents to the first federal income tax
return or amended return filed by the taxpayer after October 31, 1997, that is for a
taxable year subject to the election.
.05 The taxpayer must file a copy of the
documents required by section 4.07 of this
revenue procedure with the Commissioner
of Internal Revenue, Attention:
CC:DOM:IT&A, P.O. Box 7604, Benjamin
Franklin Station, Washington, DC 20044
(or, in the case of a designated private delivery service: Commissioner of Internal
Revenue, Attention: CC:DOM:IT&A,
1111 Constitution Avenue, NW, Washington, DC 20224). This filing must occur on
or before the later of October 31, 1997, and
the time the taxpayer files the return described in section 4.01, 4.02, or 4.03. The
documents must contain the name and telephone number of the examining agent, appeals office, or counsel of record for the
government, if any, described in section
4.06.
.06 If a taxpayer files an amended return
on which the taxpayer elects not to be governed by the customer paper exemption or
the negligible sales exemption and, at the
time of filing, the taxable year to which the
amended return applies or any subsequent
taxable year is before the Service or before
a federal court, then the taxpayer must provide a copy of the documents required by
section 4.07 of this revenue procedure to
the persons provided below.
(1) If a taxable year in question is before the Service, a copy of the documents
required by section 4.07 of this revenue
procedure must be provided to the taxpayer’s examining agent or, instead, if the
taxable year has been assigned to an appeals office, to such appeals office. The
taxpayer must provide the copy by the
later of October 31, 1997, and the day that
is 30 days after the date the taxable year
in question first came before the Service.
For purposes of this section, a taxable
year shall be considered before the Service from the time the taxpayer (or any
member of a consolidated group of which
taxpayer was a member during the taxable
year) has been contacted in any manner
by a representative of the Service for the
purpose of scheduling any type of examination of its federal income tax return for
that year until the receipt of a no-change
letter for that year, the execution of a

1997–39 I.R.B.

waiver of restrictions on assessment and
collection of deficiency in tax and acceptance of overassessment, the expiration of
the period for filing a petition with the
Tax Court for that year, or the filing of a
petition with the Tax Court.
(2) If a taxable year in question is before a federal court, a copy of the documents required by section 4.07 of this revenue procedure must be provided to
counsel of record for the government.
The taxpayer must provide the copy by
the later of October 31, 1997, and the day
which is 30 days after the date the taxable
year in question first came before a federal court. For purposes of this section, a
taxable year will be considered before a
federal court if the treatment of any item
(whether or not involving a method of accounting) for such taxable year would be
considered before a federal court for the
purpose of Rev. Proc. 97–27, 1997–21
I.R.B. 10, section 3.08(3).
.07 The taxpayer must properly complete and execute a Form 3115. A legend
must be typed on the top of the first page
of the Form 3115 that identifies the applicable parts of section 4 of this revenue
procedure (other than section 4.04 and
section 4.07). The legend should read
substantially as follows: “Filed under section[s] 4.** [and 4.**] of Rev. Proc.
97–43.”
(1) Form 3115 requires an explanation
of the legal basis of the proposed change
in method of accounting. That explanation must state specifically which election(s) the taxpayer made under
§ 1.475(c)–1. See also Rev. Rul. 97–39,
Holding 17 (discussing the need for multiple elections).
(2) The taxpayer must attach to the
Form 3115 a statement describing all identifications, if any, that are or were effective
for the purposes of § 475(b)(2) of securities acquired prior to the date of executing
the Form 3115 (or the date of filing if filed
more than 30 days after executing). For
identifications that are not subject to Holding 15 of Rev. Rul. 97–39, the statement
must describe the procedures or systems
used to make each identification, the date
on which the identifications were made,
and the content and location of the identifications in the taxpayer ’s books and
records. See Rev. Rul. 97–39, Holding 14
(discussing when an identification under
§ 475(b)(2) is timely made). If the tax-

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payer holds, or held, transition securities,
which are subject to identification under
Holding 15 of Rev. Rul. 97–39, the statement must describe the basis for concluding that the securities were or were not described in § 475(b)(1)(A), (B), or (C),
including the date, content, and location of
documents in the taxpayer’s books and
records that support such conclusions. If
there were no identifications, or if none of
the taxpayer’s securities were transition securities, then the statement should convey
this information.
SEC. 5. CONSENT
.01 If a taxpayer described in section 3
of this revenue procedure complies with
the requirements set forth in section 4,
then the Commissioner hereby grants
consent for the taxpayer to change its
method of accounting for securities to reflect the application of § 475(a).
.02 Pending further guidance, in the
case of any taxpayer granted automatic
consent to change an accounting method
by this revenue procedure, § 475(a) applies only to changes in value of securities
occurring after the start of the year of
change, and any built-in gain or loss as of
the beginning of the year of change must
be taken into account under rules similar
to § 1.475(a)–3(b)(2).
SEC. 6. EFFECTIVE DATE
This revenue procedure is effective September 10, 1997, the date this revenue procedure was made available to the public.
SEC. 7. PAPERWORK REDUCTION
ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1558.
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
control number.
The collections of information in this
revenue procedure are in sections 2.02,
2.03, 2.04, and 4.07(2). This information
is required by the Service in order to facilitate monitoring taxpayers changing ac-

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counting methods resulting from making
the elections provided by § 1.475(c)–
1(a)(3)(iii), –1(b)(4), or –1(c)(1)(ii). The
information collected will be used if a taxpayer making the change is audited. The
collection of information is required to obtain a benefit. The likely respondents are
business or other for-profit institutions.
The collection of information contained
in sections 2.02, 2.03, and 2.04 were reviewed and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507)
under control number 1545–1496.
The estimated total annual reporting

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burden described in section 4.07(2) is
100,000 hours.
The estimated annual burden per respondent varies from .25 hours to 50
hours, depending on individual circumstances, with an estimated average of 5
hours. The estimated number of respondents is 20,000.
The estimated annual frequency of responses is once in the existence of each
respondent.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal

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revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Kenneth P. Christman of the
Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue
procedure, contact Mr. Christman at 202622-3950 (not a toll-free call).

1997–39 I.R.B.