Rev. Proc. 2016-29

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 195, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 461, 467, 471,
472, 475, 481, 585, 816, 832, 833, 846, 860A– 860G, 861, 904, 953, 985, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61–1, 1.61– 4, 1.61– 8, 1.77–1,
1.77–2, 1.118 –2, 1.162–1, 1.162–3, 1.162– 4, 1.162–11, 1.162–12, 1.166 –1, 1.166 –2, 1.166 – 4, 1.167(a)–2, 1.167(a)–3(b), 1.167(a)– 4, 1.167(a)–7, 1.167(a)– 8,
1.167(a)–11, 1.167(a)–14, 1.167(e)–1, 1.168(d)–1, 1.168(i)–1, 1.168(i)– 4, 1.168(i)– 6, 1.168(i)–7, 1.168(i)– 8, 1.168(k)–1, 1.171– 4, 1.174 –1, 1.174 –3, 1.174 – 4,
1.179 –5, 1.194 –1, 1.195–1, 1.197–2, 1.263(a)–1, 1.263(a)–2, 1.263(a)–3, 1.263(a)– 4, 1.263(a)–5, 1.263A–1, 1.263A–2, 1.263A–3, 1.263A– 4, 1.263A–7, 1.267(a)–1,
1.280F– 6, 1.404(b)–1T, 1.446 –1, 1.446 –1T, 1.446 –2, 1.446 –5, 1.446 – 6, 1.448 –1T, 1.448 –2, 1.451–1, 1.451–5, 1.454 –1, 1.455– 6, 1.461–1, 1.461– 4, 1.461–5,
1.467–1, 1.471–1, 1.471–2, 1.471–3, 1.471– 4, 1.471–5, 1.471– 8, 1.472–1, 1.472–2, 1.472– 6, 1.472– 8, 1.481–1, 1.481– 4, 1.832– 4, 1.832–5, 1.860A– 6, 1.861–18,
1.985–5, 1.985– 8, 1.1016 –3, 1.1245–3, 1.1272–1, 1.1273–1, 1.1273–2, 1.1363–2, 1.1374 – 4, 1.1400L(b)–1.)

Rev. Proc. 2016 –29
LIST OF AUTOMATIC CHANGES.............................................................................................................................................884
SECTION 1. GROSS INCOME (§ 61) .........................................................................................................................................884
.01 Up-front Payments for Network Upgrades received by Utilities........................................................................................884
SECTION 2. COMMODITY CREDIT LOANS (§ 77) ................................................................................................................885
.01 Treating amounts received as loans .....................................................................................................................................885
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162) ........................................................................................................885
.01 Advances made by a lawyer on behalf of clients ...............................................................................................................885
.02 ISO 9000 Costs .....................................................................................................................................................................885
.03 Restaurant or tavern smallwares packages...........................................................................................................................885
.04 Timber grower fertilization costs .........................................................................................................................................885
.05 Materials and supplies ..........................................................................................................................................................885
.06 Repair and maintenance costs ..............................................................................................................................................885
.07 Wireline network asset maintenance allowance and units of property methods of accounting
under Rev. Proc. 2011–27 ....................................................................................................................................................885
.08 Wireless network asset maintenance allowance and units of property methods of
accounting under Rev. Proc. 2011–28 .................................................................................................................................886
.09 Method of accounting under Rev. Proc. 2011–43 for taxpayers in the business of transporting,
delivering, or selling electricity............................................................................................................................................886
.10 Method of accounting under Rev. Proc. 2013–24 for taxpayers in the business of generating steam
or electric power. ..................................................................................................................................................................886
.11 Cable network asset capitalization methods of accounting under Rev. Proc. 2015–12.....................................................886
SECTION 4. BAD DEBTS (§ 166) ...............................................................................................................................................887
.01 Change from reserve method to specific charge-off method ..............................................................................................887
.02 Conformity election by bank after previous election automatically revoked.....................................................................887
SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM (§ 171)..........................................887
.01 Revocation of § 171(c) election ...........................................................................................................................................887
.02 Change to comply with § 163(e)(3).....................................................................................................................................888
SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 56(g)(4)(A), 167, 168, 197,
280F(a), 1400I, 1400L, or 1400N(d), OR FORMER § 168) .................................................................................888
.01 Impermissible to permissible method of accounting for depreciation or amortization......................................................888
.02 Permissible to permissible method of accounting for depreciation ....................................................................................892
.03 Sale, lease, or financing transactions ...................................................................................................................................894
.04 Change in general asset account treatment due to a change in the use of MACRS property ..........................................895
.05 Change in method of accounting for depreciation due to a change in the use of MACRS property...............................895
.06 Depreciation of qualified non-personal use vans and light trucks ......................................................................................896
.07 Impermissible to permissible method of accounting for depreciation or amortization for disposed
depreciable or amortizable property.....................................................................................................................................896
.08 Tenant construction allowances............................................................................................................................................897

May 23, 2016

880

Bulletin No. 2016 –21

.09 Safe harbor method of accounting for determining the depreciation of certain tangible assets used
by wireless telecommunications carriers under Rev. Proc. 2011–22 .................................................................................898
.10 Late partial disposition election (§ 168; § 1.168(i)–8)........................................................................................................898
.11 Revocation of a general asset account election (§ 168; § 1.168(i)–1, § 1.168(i)–1T
and Prop. Reg. § 1.168(i)–1)................................................................................................................................................901
.12 Partial dispositions of tangible depreciable assets to which the IRS’s adjustment pertains (§ 168; § 1.168(i)–8) ....................903
.13 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)–4) ...........................................................................904
.14 Permissible to permissible method of accounting for depreciation of MACRS property
(§ 168; §§ 1.168(i)–1, 1.168(i)–7, and 1.168(i)–8) ...........................................................................................................................904
.15 Disposition of a building or structural component (§ 168; § 1.168(i)–8).......................................................................................907
.16 Dispositions of tangible depreciable assets (other than a building or its structural
components) (§ 168; § 1.168(i)–8) .....................................................................................................................................................911
.17 Dispositions of tangible depreciable assets in a general asset account (§ 168(i)(4); § 1.168(i)–1)..............................................913
.18 Summary of certain changes in methods of accounting related to dispositions of MACRS property.........................................915
.19 Depreciation of fiber optic transfer node and fiber optic cable used by a cable system operator (§§ 167 and 168).................917
.20 Revocation of partial disposition election under the remodel-refresh safe harbor described in Rev. Proc. 2015–56 ................918
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)...................................................................................918
.01 Changes to a different method or different amortization period......................................................................................................918
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D) ...........................................................................................................919
.01 Deduction for Energy Efficient Commercial Buildings (§ 179D) ...................................................................................................919
SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197)...........................................................................920
.01 Computer software expenditures .........................................................................................................................................................920
SECTION 10. START-UP EXPENDITURES (§ 195)...............................................................................................................................920
.01 Start-up expenditures ............................................................................................................................................................................920
SECTION 11. CAPITAL EXPENDITURES (§ 263).................................................................................................................................920
.01 Package design costs ............................................................................................................................................................................920
.02 Line pack gas or cushion gas ..............................................................................................................................................................921
.03 Removal costs .......................................................................................................................................................................................921
.04 Distributor commissions.......................................................................................................................................................................921
.05 Intangibles..............................................................................................................................................................................................922
.06 Rotable spare parts safe harbor method. ............................................................................................................................................922
.07 Repairable and reusable spare parts....................................................................................................................................................922
.08 Tangible property..................................................................................................................................................................................923
.09 Railroad track structure expenditures..................................................................................................................................................926
.10 Remodel-refresh safe harbor method..................................................................................................................................................926
SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) ...............................................................................928
.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers ......................................................928
.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers ...................................................932
.03 Impact fees ............................................................................................................................................................................................933
.04 Change to capitalizing environmental remediation costs under § 263A.........................................................................................933
.05 Change in allocating environmental remediation costs under § 263A............................................................................................933
.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles ..............................................................................933
.07 Change to not apply § 263A to one or more plants removed from the list of plants that have a
preproductive period in excess of 2 years..........................................................................................................................................934
.08 Change to a reasonable allocation method described in § 1.263A–1(f)(4) for self-constructed assets........................................934
.09 Real property acquired through foreclosure .......................................................................................................................................935

Bulletin No. 2016 –21

881

May 23, 2016

.10 Sales-Based Royalties...........................................................................................................................................................................935
.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method.................................................................................935
.12 U.S. ratio method..................................................................................................................................................................................936
.13 Depletion................................................................................................................................................................................................937
.14 Interest capitalization............................................................................................................................................................................938
SECTION 13. LOSSES, EXPENSES, AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)......................................................................................................................................938
.01 Change to comply with § 267.............................................................................................................................................................938
SECTION 14. DEFERRED COMPENSATION (§ 404) ...........................................................................................................................938
.01 Deferred compensation.........................................................................................................................................................................938
.02 Grace period contributions...................................................................................................................................................................939
SECTION 15. METHODS OF ACCOUNTING (§ 446)...........................................................................................................................939
.01 Change in overall method from the cash method to an accrual method ........................................................................................939
.02 Multi-year insurance policies for multi-year service warranty contracts.........................................................................................941
.03 Taxpayers changing to overall cash method......................................................................................................................................941
.04 Nonaccrual-experience method............................................................................................................................................................942
.05 Interest accruals on short-term consumer loans-Rule of 78’s method.............................................................................................943
.06 Film producer’s treatment of certain creative property costs ...........................................................................................................943
.07 Deduction of incentive payments to health care providers...............................................................................................................943
.08 Change by bank for uncollected interest. ...........................................................................................................................................944
.09 Change from the cash method to an accrual method for specific items .........................................................................................944
.10 Multi-year service warranty contracts.................................................................................................................................................945
.11 Overall cash method for specified transportation industry taxpayers ..............................................................................................945
.12 Change to overall cash/hybrid method for certain banks .................................................................................................................946
.13 Change to overall cash method for farmers.......................................................................................................................................947
.14 Nonshareholder contributions to capital under § 118 .......................................................................................................................947
.15 Debt issuance costs...............................................................................................................................................................................948
SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451) ....................................................................................................................948
.01 Accrual of interest on nonperforming loans.......................................................................................................................................948
.02 Advance rentals.....................................................................................................................................................................................948
.03 State or local income or franchise tax refunds ..................................................................................................................................949
.04 Capital Cost Reduction Payments.......................................................................................................................................................949
.05 Credit card annual fees.........................................................................................................................................................................949
.06 Credit card late fees..............................................................................................................................................................................949
.07 Advance payments................................................................................................................................................................................949
.08 Credit card cash advance fees .............................................................................................................................................................950
.09 Retainages..............................................................................................................................................................................................950
.10 Advance payments - change in applicable financial statements (AFS)...........................................................................................951
SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454) .........................................................................................................952
.01 Series E, EE, or I U.S. savings bonds ................................................................................................................................................952
SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455).................................................................................................................952
.01 Prepaid subscription income ................................................................................................................................................................952
SECTION 19. TAXABLE YEAR INCURRED (§ 461)............................................................................................................................952
.01 Timing of incurring liabilities for employee compensation..............................................................................................................953
(1) Self-insured employee medical benefits .........................................................................................................................................953

May 23, 2016

882

Bulletin No. 2016 –21

(2) Bonuses..............................................................................................................................................................................................953
(3) Vacation pay, sick pay, and severance pay....................................................................................................................................953
.02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes,
and state franchise taxes.......................................................................................................................................................................954
.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or violation of law ......................954
.04 Timing of incurring certain liabilities for payroll taxes ....................................................................................................................955
.05 Cooperative advertising........................................................................................................................................................................955
.06 Timing of incurring certain liabilities for services or insurance ......................................................................................................956
.07 Rebates and allowances........................................................................................................................................................................956
.08 Ratable accrual of real property taxes ................................................................................................................................................956
.09 California Franchise Taxes ..................................................................................................................................................................956
.10 Gift cards issued as a refund for returned goods...............................................................................................................................956
.11 Timing of incurring liabilities under the recurring item exception to the economic performance rules......................................957
.12 Economic performance safe harbor for ratable service contracts ....................................................................................................957
SECTION 20. RENT (§ 467) ........................................................................................................................................................................957
.01 Change from an improper method of inclusion of rental income or expense to inclusion in accordance
with the rent allocation.........................................................................................................................................................................957
SECTION 21. INVENTORIES (§ 471)........................................................................................................................................................957
.01 Cash discounts.......................................................................................................................................................................................957
.02 Estimating inventory ⬙shrinkage⬙.........................................................................................................................................................958
.03 Small taxpayer exception from requirement to account for inventories under § 471....................................................................958
.04 Qualifying volume-related trade discounts.........................................................................................................................................959
.05 Impermissible methods of identification and valuation.....................................................................................................................959
.06 Core Alternative Valuation Method....................................................................................................................................................959
.07 Replacement cost for automobile dealers’ parts inventory...............................................................................................................960
.08 Replacement cost for heavy equipment dealers’ parts inventory.....................................................................................................960
.09 Rotable spare parts................................................................................................................................................................................960
.10 Advance Trade Discount Method .......................................................................................................................................................960
.11 Permissible methods of identification and valuation.........................................................................................................................960
.12 Change in the official used vehicle guide utilized in valuing used vehicles ..................................................................................961
.13 Invoiced advertising association costs for new vehicle retail dealerships.......................................................................................961
.14 Rolling-average method of accounting for inventories .....................................................................................................................961
.15 Sales-Based Vendor Chargebacks.......................................................................................................................................................961
.16 Certain changes to the cost complement of the retail inventory method........................................................................................962
.17 Certain changes within the retail inventory method..........................................................................................................................962
SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472).................................................................................................962
.01 Change from the LIFO inventory method..........................................................................................................................................962
.02 Determining current-year cost under the LIFO inventory method ..................................................................................................963
.03 Alternative LIFO inventory method for retail automobile dealers...................................................................................................964
.04 Used vehicle alternative LIFO method...............................................................................................................................................964
.05 Determining the cost of used vehicles purchased or taken as a trade-in ........................................................................................965
.06 Change to the inventory price index computation (IPIC) method...................................................................................................965
.07 Changes within the inventory price index computation (IPIC) method..........................................................................................966
.08 Changes to the Vehicle-Pool Method.................................................................................................................................................966
.09 Changes within the used vehicle alternative LIFO method..............................................................................................................967

Bulletin No. 2016 –21

883

May 23, 2016

.10 Changes to dollar-value pools of manufacturers ...............................................................................................................................967
SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD (§ 475)............................................................................................967
.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market
method of accounting under § 475(e) or (f) ......................................................................................................................................967
.02 Taxpayers requesting to change their method of accounting from the mark-to-market method of
accounting described in § 475 to a realization method ....................................................................................................................968
SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585) ..............................................................................................................969
.01 Changing from the § 585 reserve method to the § 166 specific charge-off method .....................................................................969
SECTION 25. INSURANCE COMPANIES (§§ 816, 832, 833) ..............................................................................................................970
.01 Safe harbor method of accounting for premium acquisition expenses............................................................................................970
.02 Certain changes in method of accounting for organizations to which § 833 applies ....................................................................971
.03 Change in qualification as life/nonlife insurance company under § 816(a)....................................................................................971
SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846).......................................................................................................................971
.01 Composite method for discounting unpaid losses .............................................................................................................................971
SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A–860G)............................................972
.01 REMIC Inducement Fees.....................................................................................................................................................................972
SECTION 28. FUNCTIONAL CURRENCY (§ 985) ................................................................................................................................972
.01 Change in functional currency.............................................................................................................................................................972
SECTION 29. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273).............................................................................................................972
.01 De minimis original issue discount (OID) .........................................................................................................................................972
.02. Proportional method of accounting for OID on a pool of credit card receivables........................................................................972
SECTION 30. MARKET DISCOUNT BONDS (§ 1278) .........................................................................................................................973
.01 Revocation of § 1278(b) election........................................................................................................................................................973
SECTION 31. SHORT-TERM OBLIGATIONS (§ 1281).........................................................................................................................973
.01 Interest income on short obligations ...................................................................................................................................................973
.02 Stated interest on short-term loans of cash method banks ...............................................................................................................973
EFFECTIVE DATE........................................................................................................................................................................................974
EFFECT ON OTHER DOCUMENTS .........................................................................................................................................................975
PAPERWORK REDUCTION ACT .............................................................................................................................................................975
SIGNIFICANT CHANGES ...........................................................................................................................................................................976
DRAFTING INFORMATION.......................................................................................................................................................................977
LIST OF AUTOMATIC CHANGES CONTACT LIST............................................................................................................................977

This revenue procedure provides the
List of Automatic Changes to which the
automatic change procedures in Rev.
Proc. 2015–13, 2015–5 I.R.B. 419, as
clarified and modified by Rev. Proc.
2015–33, 2015–24 I.R.B. 1067, and as
modified by Rev. Proc. 2016 –1, 2016 –1
I.R.B. 1, (or successor) apply. The definitions in section 3 of Rev. Proc. 2015–13
apply to this revenue procedure.

May 23, 2016

LIST OF AUTOMATIC CHANGES
SECTION 1. GROSS INCOME (§ 61)
.01 Up-front Payments for Network
Upgrades received by Utilities.
(1) Description of change. This change
applies to a Utility that wants to change its
method of accounting for Up-front Payments to the safe harbor method described
in Rev. Proc. 2005–35, 2005–2 C.B. 76.
In general, this change applies to a Utility
that receives an Up-front Payment from a
Generator to finance Network Upgrades to
the Utility’s Transmission System. For

884

federal income tax purposes, if an Upfront Payment is made pursuant to an Interconnection Agreement that satisfies all
of the conditions of section 5.02 of Rev.
Proc. 2005–35, a Utility may treat that
Up-front Payment as not being taxable
income under § 61 when received (the
safe harbor method). In addition, a Utility
that uses the safe harbor method is not
entitled to any deduction for its reimbursements of the Up-front Payment. To
the extent that Federal Energy Regulatory
Commission (FERC) interest is deductible, it must be properly allocated to the
periods in which it accrues. A Utility us-

Bulletin No. 2016 –21

ing the safe harbor method must comply
with all other applicable provisions of
Rev. Proc. 2005–35. See Rev. Proc.
2005–35 for the definitions of certain
terms for purposes of this change.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
1.01 is “91.”
(3) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
SECTION 2. COMMODITY CREDIT
LOANS (§ 77)
.01 Treating amounts received as loans.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for loans received from the Commodity Credit Corporation from including the loan amount
in gross income for the taxable year in
which each loan is received to treating
each loan amount as a loan.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(3) Manner of making change. This
change is made on a cut-off basis and
applies only to loans received from the
Commodity Credit Corporation on or after
the beginning of the year of change. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
2.01 is “1.”
(5) Contact information. For further information regarding a change under this
section, contact William Ruane at (202)
317-4718 (not a toll-free call).
SECTION 3. TRADE OR BUSINESS
EXPENSES (§ 162)
.01 Advances made by a lawyer on
behalf of clients.
(1) Description of change. This change
applies to a lawyer who advances money
to pay for costs of litigation or for other
expenses on behalf of clients, and who

Bulletin No. 2016 –21

wants to change the method of accounting
for such advances from treating them as
deductible business expenses to treating
them as loans. This change applies to
cases handled either on a non-contingent
or a contingent fee basis. See Pelton &
Gunther, P.C. v. Commissioner, T.C.
Memo. 1999 –339 (non-contingent fee);
Canelo v. Commissioner, 53 T.C. 217
(1969), aff’d per curiam, 447 F.2d 484
(9th Cir. 1971) (contingent fee).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.01 is “2.”
(3) Contact information. For further information regarding a change under this
section, contact Peter Ford at (202) 3177011(not a toll-free call).
.02 ISO 9000 costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for costs incurred to obtain, maintain, and renew ISO
9000 certification to conform with Rev.
Rul. 2000 – 4, 2000 –1 C.B. 331, as modified by this revenue procedure.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.02 is “3.”
(3) Contact information. For further information regarding a change under this
section, contact Peter Ford at (202) 3177011 (not a toll-free call).
.03 Restaurant or tavern smallwares
packages.
(1) Description of change. This change
applies to a taxpayer engaged in the trade or
business of operating a restaurant or tavern
(within the meaning of section 4.01 of Rev.
Proc. 2002–12, 2002–1 C.B. 374) that wants
to change its method of accounting for the
costs of smallwares to the smallwares
method described in Rev. Proc. 2002–12, as
modified by this revenue procedure.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.03 is “4.”

885

(3) Contact information. For further information regarding a change under this
section, contact Peter Ford at (202) 3177011 (not a toll-free call).
.04 Timber grower fertilization costs.
(1) Description of change. This change
applies to a timber grower that wants to
change its method of accounting to treat
post-establishment fertilization costs of an
established timber stand as ordinary and
necessary business expenses deductible
under § 162. See Rev. Rul. 2004 – 62,
2004 –1 C.B. 1072, as modified by this
revenue procedure.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.04 is “86.”
(3) Contact information. For further information regarding a change under this
section, contact Peter Ford at (202) 3177011 (not a toll-free call).
.05 Materials and supplies.
See section 11.08 of this revenue procedure.
.06 Repair and maintenance costs.
See section 11.08 of this revenue procedure.
.07 Wireline network asset maintenance
allowance and units of property methods
of accounting under Rev. Proc. 2011–27.
(1) Description of change. This change
applies to a wireline telecommunications
carrier that is within the scope of Rev.
Proc. 2011–27, 2011–18 I.R.B. 740, and
wants to change its treatment of wireline
network asset expenditures to use either
(a) the wireline network asset maintenance allowance method of accounting, or
(b) all or some of the units of property
described in Rev. Proc. 2011–27.
(2) Section 481(a) adjustment. In general, a change to the wireline network
asset maintenance allowance method of
accounting or to use all or some of the
units of property specified in Rev. Proc.
2011–27 requires an adjustment under
§ 481(a). The § 481(a) adjustment shall
not include any amount attributable to
property for which the taxpayer elected to

May 23, 2016

apply the repair allowance under
§ 1.167(a)–11(d)(2).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.07 is “158.”
(4) Contact information. For further information regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).
.08 Wireless network asset maintenance
allowance and units of property methods
of accounting under Rev. Proc. 2011–28.
(1) Description of change. This change
applies to a wireless telecommunications
carrier that is within the scope of Rev.
Proc. 2011–28, 2011–18 I.R.B. 743, and
wants to change its treatment of wireless
network asset expenditures to use either
(a) the wireless network asset maintenance allowance method of accounting, or
(b) all or some of the units of property
described in Rev. Proc. 2011–28.
(2) Section 481(a) adjustment. In general, a change to the wireless network
asset maintenance allowance method of
accounting or to use all or some of the units
of property specified in Rev. Proc. 2011–28
requires an adjustment under § 481(a). The
§ 481(a) adjustment does not include any
amount attributable to property for which
the taxpayer elected to apply the repair allowance under § 1.167(a)–11(d)(2).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.08 is “159.”
(4) Contact information. For further information regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).
.09 Method of accounting under Rev.
Proc. 2011– 43 for taxpayers in the
business of transporting, delivering, or
selling electricity.
(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011– 43, 2011–37
I.R.B. 326, and wants to change its treatment of transmission and distribution
property expenditures to use the method

May 23, 2016

of accounting described in Rev. Proc.
2011– 43.
(2) Section 481(a) adjustment. A taxpayer must take the entire net § 481(a)
adjustment into account (whether positive
or negative) in computing taxable income
for the year of change. The § 481(a) adjustment does not include any amount attributable to property for which the taxpayer elected to apply the repair
allowance under § 1.167(a)–11 (d)(2) for
any taxable year in which the election was
made. For guidance regarding permissible
§ 481(a) calculation methodologies, see
section 7.02 and Appendix A of Rev.
Proc. 2011– 43.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.09 is “160.”
(4) Contact information. For further information regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).
.10 Method of accounting under Rev.
Proc. 2013–24 for taxpayers in the
business of generating steam or electric
power.
(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2013–24, 2013–22
I.R.B. 1142, and wants to change its treatment of generation property expenditures
to use all or some of the unit of property
definitions and the corresponding major
component definitions described in Rev.
Proc. 2013–24.
(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply
to an eligible taxpayer that changes to the
method of accounting provided in Rev.
Proc. 2013–24 for its first, second, or third
taxable year ending after December 30,
2012.
(3) Section 481(a) adjustment.
(a) A taxpayer must take the entire net
§ 481(a) adjustment into account (whether
positive or negative) in computing taxable
income for the year of change. For guidance regarding the use of extrapolation in
computing a § 481(a) adjustment, see sections 6.02 and Appendix B of Rev. Proc.
2013–24.

886

(b) A taxpayer changing to this method
of accounting must not include in the
§ 481(a) adjustment any amount attributable to property for which the taxpayer
elected to apply the repair allowance under § 1.167(a)–11(d)(2) for any taxable
year in which the repair allowance election was made.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.10 is “182.”
(5) Contact information. For further information regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll free call).
.11 Cable network asset capitalization
methods of accounting under Rev. Proc.
2015–12.
(1) Description of change. This change
applies to a cable system operator that is
within the scope of Rev. Proc. 2015–12,
2015–2 I.R.B. 266, and wants to make one
or more of the of the following changes in
method of accounting:
(a) Change its treatment of cable network asset expenditures to the cable network asset maintenance allowance
method of accounting provided in section
5 of Rev. Proc. 2015–12;
(b) Change to use any of the unit of
property definitions provided in section 6
of Rev. Proc. 2015–12;
(c) Change to use the specific identification method for installations and customer drop costs described in section
7.01(1) of Rev. Proc. 2015–12;
(d) Change to use the safe harbor allocation method for installations and customer drop costs described in section
7.01(2) of Rev. Proc. 2015–12; or
(e) Change to deduct the labor costs
associated with installing customer premises equipment under section 7.02 of Rev.
Proc. 2015–12.
(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015–
13, 2015–5 I.R.B. 419, do not apply to a
cable system operator that changes to a
method of accounting provided in section
5, section 6, or section 7 of Rev. Proc.
2015–12 for its first or second taxable
year ending after December 31, 2013.

Bulletin No. 2016 –21

(3) Concurrent automatic change. A
taxpayer that wants to make both one or
more changes in method of accounting
pursuant to this section 3.11 and a change
to a UNICAP method under section 12 of
this revenue procedure for the same year
of change should file a single Form 3115
that includes all of these changes and must
enter the designated automatic accounting
method change numbers for all of these
changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015–13 for information on making
concurrent changes.
(4) Section 481(a) adjustment.
(a) In general, a change to one or more
of the of the changes in method of accounting described in section 3.11(1) of
this revenue procedure requires an adjustment under § 481(a). The § 481(a) adjustment shall not include any amount attributable to property for which the taxpayer
elected to apply the repair allowance under § 1.167(a)–11(d)(2).
(b) Itemized listing on Form 3115. The
taxpayer must include on Form 3115
(Rev. December 2015), Part IV, line 26,
the total § 481(a) adjustment for all
changes in methods of accounting being
made. If the taxpayer is making more than
one change in method of accounting under
Rev. Proc. 2015–12, the taxpayer must
include on an attachment to Form 3115:
(i) the information required by Part IV,
line 26 for each change in method of
accounting (including the amount of the
§ 481(a) adjustment for each change in
method of accounting, which includes the
portion of the § 481(a) adjustment attributable to UNICAP);
(ii) the information required by Part II,
line 14 of Form 3115 that is associated
with each change; and
(iii) the citation to the paragraph of
Rev. Proc. 2015–12 that provides for each
proposed method of accounting.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of accounting provided in section 5 or 6 of
Rev. Proc. 2015–12 is “208.” The designated automatic accounting method
change number for a change to a method
of accounting provided in section 7 of
Rev. Proc. 2015–12 is “209.”

Bulletin No. 2016 –21

(6) Contact information. For further information regarding a change under this
section, contact Merrill Feldstein at (202)
317-5100.
SECTION 4. BAD DEBTS (§ 166)
.01 Change from reserve method to
specific charge-off method.
(1) Description of change. This change
applies to a taxpayer (other than a bank as
defined in § 585(a)(2)) that wants to
change its method of accounting for bad
debts from a reserve method (or other
improper method) to a specific charge-off
method that complies with § 166. For
procedures applicable to banks, see
§ 585(c) and the regulations thereunder
and section 24 of this revenue procedure.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
4.01 is “5.”
(3) Contact information. For further information regarding a change under this
section, contact Renay France at (202)
317-7003 (not a toll-free call).
.02 Conformity election by bank after
previous election automatically revoked.
(1) Description of change. This change
applies to a bank that wants to change its
method of accounting for bad debts by
making the conformity election under
§ 1.166 –2(d)(3)(iii)(C)(3).
(2) Applicability. This change only applies to a bank (as defined in § 1.166 –
2(d)(4)(i)) that:
(a) is subject to supervision by Federal
authorities, or by state authorities maintaining substantially equivalent standards;
(b) has previously adopted or elected to
change to the method of accounting for
bad debts described in § 1.166 –2(d)(3);
(c) has had that previous election automatically revoked under § 1.166 –
2(d)(3)(iv)(C);
(d) meets the express determination requirement of § 1.166 –2(d)(3)(iii)(D) for
the year of change; and
(e) now seeks the consent of the Commissioner to make an election under
§ 1.166 –2(d)(3)(iii)(C)(3).
(3) Certain eligibility rule inapplicable. The eligibility rule in section

887

5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
4.02 is “211.”
(5) Contact information. For further information regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).
SECTION 5. INTEREST EXPENSE
(§ 163) AND AMORTIZABLE BOND
PREMIUM (§ 171)
.01 Revocation of § 171(c) election.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for amortizable
bond premium by revoking its § 171(c)
election. Under § 171(c), a taxpayer that
holds certain taxable bonds may elect to
amortize any bond premium on the bonds
in accordance with regulations prescribed
by the Secretary. Sections 1.171–1
through 1.171–5 provide rules relating to
the amortization of bond premium by a
taxpayer. Section 1.171– 4 provides the
procedures to make a § 171(c) election to
amortize bond premium.
(2) Revocation of election. The revocation of a § 171(c) election applies to all
taxable bonds that are held by the taxpayer on the first day of the first taxable
year for which the revocation is effective
(year of change), and to all taxable bonds
that are subsequently acquired by the taxpayer.
(3) Manner of making change. This
change is made using a cut-off basis and
applies only to taxable bonds held on or
after the beginning of the year of change.
Accordingly, a § 481(a) adjustment is neither permitted nor required.
Under the cut-off basis, for taxable
bonds held at the beginning of the year of
change, the taxpayer may not amortize
any remaining bond premium on the
bonds. Because the cut-off basis is prescribed for this change, the basis of any
bond, adjusted for amounts previously
amortized during the period of the election, is not affected by the revocation.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change

May 23, 2016

number for a change under this section
5.01 is “16.”
(5) Additional requirements. On a
statement attached to the Form 3115, the
taxpayer must provide:
(a) the reason(s) for revoking the election; and
(b) a description of the method by
which, and the date on which, the taxpayer made the § 171(c) election that is
proposed to be revoked.
(6) Audit protection. Any audit protection applicable to this change under section 8 of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not preclude the Commissioner from examining the method
used by the taxpayer to determine the
amount of amortizable bond premium under § 171(b) for a taxable year prior to the
year of change.
(7) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
.02 Change to comply with § 163(e)(3).
(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting
to comply with the requirements of
§ 163(e)(3), which defers certain deductions attributable to original issue discount
debt instruments held by related foreign
persons. Any portion of the original issue
discount will not be allowable as a deduction to the U.S. person issuer until paid.
(2) Accelerated § 481(a) adjustment
period in certain situations. In addition to
the circumstances set forth in section
7.03(4) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, the § 481 adjustment period
provided in section 7.03 of Rev. Proc.
2015–13 will be accelerated for a U.S.
person with a remaining balance of a
§ 481(a) adjustment that arose by reason
of a change in method of accounting described in this section 5.02 if a debt instrument subject to the change is paid off,
retired, or significantly modified within
the meaning of § 1.1001–3 prior to the end
of the § 481(a) adjustment period. The
portion of the remaining § 481(a) adjustment attributable to the debt instrument
must be taken into account in the taxable
year the debt instrument is paid off, retired, or significantly modified within the
meaning of § 1.1001–3.

May 23, 2016

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
5.02 is “212.”
(4) Contact information. For further information regarding a change under this
section, contact Joseph Vetting at (202)
317-4960 (not a toll-free call).
SECTION 6. DEPRECIATION OR
AMORTIZATION (§ 56(a)(1),
56(g)(4)(A), 167, 168, 197, 280F(a),
1400I, 1400L, or 1400N(d), OR
FORMER § 168)
.01 Impermissible to permissible method
of accounting for depreciation or
amortization.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from an
impermissible to a permissible method of
accounting for depreciation or amortization (depreciation) for any item of depreciable or amortizable property under the
taxpayer’s present or proposed method of
accounting:
(i) for which the taxpayer used the impermissible method of accounting in at
least two taxable years immediately preceding the year of change (but see section
6.01(1)(b) of this revenue procedure for
property placed in service in the taxable
year immediately preceding the year of
change);
(ii) for which the taxpayer is making a
change in method of accounting under
§ 1.446 –1(e)(2)(ii)(d);
(iii) for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A),
§ 167, § 168, § 197, § 1400I, or
§ 1400L(c), under § 168 prior to its
amendment in 1986 (former § 168), or
under any additional first year depreciation deduction provision of the Code (for
example, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d)); and
(iv) that is owned by the taxpayer at the
beginning of the year of change (but see
section 6.07 of this revenue procedure for
property disposed of before the year of
change).
(b) Taxpayer has not adopted a method
of accounting for the item of property. If a
taxpayer does not satisfy section
6.01(1)(a)(i) of this revenue procedure for
an item of depreciable or amortizable

888

property because this item of property is
placed in service by the taxpayer in the
taxable year immediately preceding the
year of change (“1-year depreciable property”), the taxpayer may change from the
impermissible method of determining depreciation to the permissible method of
determining depreciation for the 1-year
depreciable property by filing a Form
3115 for this change, provided the
§ 481(a) adjustment reported on the Form
3115 includes the amount of any adjustment that is attributable to all property
(including the 1-year depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change from the
impermissible method of determining depreciation to the permissible method of
determining depreciation for a 1-year depreciable property by filing an amended
federal tax return for the property’s
placed-in-service year prior to the date the
taxpayer files its federal tax return for the
taxable year succeeding the placed-inservice year.
(c) Inapplicability. This change does
not apply to:
(i) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method
of accounting under this section 6.01 if the
taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in conjunction with a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable);
(iii) any property for which a taxpayer
is making a change in depreciation under
§ 1.446 –1(e)(2)(ii)(d)(2)(vi) or (vii);
(iv) any property subject to § 167(g)
regarding property depreciated under the
income forecast method;
(v) any § 1250 property that a taxpayer
is reclassifying to an asset class of Rev.
Proc. 87–56, 1987–2 C.B. 674 (as clarified and modified by Rev. Proc. 88 –22,
1988 –1 C.B. 785), or Rev. Proc. 83–35,
1983–1 C.B. 745, as appropriate, that does
not explicitly include § 1250 property (for
example, asset class 57.0, Distributive
Trades and Services);

Bulletin No. 2016 –21

(vi) any property for which a taxpayer
is revoking a timely valid election, or
making a late election, under § 167, § 168,
§ 179, § 1400I, § 1400L(c), former § 168,
§ 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993 Act),
1993–3 C.B. 1, 128 (relating to amortizable § 197 intangibles), or any additional
first year depreciation deduction provision
of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)). A
taxpayer may request consent to revoke or
make the election by submitting a request
for a letter ruling under Rev. Proc.
2016 –1, 2016 –1 I.R.B. 1 (or successor).
However, if a taxpayer is revoking or
making an election under § 179, see
§ 179(c) and § 1.179 –5. See § 1.446 –
1(e)(2)(ii)(d)(3)(iii);
(vii) any property for which depreciation is determined under § 56(g)(4)(A) or
§ 167 (other than under § 168, § 1400I,
§ 1400L(c), former § 168, or any additional
first year depreciation deduction provision
of the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d))) and a taxpayer
is changing the useful life of the property. A
change in the useful life of property is corrected by adjustments in the applicable taxable year provided under § 1.446–
1(e)(2)(ii)(d)(5)(iv). However, this section
6.01(1)(c)(vii) does not apply if the taxpayer is changing to or from a useful life,
recovery period, or amortization period
that is specifically assigned by the Code
(for example, § 167(f)(1), § 168(c)), the
regulations thereunder, or other guidance
published in the Internal Revenue Bulletin
and, therefore, this change is a change in
method of accounting (unless section
6.01(1)(c)(xv) of this revenue procedure
applies). See § 1.446 –1(e)(2)(ii)(d)(3)(i);
(viii) any depreciable property for which
the use changes in the hands of the same
taxpayer. See § 1.446 –1(e)(2)(ii)(d)(3)(ii);
(ix) any property for which depreciation is determined in accordance with
§ 1.167(a)–11 (regarding the Class Life Asset Depreciation Range System (ADR));
(x) any change in method of accounting involving a change from deducting the
cost or other basis of any property as an
expense to capitalizing and depreciating
the cost or other basis, or vice versa (but
see section 11.08 of this revenue procedure for making such a change in method

Bulletin No. 2016 –21

of accounting under the final tangible
property regulations);
(xi) any change in method of accounting involving a change from one permissible method of accounting for the property to another permissible method of
accounting for the property. For example:
(A) a change from the straight-line
method of depreciation to the income
forecast method of depreciating for videocassettes. See Rev. Rul. 89 – 62, 1989 –1
C.B. 78; or
(B) a change from charging the depreciation reserve with costs of removal and
crediting the depreciation reserve with
salvage proceeds to deducting costs of
removal as an expense (provided the costs
of removal are not required to be capitalized under any provision of the Code,
such as § 263(a)) and including salvage
proceeds in taxable income (see section
6.02 of this revenue procedure for making
this change for property for which depreciation is determined under § 167);
(xii) any change in method of accounting involving both a change from treating
the cost or other basis of the property as
nondepreciable or nonamortizable property to treating the cost or other basis of
the property as depreciable or amortizable
property and the adoption of a method of
accounting for depreciation requiring an
election under § 167, § 168, § 1400I,
§ 1400L(c), former § 168, § 13261(g)(2)
or (3) of the 1993 Act, or any additional
first year depreciation deduction provision
of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)) (for
example, a change in the treatment of the
space consumed in landfills placed in service in 2006 from nondepreciable to depreciable property (assuming section
6.01(1)(c)(xiii) of this revenue procedure
does not apply) and the making of an
election under § 168(f)(1) to depreciate
this property under the unit-of-production
method of depreciation under § 167);
(xiii) any change in method of accounting for any item of income or deduction
other than depreciation, even if the change
results in a change in computing depreciation under § 1.446 –1(e)(2)(ii)(d)(2)(i),
(ii), (iii), (iv), (v), (vi), (vii), or (viii). For
example, a change in method of accounting involving:
(A) a change in inventory costs (for
example, when property is reclassified

889

from inventory property to depreciable
property, or vice versa) (but see section
11.02 of this revenue procedure for making a change in method of accounting
from inventory property to depreciable
property for unrecoverable line pack gas
or unrecoverable cushion gas, and section
11.06 of this revenue procedure for making a change in method of accounting
from inventory property to depreciable
property for rotable spare parts); or
(B) a change in the character of a transaction from sale to lease, or vice versa
(but see section 6.03 of this revenue procedure for making this change);
(xiv) a change from determining depreciation under § 168 to determining depreciation under former § 168 for any property
subject to the transition rules in § 203(b) or
§ 204(a) of the Tax Reform Act of 1986,
1986 –3 (Vol. 1) C.B. 1, 60 – 80;
(xv) any change in the placed-inservice date of a depreciable or amortizable property. This change is corrected by
adjustments in the applicable taxable year
provided under § 1.446–1(e)(2)(ii)(d)(5)(v); or
(xvi) any property for which the taxpayer has claimed a federal income tax
credit (e.g., the rehabilitation credit under
§ 47).
(2) Certain eligibility rules inapplicable. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
If during any of the five taxable years
ending with the year of change, a taxpayer
requested or made a change in method of
accounting from expensing to capitalizing, or vice versa, the cost or other basis
of an asset, the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 is not
applicable to a change under this section
6.01 for that same asset.
(3) Additional requirements. A taxpayer also must comply with the following:
(a) Permissible method of accounting
for depreciation. A taxpayer must change
to a permissible method of accounting for
depreciation for the item of depreciable or
amortizable property. The permissible
method of accounting is the same method
that determines the depreciation allowable
for the item of property (as provided in
section 6.01(7) of this revenue procedure).
(b) Statements required. A taxpayer
(including a qualified small taxpayer as
defined in section 6.01(4)(b) of this reve-

May 23, 2016

nue procedure) must provide the following statements, if applicable, and attach
them to the completed Form 3115:
(i) a detailed description of the present
and proposed methods of accounting. A
general description of these methods of
accounting is unacceptable (for example,
MACRS to MACRS, erroneous method to
proper method, claiming less than the depreciation allowable to claiming the depreciation allowable);
(ii) to the extent not provided elsewhere on the Form 3115, a statement describing the taxpayer’s business or
income-producing activities. Also, if the
taxpayer has more than one business or
income-producing activity, a statement
describing the taxpayer’s business or
income-producing activity in which the
item of property at issue is primarily used
by the taxpayer;
(iii) to the extent not provided elsewhere on the Form 3115, a statement of
the facts and law supporting the proposed
method of accounting, new classification
of the item of property, and new asset
class in, as appropriate, Rev. Proc. 87–56
or Rev. Proc. 83–35. If the taxpayer is the
owner and lessor of the item of property at
issue, the statement of the facts and law
supporting the new asset class also must
describe the business or incomeproducing activity in which that item of
property is primarily used by the lessee;
(iv) to the extent not provided elsewhere on the Form 3115, a statement
identifying the year in which the item of
property was placed in service by the taxpayer;
(v) if any item of property is public
utility property within the meaning of
§ 168(i)(10) or former § 167(I)(3)(A), as
applicable, a statement providing that the
taxpayer agrees to the following additional terms and conditions:
(A) a normalization method of accounting (within the meaning of former
§ 167(I)(3)(G), former § 168(e)(3)(B), or
§ 168(i)(9), as applicable) will be used for
the public utility property subject to the
Form 3115;
(B) as of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar reserve account in the taxpayer’s regulatory
books of account by the amount of the
deferral of federal income tax liability as-

May 23, 2016

sociated with the § 481(a) adjustment applicable to the public utility property subject to the Form 3115; and
(C) within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115;
(vi) if the taxpayer is changing the classification of an item of § 1250 property
placed in service after August 19, 1996, to
a retail motor fuels outlet under
§ 168(e)(3)(E)(iii), a statement containing
the following representation: “For purposes of § 168(e)(3)(E)(iii) of the Internal
Revenue Code, the taxpayer represents
that (A) 50 percent or more of the gross
revenue generated from the item of § 1250
property is from the sale of petroleum
products (not including gross revenue
from related services, such as the labor
cost of oil changes and gross revenue
from the sale of nonpetroleum products
such as tires and oil filters), (B) 50 percent
or more of the floor space in the item of
property is devoted to the sale of petroleum products (not including floor space
devoted to related services, such as oil
changes and floor space devoted to nonpetroleum products such as tires and oil
filters), or (C) the item of § 1250 property
is 1,400 square feet or less.”; and
(vii) if the taxpayer is changing the
classification of an item of property from
§ 1250 property to § 1245 property under
§ 168 or former § 168, a statement of the
facts and law supporting the new § 1245
property classification, and a statement
containing the following representation:
“Each item of depreciable property that is
the subject of the Form 3115 filed under
section 6.01 of Rev. Proc. 2016 –29 for
the year of change beginning [Insert the
date], and that is reclassified from [Insert,
as appropriate: nonresidential real property, residential rental property, qualified
leasehold improvement property, qualified restaurant property, qualified retail
improvement property, 19-year real property, 18-year real property, or 15-year
real property] to an asset class of [Insert,
as appropriate, either: Rev. Proc. 87–56,
1987–2 C.B. 674, or Rev. Proc. 83–35,
1983–1 C.B. 745] that does not explicitly

890

include § 1250 property, is § 1245 property for depreciation purposes.”
(4) Reduced filing requirement for
qualified small taxpayers.
(a) In general. A qualified small taxpayer, as defined in section 6.01(4)(b) of
this revenue procedure, is required to
complete only the following information
on Form 3115 (Rev. December 2015) to
make this change:
(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom of
page 1;
(c) Part I;
(d) Part II, all lines except lines 13, 15b,
16c, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(b) Definition of qualified small taxpayer. A “qualified small taxpayer” is a
taxpayer whose average annual gross receipts, as determined under § 1.263(a)–
3(h)(3), for the three preceding taxable
years is less than or equal to $10,000,000.
(5) Section 481(a) adjustment. Because
the adjusted basis of the property is
changed as a result of a method change
made under this section 6.01 (see section
6.01(6) of this revenue procedure), items
are duplicated or omitted. Accordingly,
this change is made with a § 481(a) adjustment. This adjustment may result in
either a negative § 481(a) adjustment (a
decrease in taxable income) or a positive
§ 481(a) adjustment (an increase in taxable income) and may be a different
amount for regular tax, alternative minimum tax, and adjusted current earnings
purposes. This § 481(a) adjustment equals
the difference between the total amount of
depreciation taken into account in computing taxable income for the property
under the taxpayer’s present method of
accounting (including the amount attributable to any property described in section
6.01(1)(b) of this revenue procedure that
is included in the taxpayer’s Form 3115),
and the total amount of depreciation allowable for the property under the taxpayer’s proposed method of accounting (as
determined under section 6.01(7) of this
revenue procedure, and including the
amount attributable to any property described in section 6.01(1)(b) of this revenue procedure that is included in the taxpayer’s Form 3115), for open and closed

Bulletin No. 2016 –21

years prior to the year of change. However, the amount of the § 481(a) adjustment must be adjusted to account for the
proper amount of the depreciation allowable that is required to be capitalized under any provision of the Code (for example, § 263A) at the beginning of the year
of change.
(6) Basis adjustment. As of the beginning of the year of change, the basis of
depreciable property to which this section
6.01 applies must reflect the reductions
required by § 1016(a)(2) for the depreciation allowable for the property (as determined under section 6.01(7) of this revenue procedure).
(7) Meaning of depreciation allowable.
(a) In general. Section 6.01(7) of this
revenue procedure provides the amount of
the depreciation allowable determined under § 56(a)(1), § 56(g)(4)(A), § 167,
§ 168, § 197, § 1400I, or § 1400L(c), or
former § 168. This amount, however, may
be limited by other provisions of the Code
(for example, § 280F).
(b) Section 56(a)(1) property. The depreciation allowable for any taxable year
for property for which depreciation is determined under § 56(a)(1) is determined
by using the depreciation method, recovery period, and convention provided for
under § 56(a)(1) that applies for the property’s placed-in-service date.
(c) Section 56(g)(4)(A) property. The
depreciation allowable for any taxable
year for property for which depreciation is
determined under § 56(g)(4)(A) is determined by using the depreciation method,
recovery period or useful life, as applicable, and convention provided for under
§ 56(g)(4)(A) that applies for the property’s placed-in-service date.
(d) Section 167 property. Generally,
for any taxable year, the depreciation allowable for property for which depreciation is determined under § 167, is determined either:
(i) under the depreciation method adopted by the taxpayer for the property; or
(ii) if that depreciation method does
not result in a reasonable allowance for
depreciation or the taxpayer has not adopted a depreciation method for the property, under the straight-line depreciation
method.

Bulletin No. 2016 –21

For determining the estimated useful
life and salvage value of the property, see
§ 1.167(a)–1(b) and (c), respectively.
The depreciation allowable for any taxable year for property subject to § 167(f)
(regarding certain property excluded from
§ 197) is determined by using the depreciation method and useful life prescribed
in § 167(f). If computer software is depreciated under § 167(f)(1) and is qualified
property (as defined in § 168(k)(2) and
§ 1.168(k)–1), 50-percent bonus depreciation property (as defined in § 168(k)(4)
(as in effect on the day before the date of
enactment of the Economic Stimulus Act
of 2008, Pub. L. No. 110 –185, 122 Stat.
613 (February 13, 2008)) and § 1.168(k)–
1), qualified disaster assistance property
(as defined in § 168(n)(2)), qualified New
York Liberty Zone (Liberty Zone) property (as defined in § 1400L(b)(2) and
§ 1.1400L(b)–1), qualified Gulf Opportunity Zone (GO Zone) property (as defined
in § 1400N(d)(2) and sections 2.02 and
2.03 of Notice 2006 –77, 2006 –2 C.B.
590, as clarified, modified, and amplified
by Notice 2007–36, 2007–1 C.B. 1000),
specified Gulf Opportunity Zone extension property (GO Zone extension property) (as defined in § 1400N(d)(6) and
section 4 of Notice 2007–36), or qualified
Recovery Assistance (RA) property (as
defined in sections 2.02 and 2.03 of Notice 2008 – 67, 2008 –32 I.R.B. 307), the
depreciation allowable for that computer
software under § 167(f)(1) is also determined by taking into account the additional first year depreciation deduction
provided by § 168(k), § 168(n),
§ 1400L(b), or § 1400N(d), or by
§ 15345(a)(1) and (d)(1) of the Food,
Conservation, and Energy Act of 2008,
Pub. L. No. 110 –246, 122 Stat. 1651
(June 18, 2008), as applicable, unless the
taxpayer made a timely valid election not
to deduct any additional first year depreciation for the computer software.
(e) Section 168 property. The depreciation allowable for any taxable year for
property for which depreciation is determined under § 168, is determined as follows:
(i) by using either:
(A) the general depreciation system in
§ 168(a); or
(B) the alternative depreciation system
in § 168(g) if the property is required to be

891

depreciated under the alternative depreciation system pursuant to § 168(g)(1) or
other provisions of the Code (for example,
property described in § 263A(e)(2)(A) or
§ 280F(b)(1)). Property required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) includes property in a class (as set out in
§ 168(e)) for which the taxpayer made a
timely valid election under § 168(g)(7);
(ii) if the property is qualified property,
50-percent bonus depreciation property,
qualified disaster assistance property, Liberty Zone property, GO Zone property,
GO Zone extension property, or RA property, by also taking into account the additional first year depreciation deduction provided by § 168(k), § 168(n), § 1400L(b), or
§ 1400N(d), or by § 15345(a)(1) and (d)(1)
of the Food, Conservation, and Energy Act
of 2008, as applicable, unless the taxpayer
made a timely valid election not to deduct
the additional first year depreciation (or
made a deemed election not to deduct the
additional first year depreciation; for further
guidance, see, for example, Rev. Proc.
2002–33, 2002–1 C.B. 963, Rev. Proc.
2003–50, 2003–2 C.B. 119, Notice 2006 –
77, Notice 2008 – 67, section 5 of Rev. Proc.
2011–26, 2011–16 I.R.B. 664, or Rev. Proc.
2015– 48, 2015– 40 I.R.B. 469) for the class
of property (as defined in § 1.168(k)–
1(e)(2), § 1.1400L(b)–1(e)(2), or section
4.02 of Notice 2006 –77, as applicable) in
which that property is included;
(iii) if the property is qualified second
generation biofuel plant property (as defined in § 168(l)(2) and (3)) or qualified
cellulosic biofuel plant property (as defined in former § 168(l)(2) and (3)), by
also taking into account the additional first
year depreciation deduction provided by
§ 168(l)(1), unless the taxpayer made a
timely valid election not to deduct the
additional first year depreciation for the
property; and
(iv) if the property is qualified reuse
and recycling property (as defined in
§ 168(m)(2)), by also taking into account
the additional first year depreciation deduction provided by § 168(m)(1), unless
the taxpayer made a timely valid election
not to deduct the additional first year depreciation for the property.
(f) Section 197 property. The amortization allowable for any taxable year for
an amortizable § 197 intangible (including

May 23, 2016

any property for which a timely election
under § 13261(g)(2) of the 1993 Act was
made) is determined in accordance with
§ 1.197–2(f).
(g) Former § 168 property. The depreciation allowable for any taxable year for
property subject to former § 168 is determined by using either:
(i) the accelerated method of cost recovery applicable to the property (for example, for 5-year property, the recovery
method under former § 168(b)(1)); or
(ii) the straight-line method applicable
to the property if the property is required
to be depreciated under the straight-line
method (for example, property described in
former § 168(f)(2) or former § 280F(b)(2))
or if the taxpayer elected to determine the
depreciation allowance under the optional
straight-line percentage (for example, the
straight-line method in former § 168(b)(3)).
(h) Qualified revitalization building.
The depreciation allowable for any taxable year for any qualified revitalization
building (as defined in § 1400I(b)(1)) for
which the taxpayer has made a timely
valid election under § 1400I(a) is determined as follows:
(i) if the taxpayer elected to deduct
one-half of any qualified revitalization expenditures (as defined in § 1400I(b)(2)
and as limited by § 1400I(c)) chargeable
to a capital account with respect to the
qualified revitalization building for the
taxable year in which the building is
placed in service by the taxpayer, the depreciation allowable for the qualified revitalization building’s placed-in-service
year is equal to one-half of the qualified
revitalization expenditures for the building and the depreciation allowable for the
remaining depreciable basis of the qualified revitalization building for its placedin-service year and subsequent taxable
years is determined using the general depreciation system of § 168(a) or the alternative depreciation system of § 168(g), as
applicable; or
(ii) if the taxpayer elected to amortize
all of the qualified revitalization expenditures chargeable to a capital account with
respect to the qualified revitalization
building ratably over the 120-month period beginning with the month in which
the building is placed in service, the depreciation allowable for the qualified revitalization expenditures is determined in

May 23, 2016

accordance with this election and the depreciation allowable for the remaining depreciable basis of the qualified revitalization building is determined using the
general depreciation system of § 168(a) or
the alternative depreciation system of
§ 168(g), as applicable.
(i) Qualified New York Liberty Zone
leasehold improvement property. The depreciation allowable for any taxable year
for qualified New York Liberty Zone
leasehold improvement property (as defined in § 1400L(c)(2)) is determined by
using the depreciation method and recovery period prescribed in § 1400L(c) unless
the taxpayer made a timely valid election
under § 1400L(c)(5) not to use that recovery period.
(8) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single negative § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment. For example, a taxpayer files a single Form 3115
to change the depreciation methods, recovery periods, and/or conventions under
§ 168(a) resulting from the reclassification
of two computers from nonresidential real
property to 5-year property, one office
desk from nonresidential real property to
7-year property, and two office desks
from 5-year property to 7-year property.
On that Form 3115, the taxpayer must
provide either (i) a single net § 481(a)
adjustment that covers all the changes
resulting from all of these reclassifications, or (ii) a single negative § 481(a)
adjustment that covers the changes resulting from the reclassifications of the
two computers and one office desk from
nonresidential real property to 5-year
property and 7-year property, respectively, and a single positive § 481(a)
adjustment that covers the changes re-

892

sulting from the reclassifications of the
two office desks from 5-year property to
7-year property.
(b) A taxpayer making both this
change and a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required by
section 6.01(4)(a) of this revenue procedure for this change and the information
required by the lines on Form 3115 applicable to the UNICAP method change, including Part II line 14 and 15, Part IV, and
Schedule D, and must include a separate
response to each line on Form 3115 that is
applicable to both changes (such as Part II
lines 6b, 7, 8b, 14, and, as applicable for
this change, Part IV) for which the taxpayer’s response is different for this
change and the change to a UNICAP
method.
(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.01 is “7.”
(10) Contact information. For further
information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
.02 Permissible to permissible method of
accounting for depreciation.
(1) Description of change. This change
applies to a taxpayer that wants to change
from a permissible method of accounting
for depreciation under § 56(g)(4)(A)(iv)
or § 167 to another permissible method of
accounting for depreciation under
§ 56(g)(4)(A)(iv) or § 167. Pursuant to
§ 1.167(a)–7(a) and (c), a taxpayer may
account for depreciable property either by
treating each individual asset as an account or by combining two or more assets
in a single account and, for each account,
depreciation allowances are computed
separately.

Bulletin No. 2016 –21

(2) Applicability.
(a) In general. This change applies to
any taxpayer wanting to make a change in
method of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure for the property in an account:
(i) for which the present and proposed
methods of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure are permissible methods for the
property under § 56(g)(4)(A)(iv) or § 167;
and
(ii) that is owned by the taxpayer at the
beginning of the year of change.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method
of accounting under this section 6.02 if the
taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in conjunction with a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable);
(ii) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;
(iii) any property described in § 167(f)
(regarding certain property excluded from
§ 197);
(iv) any property subject to § 167(g)
(regarding property depreciated under the
income forecast method);
(v) any property for which depreciation is determined under § 56(a)(1),
§ 56(g)(4)(A)(i), (ii), (iii), or (v), § 168,
§ 1400I, § 1400L(c), § 168 prior to its
amendment in 1986 (former § 168), or
any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d));
(vi) any property that the taxpayer
elected under § 168(f)(1) or former
§ 168(e)(2) to exclude from the application
of, respectively, § 168 or former § 168;
(vii) any property for which depreciation is determined in accordance with
§ 1.167(a)–11 (ADR);
(viii) any depreciable property for
which the taxpayer is changing the depreciation method pursuant to § 1.167(e)–1(b)
(change from declining-balance method to

Bulletin No. 2016 –21

straight-line method), § 1.167(e)–1(c) (certain changes for § 1245 property), or
§ 1.167(e)–1(d) (certain changes for § 1250
property). These changes must be made prospectively and are not permitted under the
cited regulations for property for which the
depreciation is determined under § 168,
§ 1400I, § 1400L(c), former § 168, or any
additional first year depreciation deduction
provision of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)); or
(ix) any distributor commissions (as
defined by section 2 of Rev. Proc. 2000 –
38, 2000 –2 C.B. 310, as modified by Rev.
Proc. 2007–16, 2007–1 C.B. 358) for
which the taxpayer is changing the useful
life under the distribution fee period
method or the useful life method (both described in Rev. Proc. 2000 –38). A change
in this useful life is corrected by adjustments
in the applicable taxable year provided under § 1.446 –1(e)(2)(ii)(d)(5)(iv).
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(4) Changes covered. This section 6.02
only applies to the following changes in
methods of accounting for depreciation:
(a) a change from the straight-line
method to the sum-of-the-years-digits
method, the sinking fund method, the unitof-production method, or the decliningbalance method using any proper percentage of the straight-line rate;
(b) a change from the decliningbalance method using any percentage of
the straight-line rate to the sum-of-theyears-digits method, the sinking fund
method, or the declining-balance method
using a different proper percentage of the
straight-line rate;
(c) a change from the sum-of-theyears-digits method to the sinking fund
method, the declining-balance method using any proper percentage of the straightline rate, or the straight-line method;
(d) a change from the unit-of-production
method to the straight-line method;
(e) a change from the sinking fund
method to the straight-line method, the
unit-of-production method, the sum-ofthe-years-digits method, or the decliningbalance method using any proper percentage of the straight-line rate;

893

(f) a change in the interest factor used
in connection with a compound interest
method or sinking fund method;
(g) a change in averaging convention
as set forth in § 1.167(a)–10(b). However,
as specifically provided in § 1.167(a)–
10(b), in any taxable year in which an
averaging convention substantially distorts the depreciation allowance for the
taxable year, it may not be used (see Rev.
Rul. 73–202, 1973–1 C.B. 81);
(h) a change from charging the depreciation reserve with costs of removal and
crediting the depreciation reserve with
salvage proceeds to deducting costs of
removal as an expense and including salvage proceeds in taxable income as set
forth in § 1.167(a)– 8(e)(2). See Rev. Rul.
74 – 455, 1974 –2 C.B. 63. This section
6.02 applies to this change, however, only
if:
(i) the change is applied to all items in
the account for which the change is being
made; and
(ii) the removal costs are not required
to be capitalized under any provision of
the Code (for example, § 263(a), 263A, or
280B);
(i) a change from crediting the depreciation reserve with the salvage proceeds
realized on normal retirement sales to
computing and recognizing gains and
losses on the sales (see Rev. Rul. 70 –165,
1970 –1 C.B. 43);
(j) a change from crediting ordinary
income (including the combination
method of crediting the lesser of estimated
salvage value or actual salvage proceeds
to the depreciation reserve, with any excess of salvage proceeds over estimated
salvage value credited to ordinary income) with the salvage proceeds realized
on normal retirement sales, to computing
and recognizing gains and losses on the
sales (see Rev. Rul. 70 –166, 1970 –1 C.B.
44);
(k) a change from item accounting for
specific assets to multiple asset accounting (pooling) for the same assets, or vice
versa;
(l) a change from one type of multiple
asset accounting (pooling) for specific assets to a different type of multiple asset
accounting (pooling) for the same assets;
(m) a change from one method described in Rev. Proc. 2000 –38 for amortizing distributor commissions (as defined

May 23, 2016

by section 2 of Rev. Proc. 2000 –38) to
another method described in Rev. Proc.
2000 –38 for amortizing distributor commissions; or
(n) a change from pooling to a single
asset, or vice versa, for distributor commissions (as defined by section 2 of Rev.
Proc. 2000 –38) for which the taxpayer is
using the distribution fee period method
or the useful life method (both described
in Rev. Proc. 2000 –38).
(5) Additional requirements. A taxpayer also must comply with the following:
(a) Basis for depreciation. At the beginning of the year of change, the basis for
depreciation of property to which this
change applies is the adjusted basis of the
property as provided in § 1011 at the end
of the taxable year immediately preceding
the year of change (determined under taxpayer’s present method of accounting for
depreciation). If applicable under the taxpayer’s proposed method of accounting
for depreciation, this adjusted basis is reduced by the estimated salvage value of
the property (for example, a change to the
straight-line method).
(b) Rate of depreciation. The rate of
depreciation for property changed to:
(i) the straight-line or the sum-of-theyears-digits method of depreciation must
be based on the remaining useful life of
the property as of the beginning of the
year of change; or
(ii) the declining-balance method of
depreciation must be based on the useful
life of the property measured from the
placed-in-service date, and not the expected remaining life from the date the
change becomes effective.
(c) Regulatory requirements. For
changes in method of depreciation to the
sum-of-the-years-digits or decliningbalance method, the property must meet
the requirements of § 1.167(b)– 0 or
1.167(c)–1, as appropriate.
(d) Public utility property. If any item
of property is public utility property within
the meaning of former § 167(l)(3)(A), the
taxpayer (including a qualified small taxpayer as defined in section 6.01(4)(b) of this
revenue procedure) must attach to the Form
3115 a statement providing that the taxpayer
agrees to the following additional terms and
conditions:

May 23, 2016

(i) a normalization method of accounting within the meaning of former
§ 167(l)(3)(G) will be used for the public
utility property subject to the Form 3115;
and
(ii) within 30 calendar days of filing the
federal income tax return for the year of
change, the taxpayer will provide a copy
of the completed Form 3115 to any regulatory body having jurisdiction over the
public utility property subject to the Form
3115.
(6) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I;
(d) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(e) Part IV, line 25; and
(f) Schedule E.
(7) Section 481(a) adjustment. Because
the adjusted basis of the property is not
changed as a result of a method change
made under this section 6.02, no items are
being duplicated or omitted. Accordingly,
a § 481(a) adjustment is neither required
nor permitted.
(8) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets.
(b) A taxpayer making both this
change and a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required by
section 6.02(6) of this revenue procedure
for this change and the information re-

894

quired by the lines on Form 3115 applicable to the UNICAP method change, including Part II line 14 and 15, Part IV, and
Schedule D, and must include a separate
response to each line on Form 3115 that is
applicable to both changes (such as Part II
lines 6b, 7, 8b, 14, and, as applicable for
this change, Part IV) for which the taxpayer’s response is different for this
change and the change to a UNICAP
method.
(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.02 is “8.”
(10) Contact information. For further
information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
.03 Sale, lease, or financing
transactions.
(1) Description of change and scope.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting from:
(i) improperly treating property as sold
by the taxpayer to properly treating property as leased or financed by the taxpayer;
(ii) improperly treating property as
leased by the taxpayer to properly treating
property as sold or financed by the taxpayer;
(iii) improperly treating property as financed by the taxpayer to properly treating property as sold or leased by the taxpayer;
(iv) improperly treating property as
purchased by the taxpayer to properly
treating property as leased by the taxpayer; and
(v) improperly treating property as
leased by the taxpayer to properly treating
property as purchased by the taxpayer.
(b) Inapplicability. This change does
not apply to:
(i) a rent-to-own dealer that wants to
change its method of accounting for rentto-own contracts described in section 3 of
Rev. Proc. 95–38, 1995–2 C.B. 397; or
(ii) a taxpayer that holds assets for sale
or lease, if any asset so held is not the
subject of a sale or lease transaction as of
the beginning of the year of change.
(2) Manner of making change.

Bulletin No. 2016 –21

(a) The change in method of accounting under this section 6.03 is made using
a cut-off method and applies to transactions entered into on or after the beginning
of the year of change. Accordingly, a
§ 481(a) adjustment is neither required
nor permitted.
(b) If a taxpayer wants to change its
method of accounting for sale, lease or
financing transactions entered into before
the beginning of the year of change, the
taxpayer must file a Form 3115 under the
non-automatic change procedures of Rev.
Proc. 2015–13, 2015–5 I.R.B. 419. A
change involving sale, lease, or financing
transactions entered into before the beginning of the year of change will require a
§ 481(a) adjustment. The IRS will generally not consider a taxpayer’s request to
change a method of accounting for a sale,
lease, or financing transaction entered into
before the beginning of the year of change
unless the taxpayer’s proposed method of
accounting is consistent with the method
used by the counterparty to the agreement.
The following information should be submitted with Form 3115 to substantiate that
the taxpayer’s proposed method is consistent with the counterparty’s method: (i)
the name of the counterparty to the transaction; and (ii) a representation, signed
under penalties of perjury, from the counterparty that provides the method of accounting for the agreement used by the
counterparty for federal income tax purposes. If a taxpayer does not submit the
counterparty information, the taxpayer’s
request to change a method of accounting
for a sale, lease, or financing transaction
entered into before the beginning of the
year of change will be considered only in
unusual and compelling circumstances.
The requirement to obtain counterparty
information from multiple counterparties
will not be considered unusual or compelling.
(3) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015–13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015–13.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.03 is “10.”

Bulletin No. 2016 –21

(5) Contact information. For further information regarding a change under this
section, contact Edward Schwartz at (202)
317-7006 (not a toll-free call).
.04 Change in general asset account
treatment due to a change in the use of
MACRS property.
(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for general asset
account treatment of MACRS property (as
defined in § 1.168(b)–1(a)(2)) to the
method of accounting provided in
§ 1.168(i)–1(c)(2)(ii)(I) or § 1.168(i)–
1(h)(2), which applies when there is a
change in the use of MACRS property
pursuant to § 1.168(i)– 4(d).
(2) Manner of making change.
(a) The change is made on a modified
cut-off basis (as defined in § 1.446 –
1(e)(2)(ii)(d)(5)(iii)) and, thus, the adjusted depreciable basis of the MACRS
property as of the beginning of the year of
change is recovered using the proposed
method of accounting for general asset
account treatment. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required. See § 1.168(i)–1(h)(2)(ii)
and (iii) for more information regarding
how to establish the general asset account
when a change in the use of MACRS
property occurs pursuant to § 1.168(i)–
4(d).
(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, line 25; and
(vi) Schedule E.
(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.
(4) Designated automatic accounting
method change number. The designated

895

automatic accounting method change
number for a change under this section
6.04 is “87.”
(5) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).
.05 Change in method of accounting for
depreciation due to a change in the use
of MACRS property.
(1) Description of change. This change
applies to a taxpayer that wants to (a)
change the method of accounting for depreciation of MACRS property (as defined in § 1.168(b)–1(a)(2)) to the method
of accounting for depreciation provided in
§ 1.168(i)– 4, which applies when there is
a change in the use of MACRS property,
or (b) revoke the election provided in
§ 1.168(i)– 4(d)(3)(ii) to disregard a
change in the use of MACRS property.
See § 1.168(i)– 4(g)(2).
(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I;
(d) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the taxpayer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 generating such adjustment and a single positive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.

May 23, 2016

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.05 is “88.”
(5) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).
.06 Depreciation of qualified nonpersonal use vans and light trucks.
(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciation
for certain vehicles in accordance with
§ 1.280F– 6(f)(2)(iv). Section 1.280F–
6(f)(2)(iv) applies to a truck or van that is
a qualified nonpersonal use vehicle as defined under § 1.274 –5T(k), was placed in
service by the taxpayer before July 7,
2003, and was treated by the taxpayer as a
passenger automobile under § 1.280F– 6T
as in effect prior to July 7, 2003. If the
taxpayer files Form 3115, in accordance
with § 1.280F– 6(f)(2)(iv), the treatment of
the truck or van will be changed from property to which § 280F(a) applies to property
to which § 280F(a) does not apply.
(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I;
(d) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the taxpayer may provide a single negative

May 23, 2016

§ 481(a) adjustment for all the changes
that are included in that Form 3115 generating such adjustment and a single positive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.06 is “89.”
(5) Contact information. For further information regarding a change under this
section, contact Bernard Harvey at (202)
317-7005 (not a toll-free call).
.07 Impermissible to permissible method
of accounting for depreciation or
amortization for disposed depreciable or
amortizable property.
(1) Description of change. This change
applies to a taxpayer that wants to make
the change in method of accounting for
depreciation or amortization (depreciation) provided under section 3 of Rev.
Proc. 2007–16, 2007–1 C.B. 358, for an
item of depreciable or amortizable property that has been disposed of by the taxpayer. Section 3 of Rev. Proc. 2007–16
allows a taxpayer to make a change in
method of accounting for depreciation for
the disposed property if the taxpayer used
an impermissible method of accounting
for depreciation for the property under
which the taxpayer did not take into account any depreciation allowance, or did
take into account some depreciation but
less than the depreciation allowable, in the
year of change (as defined in section
6.07(4) of this revenue procedure) or any
prior taxable year.
(2) Applicability.
(a) In general. Except as provided in
section 6.07(2)(b) of this revenue procedure, this section 6.07 applies to a taxpayer that is changing from an impermissible method of accounting for
depreciation to a permissible method of
accounting for depreciation for any item
of depreciable or amortizable property
subject to §§ 167, 168, 197, 1400I, or
1400L(c), to former § 168, or to any additional first year depreciation deduction
provision of the Code (for example,
§ 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)):

896

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

Bulletin No. 2016 –21

section 6.07(4) of this revenue procedure),
provided the taxpayer files the original
Form 3115 in accordance with section
6.03(1)(a) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419.
(b) Change made on an amended return for the year of change. This change
may also be made on an amended federal
tax return for the year of change (as defined in section 6.07(4) of this revenue
procedure), provided:
(i) the taxpayer files the original Form
3115 with the taxpayer’s amended federal
tax return for the year of change (as defined in section 6.07(4) of this revenue
procedure) prior to the expiration of the
period of limitation for assessment under
§ 6501(a) for the taxable year in which the
item of depreciable or amortizable property was disposed of by the taxpayer; and
(ii) the taxpayer’s amended federal tax
return for the year of change (as defined in
section 6.07(4) of this revenue procedure)
includes the adjustments to taxable income and any collateral adjustments to
taxable income or tax liability (for example, adjustments to the amount or character of the gain or loss of the disposed
depreciable or amortizable property) resulting from the change in method of accounting for depreciation made by the taxpayer under this section 6.07.
(4) Year of change. The year of change
for this change is the taxable year in
which the item of depreciable or amortizable property was disposed of by the taxpayer.
(5) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to this change.
(6) Filing requirements.
(a) Notwithstanding section 6.03(1)(a)
of Rev. Proc. 2015–13, a taxpayer making
this change in accordance with section
6.07(3)(b) of this revenue procedure must
attach the original Form 3115 to the taxpayer’s timely filed amended federal tax
return for the year of change and must file
the required copy (with signature) of the
Form 3115 with the IRS in Covington,
KY, no later than when the original Form
3115 is filed with the amended federal tax
return for the year of change. If a taxpayer
is making this change in accordance with
section 6.07(3)(a) of this revenue proce-

Bulletin No. 2016 –21

dure, the filing requirements in section
6.03(1)(a) of Rev. Proc. 2015–13 apply.
(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(7) Section 481(a) adjustment period.
A taxpayer must take the entire § 481(a)
adjustment into account in computing taxable income for the year of change.
(8) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.
(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.07 is “107.”
(10) Contact information. For further
information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
.08 Tenant construction allowances.
(1) Description of change and scope.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for tenant construction allowances:
(i) from improperly treating the taxpayer as having a depreciable interest in
the property subject to the tenant construction allowances for federal income
tax purposes to properly treating the taxpayer as not having a depreciable interest
in such property for federal income tax
purposes; or
(ii) from improperly treating the taxpayer as not having a depreciable interest
in the property subject to the tenant construction allowances for federal income
tax purposes to properly treating the taxpayer as having a depreciable interest in

897

such property for federal income tax purposes.
(b) Inapplicability. This change does
not apply to:
(i) any tenant construction allowance
that qualifies under § 110;
(ii) any portion of a tenant construction
allowance that is not expended on depreciable property; or
(iii) any amount expended for depreciable property in excess of the tenant
construction allowance.
(2) Definition. For purposes of this section 6.08, the term “tenant construction
allowance(s)” means any amount received
by a lessee from a lessor to construct,
acquire, or improve property for use by
the lessee pursuant to a lease.
(3) Manner of making the change.
(a) The change in method of accounting under this section 6.08 is made using
a cut-off method and only applies to
leases entered into on or after the beginning of the year of change. Accordingly, a
§ 481(a) adjustment is neither required
nor permitted.
(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
non-automatic change procedures of Rev.
Proc. 2015–13, 2015–5 I.R.B. 419. A
change involving tenant construction allowances under existing leases will require a § 481(a) adjustment. The Commissioner may grant consent to change a
method of accounting for tenant construction allowances under existing leases 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 taxpayer
must submit the following information
with a Form 3115 submitted under the
non-automatic change procedures of Rev.
Proc. 2015–13 and this section 6.08.
(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 repre-

May 23, 2016

sentation, 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) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change in accordance with section 6.08(3)(a) of this revenue procedure:

May 23, 2016

(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I;
(d) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(e) Part IV, line 25; and
(f) Schedule E.
(5) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015–13 in
connection with this change made in accordance with section 6.08(3)(a) of this
revenue procedure. See section 8.02(2) of
Rev. Proc. 2015–13.
(6) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.08 is “145.”
(8) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).
.09 Safe harbor method of accounting
for determining the depreciation of
certain tangible assets used by wireless
telecommunications carriers under Rev.
Proc. 2011–22.
(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011–22, 2011–18
I.R.B. 737, and wants to change to the
recovery periods described in section 5 of
Rev. Proc. 2011–22 and any collateral
change to the depreciation methods for all,
or some of, the assets listed in that section.
(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015) to make this change:
(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I;

898

(d) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(e) Part IV, all lines except line 25; and
(f) Schedule E.
(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the taxpayer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 generating such adjustment and a single positive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.09 is “157.”
(5) Contact information. For further information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
.10 Late partial disposition election
(§ 168; § 1.168(i)– 8).
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to make: (i) a late
partial
disposition
election
under
§ 1.168(i)– 8(d)(2)(i) for the disposition of
a portion of an asset (as determined under
§ 1.168(i)– 8(c)(4)) by the taxpayer; or (ii)
the late partial disposition election specified in § 1.168(i)– 8(d)(2)(i) that is made
pursuant to § 1.168(i)– 8(d)(2)(iv)(B) for
the disposition of a portion of an asset by
the taxpayer. This change also may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)–3(e) or
(f)) under § 1.263(a)–3(k).
(b) Inapplicability. This change does
not apply to the following:
(i) Any asset of which the disposed
portion was a part that is not owned by the
taxpayer at the beginning of the year of
change;

Bulletin No. 2016 –21

(ii) A taxpayer making any late election specified in section 6.10(1)(a) of this
revenue procedure after the time specified
in section 6.10(3) of this revenue procedure. Any such late election is not a
change in method of accounting pursuant
to § 1.446 –1(e)(2)(ii)(d)(3)(iii);
(iii) The partial disposition election
specified in § 1.168(i)– 8(d)(2)(i) that is
made pursuant to § 1.168(i)– 8(d)(2)(iii)
(but see section 6.12 of this revenue procedure for making this change);
(iv) A taxpayer within the scope requirements of Rev. Proc. 2015–20,
2015–9 I.R.B. 694, and that calculated a
§ 481(a) adjustment as of the first day of
the taxpayer’s year of change that took
into account only dispositions in taxable
years beginning on or after January 1,
2014, for any change in method of accounting provided in section 6.37(3)(a)(iv),
(a)(v), (a)(vii), or (a)(viii), section 6.38, or
section 6.39 of Rev. Proc. 2015–14, 2015–5
I.R.B. 450, as modified by Rev. Proc.
2015–20 (now section 6.14(3)(a)(iv), (a)(v),
(a)(vii), or (a)(viii), section 6.15, or section
6.16 of this revenue procedure); or
(v) A taxpayer within the scope requirements of Rev. Proc. 2015–20 and
that calculated a § 481(a) adjustment as of
the first day of the taxpayer’s year of
change that took into account only
amounts paid or incurred in taxable years
beginning on or after January 1, 2014, for
any change in method of accounting provided in section 10.11(3)(a) of Rev. Proc.
2015–14 (now section 11.08(3) of this
revenue procedure).
(2) Change in method of accounting.
The IRS will treat the making of the late
election specified in section 6.10(1) of this
revenue procedure as a change in method
of accounting only for the time specified
in section 6.10(3) of this revenue procedure.
(3) Time for making the change.
(a) If the change under this section 6.10
is made pursuant to § 1.168(i)– 8(d)(2)(i),
this change must be made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015.
(b) If the change under this section
6.10 is made pursuant to § 1.168(i)–
8(d)(2)(iv)(B), this change must be made
for the first or second taxable year succeeding the applicable taxable year (as

Bulletin No. 2016 –21

defined in § 1.168(i)– 8(d)(2)(iv)), pursuant to § 1.168(i)– 8(d)(2)(iv)(B).
(4) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply
to this change.
(b) Concurrent automatic change. If a
taxpayer makes both a change under this
section 6.10 and a change under section
6.01 of this revenue procedure for any
taxable year specified in section 6.10(3) of
this revenue procedure, as applicable, on a
single Form 3115 for the same asset for
the same year of change in accordance
with section 6.10(6)(b) of this revenue
procedure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to the taxpayer for either
change.
(5) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) A taxpayer (including a qualified
small taxpayer) making this change must:
(i) Apply § 1.168(i)– 8(h)(1) and (3)
(accounting for asset disposed of);
(ii) If the asset (as determined under
§ 1.168(i)– 8(c)(4)) of which the disposed
portion is a part is properly included in
one of the asset classes 00.11 through 00.4
of Rev. Proc. 87–56, 1987–2 C.B. 674,
classify the replacement portion of such
asset under the same asset class as the
disposed portion of the asset in the taxable
year in which the replacement portion is
placed in service by the taxpayer;
(iii) If the taxpayer’s present method of
accounting is not in accord with
§ 1.168(i)– 8(c)(4) (determination of asset
disposed of), change to the appropriate
asset as determined under § 1.168(i)–
8(c)(4). This change is made under this

899

section 6.10 instead of under section 6.15
or section 6.16 of this revenue procedure,
as applicable;
(iv) If the taxpayer continues to deduct
depreciation for the disposed portion of
the asset (as determined under § 1.168(i)–
8(c)(4)) under the taxpayer’s present
method of accounting, change from depreciating such disposed portion to recognizing gain or loss for the disposed portion
or, if § 280B and § 1.280B–1 apply to the
disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demolition to the land on which the demolished
structure was located. This change is
made under this section 6.10 instead of
under section 6.15 or section 6.16 of this
revenue procedure, as applicable;
(v) If the taxpayer recognized a gain or
loss under § 1.168(i)–1T or § 1.168(i)– 8T
for the disposed portion of the asset in a
taxable year prior to the year of change,
recognize gain or loss for such disposed
portion under § 1.168(i)– 8. This change is
made under this section 6.10 instead of
under section 6.15 or section 6.16 of this
revenue procedure, as applicable; and
(vi) If any asset is public utility property within the meaning of § 168(i)(10),
attach to its Form 3115 a statement providing that the taxpayer agrees to the following additional terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;
(B) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and
(C) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.
(6) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for

May 23, 2016

all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.10(1) of this revenue procedure, the single Form 3115
should provide a single net § 481(a)
adjustment for all such changes. If one
or more of the changes specified in section 6.10(1) of this revenue procedure in
that single Form 3115 generate a negative § 481(a) adjustment and other
changes specified in section 6.10(1) of
this revenue procedure in that same
Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a
single negative § 481(a) adjustment for
all such changes that are included in that
Form 3115 generating such negative adjustment and a single positive § 481(a)
adjustment for all such changes that are
included in that Form 3115 generating
such positive adjustment.
(b) A taxpayer making this change
and any change listed in section
6.10(6)(b)(i)–(ii) of this revenue procedure for the same year of change should
file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropriate line on the Form 3115. This section 6.10(6)(b) applies only if all of
these changes are made for any taxable
year specified in section 6.10(3) of this
revenue procedure, as applicable (for
example, for a taxable year beginning
on or after January 1, 2012, and beginning before January 1, 2015, if the
change under section 6.10 of this revenue procedure is made pursuant to
§ 1.168(i)– 8(d)(2)(i)). See section
6.03(1)(b) of Rev. Proc. 2015–13 for
information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single
Form 3115 the information required to
be completed on Form 3115 by a qualified small taxpayer under this revenue

procedure for each change in method of
accounting included on that Form 3115.
The listed changes are:
(i) A change under section 6.01 of this
revenue procedure; and
(ii) A change under section 6.11 of this
revenue procedure.
(7) Examples. The following examples
illustrate the changes that may be made
under this section 6.10.
(a) Example 1. (i) X, a fiscal year taxpayer with
a taxable year beginning on December 1 and ending on November 30, acquired and placed in service a truck in 2009. The truck is described in
asset class 00.242 of Rev. Proc. 87–56. X depreciates the truck under § 168. X does not reasonably expect to replace the engine of the truck more
than once during its class life of 6 years. The
engine is a major component of the truck under
§ 1.263(a)–3T(i)(1)(vi).
(ii) In December 2012, X replaced the engine of
the truck. X applied § 1.168(i)– 8T and
§ 1.263(a)–3T for its taxable year ended November
30, 2013. Because the truck is the asset for disposition purposes, X did not recognize a loss on the
retirement of the engine under § 1.168(i)– 8T and
continues to depreciate the original engine. Further,
X capitalized the new engine as an improvement,
classified the new engine under asset class 00.242 of
Rev. Proc. 87–56, and depreciates the new engine
under § 168.
(iii) X complies with § 1.168(i)– 8 beginning
with its taxable year ending November 30, 2015. X
also decides to make the late partial disposition
election under this section 6.10 for the truck’s
original engine that X retired in December 2012.
Although the truck is the asset for disposition
purposes under § 1.168(i)– 8(c)(4)(ii)(C), the partial disposition rule under § 1.168(i)– 8(d)(2)(i)
results in the retirement of the engine being a
disposition under § 1.168(i)– 8(b)(2). Thus, in accordance with section 6.10 of this revenue procedure, X may file a Form 3115 with its federal
income tax return for the taxable year ending
November 30, 2015, to make the late disposition
election for the engine and change from depreciating the original engine to recognizing a loss
upon its retirement.
(b) Example 2. (i) Y, a fiscal year taxpayer with
a taxable year beginning on December 1 and ending
on November 30, acquired and placed in service a
building and its structural components in 2000. Y
depreciates this building and its structural components under § 168. The roof is a structural component of the building. Y replaced the entire roof

in June 2010. On its federal income tax return for
the taxable year ended November 30, 2010, Y did
not recognize a loss on the retirement of the original roof and continued to depreciate the original
roof. Y also capitalized the cost of the replacement
roof and has been depreciating this roof under
§ 168 since June 2010. The adjusted depreciable
basis of the original roof at the time of the retirement in 2010 (taking into account the applicable
convention) is $11,000, and Y claimed depreciation of $1,000 for such roof after its retirement
(taking into account the applicable convention)
and before the taxable year ended November 30,
2013.
(ii) In accordance with § 1.168(i)–
8T(c)(4)(ii)(A) and (B) and section 6.29(3)(a) and
(b) of the APPENDIX to Rev. Proc. 2011–14, as
modified by Rev. Proc. 2012–20, 2012–14 I.R.B.
700, Y filed with its federal income tax return for the
taxable year ended November 30, 2013, a Form 3115
to treat the building as an asset and each structural
component of the building as a separate asset for
disposition purposes and also to change from depreciating the original roof to recognizing a loss upon
its retirement. The amount of the net negative
§ 481(a) adjustment on this Form 3115 is $10,000
(adjusted depreciable basis of $11,000 for the original roof at the time of its retirement (taking into
account the applicable convention) less depreciation
of $1,000 claimed for such roof after its retirement
(taking into account the applicable convention) and
before the taxable year ended November 30, 2013).
(iii) Y complies with § 1.168(i)– 8 beginning
with its taxable year ending November 30, 2015. Y
also decides to make the late partial disposition election under this section 6.10 for the building’s original roof that Y retired in 2010. Although the original
building (including its original roof and other original structural components) is the asset for disposition
purposes under § 1.168(i)– 8(c)(4)(ii)(A), the partial
disposition rule under § 1.168(i)– 8(d)(2)(i) results in
the retirement of the original roof being a disposition
under § 1.168(i)– 8(b)(2). Thus, in accordance with
this section 6.10, Y may file a Form 3115 with its
federal income tax return for the taxable year ending
November 30, 2015, to make a late partial disposition election for the original roof, treat the original
building (including its original roof and other original structural components) as an asset and the replacement roof to the building as a separate asset for
disposition purposes, and recognize a loss upon the
retirement of the original roof under § 1.168(i)– 8.

(iv) The computation of the net § 481
adjustment for this change is computed as
follows:

Net Loss on retirement of original roof on 2012 return under § 1.168(i)–8T
Net Loss on retirement of original roof under § 1.168(i)–8
Net § 481(a) adjustment for the roof

May 23, 2016

$10,000
(10,000)
$0

900

Bulletin No. 2016 –21

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.10 is
“196.”
(9) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.11 Revocation of a general asset
account election (§ 168; § 1.168(i)–1,
§ 1.168(i)–1T and Prop. Reg.
§ 1.168(i)–1).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –54, 2014 – 41
I.R.B. 675, applies to a taxpayer that
wants to revoke its general asset account
election:
(i) Made under section 6.32(1)(a)(i) of
Rev. Proc. 2015–14 or section
6.32(1)(a)(i) of the APPENDIX to Rev.
Proc. 2011–14 for one or more items of
property depreciated under § 168
(MACRS property) included in the general asset account. This change also may
affect whether the taxpayer must capitalize amounts paid to restore a unit of property (as determined under § 1.263(a)–3(e)
or (f)) under § 1.263(a)–3(k); or
(ii) Made under § 1.168(i)–1,
§ 1.168(i)–1T, or Prop. Reg. § 1.168(i)–1
for one or more items of MACRS property placed in service by the taxpayer in a
taxable year beginning on or after January
1, 2012, and beginning before January 1,
2014. This change also may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)–3(e) or
(f)) under § 1.263(a)–3(k).
(b) Inapplicability. Because of the
changes made to the general asset account
temporary regulations (§ 1.168(i)–1T) by
§ 1.168(i)–1, the IRS will treat the revocation of the elections specified in section
6.11(1)(a) of this revenue procedure as a
change in method of accounting only for
the time specified in section 6.11(2) of this
revenue procedure. Accordingly, this
treatment does not apply to a taxpayer that
makes any revocation specified in section
6.11(1)(a) of this revenue procedure before or after the time specified in section
6.11(2) of this revenue procedure. Any

Bulletin No. 2016 –21

such revocation is not a change in method
of accounting pursuant to § 1.446 –
1(e)(2)(ii)(d)(3)(iii). The elections specified in section 6.11(1)(a) of this revenue
procedure are irrevocable except as provided in § 1.168(i)–1(c)(1)(ii)(A), (e)(3),
(g), or (h).
(2) Time for making the change. The
change under this section 6.11 must be
made for any taxable year beginning on or
after January 1, 2012, and beginning before January 1, 2015.
(3) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply
to this change.
(b) Concurrent automatic change. If a
taxpayer makes both a change under this
section 6.11 and a change under section
6.01 of this revenue procedure for any
taxable year beginning on or after January
1, 2012, and beginning before January 1,
2015, on a single Form 3115 for the same
asset for the same year of change in accordance with section 6.11(6)(b) of this
revenue procedure, the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13 do not apply to the taxpayer for
either change.
(4) Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into account in computing taxable income for the
year of change.
(5) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, all lines except line 25;
and
(vi) Schedule E.
(b) A taxpayer (including a qualified
small taxpayer) making this change must:
(i) Attach to its Form 3115 a statement
with a description of the asset(s) to which

901

this change applies (for example, all general asset accounts established pursuant to
a Form 3115 filed under section
6.32(1)(a)(i) of the APPENDIX to Rev.
Proc. 2011–14 for the year of change beginning January 1, 2012 (for a change
specified in section 6.11(1)(a)(i) of this
revenue procedure); one desk costing
$2,000 in 2012 General Asset Account #1
(for a change specified in section
6.11(1)(a)(ii) of this revenue procedure));
(ii) Include the asset(s) that were in the
general asset account(s) at the end of the
taxable year immediately preceding the
year of change in a single asset account or
a multiple asset account in accordance
with § 1.168(i)–7. The single asset account or the multiple asset account must
include a beginning balance for both the
unadjusted depreciable basis and the depreciation reserve. For a single asset account, the beginning balance for the unadjusted depreciable basis of that single
asset account is equal to the unadjusted
depreciable basis as of the beginning of
the year of change for the asset included
in that single asset account and the beginning balance of the depreciation reserve of
that single asset account is the greater of
the depreciation allowed or allowable as
of the beginning of the year of change for
the asset included in that single asset account. For a multiple asset account, the
beginning balance for the unadjusted depreciable basis of that multiple asset account is equal to the sum of the unadjusted
depreciable bases as of the beginning of
the year of change for all assets included
in that multiple asset account and the beginning balance of the depreciation reserve of that multiple asset account is
equal to the sum of the greater of the
depreciation allowed or allowable as of
the beginning of the year of change for all
assets included in that multiple asset account; and
(iii) If any asset is public utility property within the meaning of § 168(i)(10),
attach to its Form 3115 a statement providing that the taxpayer agrees to the following additional terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;
(B) Within 30 calendar days of filing
the federal income tax return for the year

May 23, 2016

of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and
(C) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.
(6) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.11(1)(a) of this revenue procedure, the single Form 3115
must provide a single net § 481(a) adjustment for all such changes.
(b) A taxpayer making this change and
any change listed in section 6.11(6)(b)(i)–
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter
the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
This section 6.11(6)(b) applies only if all
of these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015. See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified

small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue procedure for each change in method of accounting included on that Form 3115. The
listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.10 of this
revenue procedure made pursuant to
§ 1.168(i)– 8(d)(2)(i);
(iii) A change under section 6.15 of
this revenue procedure; and
(iv) A change under section 6.16 of this
revenue procedure.
(7) Examples. The following examples
illustrate the changes that may be made
under this section 6.11.
(a) Example 1. (i) On its federal tax return for the
taxable year ended November 30, 2013 (2012 taxable year), X made a general asset account election
under § 1.168(i)–1T to apply § 1.168(i)–1T to all of
its assets placed in service during the 2012 taxable
year. No such assets were disposed of during the
2012 taxable year. X complies with §§ 1.168(i)–1
and 1.168(i)– 8 for its taxable year ending November
30, 2015. Because of the change in the definition of
a qualifying disposition under § 1.168(i)–1(e)(3)(iii),
X does not want its assets placed in service during
the 2012 taxable year in general asset accounts. In
accordance with this section 6.11, X files with its
federal tax return for the taxable year ending November
30, 2015, a Form 3115 to revoke the general asset
account election for all assets placed in service during
the 2012 taxable year and include such assets in one
multiple asset account in accordance with § 1.168(i)–7.
Because the adjusted depreciable basis of the assets is
not changed as a result of this change, a § 481(a)
adjustment is neither required nor permitted.
(b) Example 2. (i) Y, a fiscal year taxpayer with
a taxable year beginning December 1 and ending
November 30, acquired and placed in service three
used trucks in May 2012. The trucks are described in

Loss on sale of truck on 2012 return under § 1.168(i)–8T
Loss on sale of truck under § 1.168(i)–8
Net § 481(a) adjustment for the asset

(c) Example 3. (i) Z, a fiscal year taxpayer with
a taxable year beginning December 1 and ending
November 30, acquired and placed in service a
building and its structural components in 2000. Z
depreciates this building and its structural components under § 168. The roof is a structural component of the building. Z replaced the entire roof in
June 2010. On its federal tax return for the taxable
year ended November 30, 2010, Z did not recognize
a loss on the retirement of the original roof and
continued to depreciate the original roof. Z also

May 23, 2016

asset class 00.242 of Rev. Proc. 87–56, 1987–2 C.B.
674. Of the three trucks, one truck costs $20,000 and
the other two trucks cost a total of $30,000. Y
depreciates the trucks under § 168. In June 2013, Y
sold the truck that cost $20,000 to an unrelated party for
$12,000. The adjusted depreciable basis of the truck at
the time of its disposition (taking into account the
applicable convention) is $12,800 (cost of $20,000 less
depreciation of $7,200 for the taxable years ended
November 30, 2012, and November 30, 2013).
(ii) In accordance with § 1.168(i)–1T and section
6.32(1)(a)(i) of the APPENDIX to Rev. Proc. 2011–
14, as modified by Rev. Proc. 2012–20, 2012–14
I.R.B. 700, Y filed with its federal tax return for the
taxable year ended November 30, 2013 (2012 taxable year), a Form 3115 to make a late general asset
account election to include the three trucks in one
general asset account. Because a sales transaction is
a qualifying disposition under § 1.168(i)–
1T(e)(3)(iii)(B), Y also elected to apply § 1.168(i)–
1T(e)(3)(iii) for the sale of the truck in the 2012
taxable year. As a result, Y removed this truck from
the general asset account and, on its federal tax
return for the taxable year ended November 30,
2013, recognized a loss of $800 under § 1.168(i)– 8T
(sales proceeds of $12,000 less the adjusted depreciable basis of $12,800 for the truck.)
(iii) Y complies with §§ 1.168(i)–1 and
1.168(i)– 8 beginning with its taxable year ending
November 30, 2015. Because a sales transaction is
not a qualifying disposition under § 1.168(i)–
1(e)(3)(iii)(B), Y should have recognized all of the
sales proceeds of $12,000 from the sale of the truck
in the 2012 taxable year as ordinary income and
continued to deduct depreciation for this truck in the
general asset account. As a result and in accordance
with sections 6.11 and 6.16(3)(i) of this revenue
procedure, Y files with its federal tax return for the
taxable year ending November 30, 2015, a Form
3115 to revoke the general asset account election for
the three trucks placed in service in May 2012,
include the two unsold trucks in one multiple asset
account in accordance with § 1.168(i)–7, and recognize the loss of $800 upon the sale of the truck in the
2012 taxable year under § 1.168(i)– 8.
(iv) The computation of the § 481 adjustment for
this change is computed as follows:

$ 800
(800)
$0

capitalized the cost of the replacement roof and has
been depreciating this roof under § 168 since June
2010. The adjusted depreciable basis of the original
roof at the time of its retirement in 2010 (taking into
account the applicable convention) is $11,000, and Z
claimed depreciation of $1,000 for such roof after its
retirement (taking into account the applicable convention) and before the taxable year ended November 30, 2013 (2012 taxable year). Also, the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year and $500 for

902

the taxable year ended November 30, 2014 (2013
taxable year).
(ii) In accordance with § 1.168(i)–1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011–14,
as modified by Rev. Proc. 2012–20, 2012–14 I.R.B.
700, Z filed with its federal tax return for the taxable
year ended November 30, 2013, a Form 3115 to: (1)
make a late general asset account election to include
the building (including its structural components)
placed in service in 2000 in one general asset account and the replacement roof in a separate general

Bulletin No. 2016 –21

asset account; and (2) make a late qualifying disposition election for the retirement of the original roof
in 2010. As a result, Z removed the original roof
from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of
$10,000 (adjusted depreciable basis of $11,000 for
the original roof at the time of its retirement (taking
into account the applicable convention) less depreciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable convention) and before the 2012 taxable year).
(iii) Z complies with §§ 1.168(i)–1 and
1.168(i)– 8 for its taxable year ending November 30,
2015 (2014 taxable year), but decides not to make
any late partial disposition election under section
6.10 of this revenue procedure. In accordance with
sections 6.11 and 6.15(3)(a) of this revenue procedure, Z files a Form 3115 with its federal income tax
return for the 2014 taxable year to revoke the general
asset account election for the building (including its
structural components) placed in service in 2000 and
for the replacement roof, and to change to treating
the building (including its original roof and other
original structural components) placed in service in
2000 as an asset and the replacement roof as a
separate asset for disposition purposes. The net positive § 481(a) adjustment for this change is $9,000
(net loss of $10,000 claimed on the 2012 return for
the retirement of the original roof less depreciation
of $1,000 for the original roof for the 2012 and 2013
taxable years) and is included in Z’s taxable income
for the 2014 taxable year.

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.11 is
“197.”
(9) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.12 Partial dispositions of tangible
depreciable assets to which the IRS’s
adjustment pertains (§ 168; § 1.168(i)–
8).
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that is described in
§ 1.168(i)– 8(d)(2)(iii) and, pursuant to
§ 1.168(i)– 8(d)(2)(iii), that wants to make
the partial disposition election specified in
§ 1.168(i)– 8(d)(2)(i) to the disposition of
a portion of an asset to which the IRS’s
adjustment (as described in § 1.168(i)–
8(d)(2)(iii)) pertains.
(b) Inapplicability. This change does
not apply to:
(i) Any asset of which the disposed
portion was a part that is not owned by the

Bulletin No. 2016 –21

taxpayer at the beginning of the year of
change; or
(ii) The partial disposition election
specified in § 1.168(i)– 8(d)(2)(i) that is
made pursuant to § 1.168(i)– 8(d)(2)(iv)
(but see section 6.10 of this revenue procedure for making this change).
(2) Change in method of accounting.
The IRS will treat the making of the late
election specified in section 6.12(1) of this
revenue procedure as a change in method
of accounting.
(3) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change.
(4) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) A taxpayer (including a qualified
small taxpayer) making this change must:
(i) Apply § 1.168(i)– 8(h)(1) and (3)
(accounting for asset disposed of);
(ii) If the asset (as determined under
§ 1.168(i)– 8(c)(4)) of which the disposed
portion is a part is properly included in
one of the asset classes 00.11 through 00.4
of Rev. Proc. 87–56, 1987–2 C.B. 674,
classify the replacement portion of such
asset under the same asset class as the
disposed portion of the asset in the taxable
year in which the replacement portion is
placed in service by the taxpayer;
(iii) If the taxpayer’s present method of
accounting is not in accord with
§ 1.168(i)– 8(c)(4) (determination of asset
disposed of), change to the appropriate
asset as determined under § 1.168(i)–
8(c)(4);
(iv) If the taxpayer continues to deduct
depreciation for the disposed portion of
the asset (as determined under § 1.168(i)–
8(c)(4)) under the taxpayer’s present

903

method of accounting, change from depreciating such disposed portion to recognizing gain or loss for the disposed portion
or, if § 280B and § 1.280B–1 apply to the
disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demolition to the land on which the demolished
structure was located; and
(v) If any asset is public utility property
within the meaning of § 168(i)(10), attach
a statement to its Form 3115 providing
that the taxpayer agrees to the following
additional terms and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;
(B) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and
(C) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.
(5) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets. If the change for more than one
asset included in that Form 3115 is specified in section 6.12(1) of this revenue
procedure, the single Form 3115 should
provide a single net § 481(a) adjustment
for all such changes. If one or more of the
changes specified in section 6.12(1) of this
revenue procedure in that single Form
3115 generate a negative § 481(a) adjustment and other changes specified in section 6.12(1) of this revenue procedure in
that same Form 3115 generate a positive
§ 481(a) adjustment, the taxpayer may
provide a single negative § 481(a) adjustment for all such changes that are included in that Form 3115 generating such
negative adjustment and a single positive
§ 481(a) adjustment for all such changes

May 23, 2016

that are included in that Form 3115 generating such positive adjustment.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.12 is
“198.”
(7) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.13 Depreciation of leasehold
improvements (§§ 167, 168, and 197;
§ 1.167(a)– 4).
(1) Description of change. This
change, as described in Rev. Proc. 2014 –
17, 2014 –12 I.R.B. 661, applies to a taxpayer that wants to change its method of
accounting to comply with § 1.167(a)– 4
for leasehold improvements in which the
taxpayer has a depreciable interest at the
beginning of the year of change:
(a) From improperly depreciating the
leasehold improvements to which § 168
applies over the term of the lease (including renewals, if applicable) to properly
depreciating these improvements under
§ 168;
(b) From improperly amortizing leasehold improvements to which § 197 applies
over the term of the lease (including renewals, if applicable) to properly amortizing these improvements under § 197; or
(c) From improperly amortizing leasehold improvements to which § 167(f)(1)
applies over the term of the lease (including renewals, if applicable) to properly
amortizing these improvements under
§ 167(f)(1).
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer making this change.
(b) Special rule. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015–13
does not apply to a taxpayer making this
change for any taxable year beginning on
or after January 1, 2012, and beginning
before January 1, 2016.
(3) Manner of making change.
(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only

May 23, 2016

the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(b) If any leasehold improvement is
public utility property within the meaning
of § 168(i)(10) or former § 167(l)(3)(A), a
taxpayer (including a qualified small taxpayer) making this change must attach to
its Form 3115 a statement providing that
the taxpayer agrees to the following additional terms and conditions:
(i) A normalization method of accounting (within the meaning of § 168(i)(9) or
former § 167(l)(3)(G)) will be used for the
public utility property subject to the
change;
(ii) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
change; and
(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.
(4) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single negative § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all

904

the changes that are included in that Form
3115 generating such adjustment.
(b) A taxpayer making both this
change and a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required by section 6.13(3)(a)
of this revenue procedure for this change
and the information required by the lines
on Form 3115 applicable to the UNICAP
method change, including Part II line 14
and 15, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer’s response is different for this change and the change to a
UNICAP method.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of accounting under this section 6.13 is “199.”
(6) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.14 Permissible to permissible method of
accounting for depreciation of MACRS
property (§ 168; §§ 1.168(i)–1,
1.168(i)–7, and 1.168(i)– 8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –54, 2014 – 41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting for depreciation that is specified in section 6.14(3) of this revenue procedure for an asset:
(i) to which § 168 applies (MACRS
property);
(ii) for which the present and proposed
methods of accounting are permissible
methods of accounting under § 1.168(i)–1,

Bulletin No. 2016 –21

§ 1.168(i)–7, or § 1.168(i)– 8, as applicable;
and
(iii) that is owned by the taxpayer at the
beginning of the year of change.
(b) Inapplicability. This change does
not apply to any property that is not depreciated under § 168 under the taxpayer’s present and proposed methods of accounting.
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer making this change.
(b) Special rule.
(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016.
(ii) If a taxpayer makes both a change
under this section 6.14 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.14(6)(b) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015–13 do not apply to
the taxpayer for either change.
(3) Changes covered. This section 6.14
only applies to the following changes in
methods of accounting for depreciation of
MACRS property: (a) For the items of
MACRS property not subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder—
(i) a change from single asset accounts
(or item accounts) for specific items of
MACRS property to multiple asset accounts (or pools) for the same assets, or vice
versa, in accordance with § 1.168(i)–7;
(ii) a change from grouping specific
items of MACRS property in multiple asset accounts to a different grouping of the
same assets in multiple asset accounts in
accordance with § 1.168(i)–7(c);
(iii) a change in the method of identifying which assets in multiple asset accounts
or which portions of assets have been disposed of by the taxpayer from the specific
identification method under § 1.168(i)–
8(g)(1) to the first-in, first-out (FIFO)
method of accounting under § 1.168(i)–

Bulletin No. 2016 –21

8(g)(2)(i) or the modified FIFO method of
accounting under § 1.168(i)– 8(g)(2)(ii);
(iv) a change in the method of identifying which assets in multiple asset accounts or which portions of assets have
been disposed of by the taxpayer from the
FIFO method of accounting under
§ 1.168(i)– 8(g)(2)(i) or the modified
FIFO method of accounting under
§ 1.168(i)–(g)(2)(ii) to the specific identification method under § 1.168(i)– 8(g)(1);
(v) a change in the method of identifying which assets in multiple asset accounts or which portions of assets have
been disposed of by the taxpayer from the
FIFO method of accounting under
§ 1.168(i)– 8(g)(2)(i) to the modified
FIFO method of accounting under
§ 1.168(i)– 8(g)(2)(ii), or vice versa;
(vi) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)– 8(b)(3)) in multiple asset accounts or which portions of mass assets
have been disposed of by the taxpayer
from the specific identification method
under § 1.168(i)– 8(g)(1) to a mortality
dispersion table in accordance with
§ 1.168(i)– 8(g)(2)(iii);
(vii) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)– 8(b)(3)) in multiple asset accounts or which portions of mass assets
have been disposed of by the taxpayer
from the FIFO method of accounting under § 1.168(i)– 8(g)(2)(i) or the modified
FIFO method of accounting under
§ 1.168(i)– 8(g)(2)(ii) to a mortality dispersion table in accordance with
§ 1.168(i)– 8(g)(2)(iii);
(viii) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)– 8(b)(3)) in multiple asset accounts or which portions of mass assets
have been disposed of by the taxpayer
from a mortality dispersion table in accordance with § 1.168(i)– 8(g)(2)(iii) to the
specific identification method under
§ 1.168(i)– 8(g)(1), the FIFO method of
accounting under § 1.168(i)– 8(g)(2)(i), or
the modified FIFO method of accounting
under § 1.168(i)– 8(g)(2)(ii);
(ix) if § 1.168(i)– 8(f)(2) applies (disposition of an asset in a multiple asset
account) and it is impracticable from the
taxpayer’s records to determine the unadjusted depreciable basis of the asset disposed of, a change in the method of de-

905

termining the unadjusted depreciable
basis of all assets in the same multiple
asset account from one reasonable method
to another reasonable method; or
(x) if § 1.168(i)– 8(f)(3) applies (disposition of a portion of an asset) and it is
impracticable from the taxpayer’s records
to determine the unadjusted depreciable
basis of the disposed portion of the asset,
a change in the method of determining the
unadjusted depreciable basis of all disposed portions of the asset from one reasonable method to another reasonable
method; and
(b) For the items of MACRS property
subject to a general asset account election
under § 168(i)(4) and the regulations
thereunder—
(i) a change from grouping specific
items of MACRS property in general asset
accounts to a different grouping of the
same assets in general asset accounts in
accordance with § 1.168(i)–1(c);
(ii) a change in the method of identifying which assets or which portions of
assets have been disposed of by the taxpayer from the specific identification
method under § 1.168(i)–1(j)(2)(i)(A) to
the FIFO method of accounting under
§ 1.168(i)–1(j)(2)(i)(B) or the modified
FIFO method of accounting under
§ 1.168(i)–1(j)(2)(i)(C);
(iii) a change in the method of identifying which assets or which portions of
assets have been disposed of by the taxpayer from the FIFO method of accounting under § 1.168(i)–1(j)(2)(i)(B) or the
modified FIFO method of accounting under § 1.168(i)–1(j)(2)(i)(C) to the specific
identification method under § 1.168(i)–
1(j)(2)(i)(A);
(iv) a change in the method of identifying which assets or which portions of
assets have been disposed of by the taxpayer from the FIFO method of accounting under § 1.168(i)–1(j)(2)(i)(B) to the
modified FIFO method of accounting under § 1.168(i)–1(j)(2)(i)(C), or vice versa;
(v) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)–1(b)(6)) or which portions of
mass assets that are in a separate general
asset account in accordance with § 1.168 –
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from the specific identification method under § 1.168(i)–1(j)(2)(i)(A)

May 23, 2016

to a mortality dispersion table in accordance with § 1.168(i)–1(j)(2)(i)(D);
(vi) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)–1(b)(6)) or which portions of
mass assets that are in a separate general
asset account in accordance with § 1.168 –
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from the FIFO method of
accounting under § 1.168(i)–1(j)(2)(i)(B)
or the modified FIFO method of accounting under § 1.168(i)–1(j)(2)(i)(C) to a
mortality dispersion table in accordance
with § 1.168(i)–1(j)(2)(i)(D);
(vii) a change in the method of identifying which mass assets (as defined in
§ 1.168(i)–1(b)(6)), or which portions of
mass assets that are in a separate general
asset account in accordance with § 1.168 –
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from a mortality dispersion
table in accordance with § 1.168(i)–
1(j)(2)(i)(D) to the specific identification
method under § 1.168(i)–1(j)(2)(i)(A), the
FIFO method of accounting under
§ 1.168(i)–1(j)(2)(i)(B), or the modified
FIFO method of accounting under
§ 1.168(i)–1(j)(2)(i)(C); or
(viii) if § 1.168(i)–1(j)(3) applies (basis
of a disposed asset or a disposed portion
of an asset in a general asset account) and
it is impracticable from the taxpayer’s records to determine the unadjusted depreciable basis of the disposed asset or the
disposed portion of the asset, a change in
the method of determining the unadjusted
depreciable basis of all assets in the same
general asset account from one reasonable
method to another reasonable method.
(4) Manner of making change.
(a) The changes in methods of accounting specified in section 6.14(3)(a)(i) and
(ii) and section 6.14(3)(b)(i) of this revenue procedure are made using a modified
cut-off method under which the unadjusted depreciable basis and the depreciation reserve of the asset as of the beginning of the year of change are accounted
for using the proposed method of accounting.
(i) If the change specified in section
6.14(3)(a)(i) of this revenue procedure is a
change to a single asset account, the new
single asset account must include a beginning balance for both the unadjusted depreciable basis and the depreciation re-

May 23, 2016

serve of the asset included in that single
asset account.
(ii) If the change specified in section
6.14(3)(a)(i) or (ii) of this revenue procedure is a change to a multiple asset account (either a new one or a different
grouping), the multiple asset account must
include a beginning balance for both the
unadjusted depreciable basis and the depreciation reserve. The beginning balance
for the unadjusted depreciable basis of
each multiple asset account is equal to the
sum of the unadjusted depreciable bases
as of the beginning of the year of change
for all assets included in that multiple
asset account. The beginning balance of
the depreciation reserve of each multiple
asset account is equal to the sum of the
greater of the depreciation allowed or allowable as of the beginning of the year of
change for all assets included in that multiple asset account.
(iii) The change specified in section
6.14(3)(b)(i) of this revenue procedure requires the general asset account to include
a beginning balance for both the unadjusted depreciable basis and the depreciation reserve. The beginning balance for
the unadjusted depreciable basis of each
general asset account is equal to the sum
of the unadjusted depreciable bases as of
the beginning of the year of change for all
assets included in that general asset account. The beginning balance of the depreciation reserve of each general asset
account is equal to the sum of the greater
of the depreciation allowed or allowable
as of the beginning of the year of change
for all assets included in that general asset
account.
(b) The changes in methods of accounting specified in section 6.14(3)(a)(iii), (vi),
(ix), and (x) and section 6.14(3)(b)(ii), (v),
and (viii) of this revenue procedure are
made using a cut-off method and apply to
dispositions occurring on or after the beginning of the year of change.
(c) Even though the changes in methods of accounting specified in section
6.14(3)(a)(iv), (v), (vii), and (viii) and
section 6.14(3)(b)(iii), (iv), (vi), and (vii)
of this revenue procedure are changes
from one permissible method of accounting to another permissible method of accounting, these changes are made with a
§ 481(a) adjustment. However, see section
6.14(4)(f) of this revenue procedure for an

906

exception. For the changes in methods of accounting specified in section 6.14(3)(b)(iii),
(iv), (vi), and (vii) of this revenue procedure,
the § 481(a) adjustment should be zero unless
§ 1.168(i)–1(e)(3) applies to the asset subject
to the change.
(d) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.14(3)(a)(ix) and (x) and section
6.14(3)(b)(viii) of this revenue procedure;
(v) Part II, all lines except lines 13, 15b,
16c, 17, and 19 if the qualified small taxpayer
is making a change in method of accounting
specified in section 6.14(3)(a)(ix) or (x) or
section 6.14(3)(b)(viii) of this revenue procedure;
(vi) Part IV; and
(vii) Schedule E.
(e) If any asset subject to this change is
public utility property within the meaning
of § 168(i)(10), a taxpayer (including a
qualified small taxpayer) making this
change must attach to its Form 3115 a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:
(i) A normalization method of accounting (within the meaning of § 168(i)(9))
will be used for the public utility property
subject to the change;
(ii) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
a change in method of accounting specified in section 6.14(3)(a)(iv), (v), (vii), or
(viii) or section 6.14(3)(b)(iii), (iv), (vi),
or (vii) of this revenue procedure made for
the public utility property subject to the
change; and

Bulletin No. 2016 –21

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.
(f) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015–20, 2015–9 I.R.B. 694, and that
changed its method of accounting under
section 6.37(3)(a)(iv), (a)(v), (a)(vii), or
(a)(viii) of Rev. Proc. 2015–14 (which is
now section 6.14(3)(a)(iv), (a)(v), (a)(vii),
or (a)(viii) of this revenue procedure) by
following section 5 of Rev. Proc. 2015–20
is required to calculate a § 481(a) adjustment as of the first day of the year of
change that takes into account only dispositions in taxable years beginning on or
after January 1, 2014.
(5) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.14(4)(f) of this revenue procedure that takes into account only dispositions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of Rev.
Proc. 2015–13 for dispositions subject to a
change under section 6.14(3)(a)(iv), (a)(v),
(a)(vii), or (a)(viii) of this revenue procedure in taxable years beginning before
January 1, 2014. See section 5.03 of
Rev. Proc. 2015–20.
(6) Concurrent change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.14(3)(a)(iv), (v),
(vii), or (viii) or section 6.14(3)(b)(iii),
(iv), (vi), or (vii) of this revenue procedure, the single Form 3115 also should
provide a single net § 481(a) adjustment
for all such changes. If one or more changes
specified in section 6.14(3)(a)(iv), (v), (vii),
or (viii) or section 6.14(3)(b)(iii), (iv), (vi),
or (vii) of this revenue procedure in that
single Form 3115 generate a negative
§ 481(a) adjustment and other changes specified in section 6.14(3)(a)(iv), (v), (vii), or
(viii) or section 6.14(3)(b)(iii), (iv), (vi), or
(vii) of this revenue procedure in that same
Form 3115 generate a positive § 481(a) adjustment, the taxpayer may provide a single
negative § 481(a) adjustment for all such

Bulletin No. 2016 –21

changes that are included in that Form 3115
generating such negative adjustment and a
single positive § 481(a) adjustment for all
such changes that are included in that Form
3115 generating such positive adjustment.
(b) A taxpayer making this change and
any change listed in section 6.14(6)(b)(i)–
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter
the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue procedure for each change in method of accounting included on that Form 3115. The
listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.15 of this
revenue procedure;
(iii) A change under section 6.16 of
this revenue procedure;
(iv) A change under section 6.17 of this
revenue procedure; and
(v) A change under section 11.07(3)(c)
of this revenue procedure.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of accounting under this section 6.14 is “200.”
(8) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.15 Disposition of a building or structural
component (§ 168; § 1.168(i)– 8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –54, 2014 – 41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.15(3) of this revenue procedure for disposing of a building or a structural component or disposing of a portion of a
building (including its structural components) to which the partial disposition rule
in § 1.168(i)–8(d)(1) applies. These specified

907

changes are consistent with §§ 1.168(i)–
8(b)(2), 1.168(i)–8(c)(4)(ii)(A), (B), and (D),
1.168(i)– 8(f), and 1.168(i)– 8(g), as applicable. This change also affects the determination of gain or loss from disposing of
the building, the structural component, or
the portion of the building (including its
structural components) and may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)–3(e) or
(f)) under § 1.263(a)–3(k).
(b) Inapplicability. This change does
not apply to the following:
(i) Any asset (as determined under
§ 1.168(i)– 8(c)(4)) that is not depreciated
under § 168 under the taxpayer’s present
method of accounting and, if applicable,
under the taxpayer’s proposed method of
accounting;
(ii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.17 of this revenue procedure for making
a change in method of accounting for dispositions of tangible depreciable assets
subject to a general asset account election);
(iii) Any multiple buildings, condominium units, or cooperative units that are
treated as a single building under the taxpayer’s present method of accounting, or
will be treated as a single building under
the taxpayer’s proposed method of accounting, pursuant to § 1.1250 –1(a)(2)(ii);
(iv) Any disposition of a portion of an
asset in a transaction described in the last
sentence in § 1.168(i)– 8(d)(1) for which
the taxpayer did not make a partial disposition election in accordance with
§ 1.168(i)– 8(d)(2)(ii) or (iii), as applicable (but see section 6.10 of this revenue
procedure for making a late partial disposition election and section 6.12 of this
revenue procedure for making a partial
disposition
election
pursuant
to
§ 1.168(i)– 8(d)(2)(iii)); or
(v) Any demolition of a structure to
which § 280B and § 1.280B–1 apply.
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer making this change.
(b) Special rule.
(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 does not

May 23, 2016

apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016.
(ii) If a taxpayer makes both a change
under this section 6.15 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.15(10)(b) or (c) of this revenue procedure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to the taxpayer for either
change.
(3) Covered changes. This section 6.15
only applies to the following changes in
methods of accounting for a building (including its structural components), condominium unit (including its structural components), cooperative unit (including its
structural components), or an improvement or addition (including its structural
components) thereto:
(a) For purposes of applying
§ 1.168(i)– 8(c)(4) (determination of asset
disposed of), a change to the appropriate
asset as determined under § 1.168(i)–
8(c)(4)(ii)(A), (B), or (D), as applicable;
(b) If the taxpayer makes the change
specified in section 6.15(3)(a) of this revenue procedure, and if the taxpayer disposed of the asset as determined under
section 6.15(3)(a) of this revenue procedure in a taxable year prior to the year of
change but under its present method of
accounting continues to deduct depreciation for such disposed asset, a change
from depreciating the disposed asset to
recognizing gain or loss upon disposition
or, if § 280B and § 1.280B–1 apply to the
disposition, change from depreciating
such disposed asset to capitalizing the loss
sustained on account of the demolition to
the land on which the demolished structure was located;
(c) If the taxpayer makes the change
specified in section 6.15(3)(a) of this revenue procedure, and if the taxpayer disposed of a portion of the asset as determined under section 6.15(3)(a) of this
revenue procedure in a transaction described in the first sentence in § 1.168(i)–
8(d)(1) in a taxable year prior to the year
of change but under its present method of

May 23, 2016

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

908

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

Bulletin No. 2016 –21

the cost of the replacement portion of the
asset to its placed-in-service year cost using the Consumer Price Index) to a reasonable method; or
(k) A change from recognizing gain or
loss under § 1.168(i)– 8T upon the disposition of an asset (as determined under
§ 1.168(i)– 8(c)(4)(ii)(A), (B), or (D), as
applicable) included in a general asset account to recognizing gain or loss upon the
disposition of the same asset under
§ 1.168(i)– 8 if: (A) the taxpayer makes
the change specified in section 6.11 of this
revenue procedure (revocation of a general asset account election); (B) the taxpayer made a qualifying disposition election under § 1.168(i)–1T(e)(3)(iii) in a
taxable year prior to the year of change for
the disposition of such asset; (C) the taxpayer’s present method of accounting for
such asset is in accord with § 1.168(i)–
8(c)(4)(ii)(A), (B), or (D), as applicable;
and (D) the taxpayer recognized a gain or
loss under § 1.168(i)– 8T upon the disposition of such asset in a taxable year prior
to the year of change.
(4) Examples. The following examples
illustrate the covered changes specified in
section 6.15(3) of this revenue procedure.
(a) Example 1. X, a calendar-year taxpayer, acquired and placed in service a building and its structural components in 2000. In 2005, X constructed
and placed in service an addition to this building. X
depreciates the building, the addition, and their
structural components under § 168. A change by X
to treating the original building (including its structural components) as an asset and the addition to the
building (including the structural components of
such addition) as a separate asset for disposition
purposes is a change described in section 6.15(3)(a)
of this revenue procedure solely for purposes of
§ 1.168(i)– 8(c)(4).
(b) Example 2. Y, a calendar year taxpayer, acquired and placed in service a building and its structural components in 1990. Y depreciates this building and its structural components under § 168. In
2000, a tornado damaged the roof and, as a result, Y
replaced the entire roof of the building. Y did not
recognize a loss on the retirement of the original roof
and continues to depreciate the original roof. Y also
capitalized the cost of the replacement roof and has
been depreciating this roof under § 168 since 2000.
Because the original roof was disposed of as a result
of a casualty event described in § 165, a change by
Y from depreciating the original roof to recognizing
a loss upon its retirement is a covered change described in section 6.15(3)(e) of this revenue procedure solely for purposes of § 1.168(i)– 8.
(c) Example 3. The facts are the same as in
Example 2, except a tornado did not occur, but Y still
replaced the entire roof of the building in 2000.
Because the original roof was not disposed of as a
result of any of the events described in the first

Bulletin No. 2016 –21

sentence in § 1.168(i)– 8(d)(1) that require a partial
disposition, a partial disposition election must be
made to change from depreciating the original roof
to recognizing a loss upon its retirement. Pursuant to
section 6.15(1)(b)(iv) of this revenue procedure, section 6.15 does not apply to the disposition of the
original roof in 2000. But see section 6.10 of this
revenue procedure for making the late partial disposition election under § 1.168(i)– 8(d)(2)(i) for the
original roof.

(5) Manner of making change.
(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the following:
(i) A description of the assets to which
this change applies;
(ii) If the taxpayer is making a change
specified in section 6.15(3)(a) of this revenue procedure, a description of the assets
for disposition purposes under the taxpayer’s present and proposed methods of accounting;
(iii) If the taxpayer is making the
change specified in section 6.15(3)(f) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpayer’s present and proposed methods of accounting;
(iv) If the taxpayer is making the
change specified in section 6.15(3)(h) or
(j) of this revenue procedure, a description
of the methods of determining the unadjusted depreciable basis of the disposed
asset or disposed portion of the asset, as
applicable, under the taxpayer’s present
and proposed methods of accounting; and
(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the application;
(B) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
application; and

909

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.
(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) to make this
change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.15(3)(h) and (j) of this revenue procedure;
(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small
taxpayer is making a change in method of
accounting specified in section 6.15(3)(h)
or (j) of this revenue procedure;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(6) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015–13 for a change specified in section
6.15(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)– 8(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)– 8(c)(4). The director will ascertain whether the taxpayer’s determination of its asset under § 1.168(i)– 8(c)(4) is
permissible.
(7) Section 481(a) adjustment.
(a) A taxpayer changing its method of
accounting under this section 6.15 may
use statistical sampling in determining the
§ 481(a) adjustment by following the
guidance provided in Rev. Proc. 2011– 42,
2011–37 I.R.B. 318.
(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015–20, 2015–9 I.R.B. 694, and that
changed its method of accounting under
section 6.38 of Rev. Proc. 2015–14

May 23, 2016

(which is now this section 6.15) by following section 5 of Rev. Proc. 2015–20 is
required to calculate a section § 481(a)
adjustment as of the first day of the year of
change that takes into account only dispositions in taxable years beginning on or
after January 1, 2014.
(8) Section 481(a) adjustment period.
(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:
(i) If the taxpayer is making the change
specified in section 6.15(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under § 1.168(i)– 8T
on the disposition of the asset (or if applicable, a portion thereof) in a taxable year
prior to the year of change;
(ii) If the taxpayer is making the
change specified in section 6.15(3)(k) of
this revenue procedure; or
(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01 of Rev.
Proc. 2015–56, 2015– 49 I.R.B. 827, and
that is within the scope of section 3 of
Rev. Proc. 2015–56, and is making the
change specified in section 5.02(5)(b) of
Rev. Proc. 2015–56 on or before the first
taxable year that the qualified taxpayer uses
the remodel-refresh safe harbor provided in
section 5.02 of Rev. Proc. 2015–56.
(b) If section 6.15(8)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015–13 for the § 481(a)
adjustment period.
(c) Example. (i) Y, a fiscal year taxpayer with a
taxable year beginning December 1 and ending November 30, acquired and placed in service a building
and its structural components in 2000. Y depreciates
this building and its structural components under
§ 168. The roof is a structural component of the
building. Y replaced the entire roof in June 2010. On
its federal tax return for the taxable year ended
November 30, 2010, Y did not recognize a loss on
the retirement of the original roof and continues to
depreciate the original roof. Y also capitalized the
cost of the replacement roof and has been depreciating this roof under § 168 since June 2010. The
adjusted depreciable basis of the original roof at the
time of its retirement in 2010 (taking into account
the applicable convention) is $11,000, and Y
claimed depreciation of $1,000 for such roof after its
retirement (taking into account the applicable convention) and before the taxable year ended November 30, 2013 (2012 taxable year). Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year and $500 for
the taxable year ended November 30, 2014 (2013
taxable year).

May 23, 2016

(ii) In accordance with § 1.168(i)–
8T(c)(4)(ii)(A) and (B) and section 6.29(3)(a) and
(b) of the APPENDIX to Rev. Proc. 2011–14, as
modified by Rev. Proc. 2012–20, 2012–14 I.R.B.
700, Y filed with its federal income tax return for the
taxable year ended November 30, 2013, a Form 3115
to treat the building as an asset and each structural
component of the building as a separate asset for
disposition purposes and also to change from depreciating the original roof to recognizing a loss upon
its retirement. The amount of the net negative
§ 481(a) adjustment on this Form 3115 is $10,000
(adjusted depreciable basis of $11,000 for the original roof at the time of its retirement (taking into
account the applicable convention) less depreciation
of $1,000 claimed for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year).
(iii) Y complies with § 1.168(i)– 8 beginning
with its taxable year ending November 30, 2015
(2014 taxable year), but decides not to make any late
partial disposition election under section 6.10 of this
revenue procedure. In accordance with section
6.15(3)(a) of this revenue procedure, Y files a Form
3115 with its federal income tax return for the 2014
taxable year to change to treating the original building (including its original roof and other original
structural components) as an asset and the replacement roof as a separate asset for disposition purposes. Because Y is not making a late partial disposition election for the original roof, Y does not
recognize the net loss of $10,000 upon the retirement
of the original roof under § 1.168(i)– 8 and Y will
continue to depreciate the original roof. Thus, the net
positive § 481(a) adjustment for this change is
$9,000 (net loss of $10,000 claimed on the 2012
return for the retirement of the original roof less
depreciation of $1,000 for the original roof for the
2012 and 2013 taxable years) and is included in Y’s
taxable income for the 2014 taxable year.

(9) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.15(7)(b) of this revenue procedure that takes into account only dispositions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of
Rev. Proc. 2015–13 for dispositions subject to a change under this section 6.15 in
taxable years beginning before January 1,
2014. See section 5.04 of Rev. Proc.
2015–20.
(10) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-

910

tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive adjustment.
(b) A taxpayer making this change and any
change listed in section 6.15(10)(b)(i)–(iv) of
this revenue procedure for the same year of
change should file a single Form 3115 for
all of such changes and must enter the designated automatic accounting method
change numbers for the changes on the appropriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes. For
example, a qualified small taxpayer must
include on the single Form 3115 the information required to be completed on Form
3115 by a qualified small taxpayer under
this revenue procedure for each change in
method of accounting included on that Form
3115. The listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.14 of this
revenue procedure;
(iii) A change under section 6.16 of
this revenue procedure; and
(iv) A change under section 6.17 of this
revenue procedure.
(c) A taxpayer making this change and
a change under section 6.11 of this revenue procedure (revocation of a general
asset account election) and/or any change
listed in section 6.15(10)(c)(i)–(iii) of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the designated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.15(10)(c) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015. See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue procedure for each change in method of accounting included on that Form 3115. The
listed changes are:

Bulletin No. 2016 –21

(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.14(3)(a)
of this revenue procedure; and
(iii) A change under section 6.16 of
this revenue procedure.
(11) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.15 is
“205.”
(12) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.16 Dispositions of tangible depreciable
assets (other than a building or its
structural components) (§ 168;
§ 1.168(i)– 8).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –54, 2014 – 41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.16(3) of this revenue procedure for disposing of § 1245 property or a depreciable
land improvement or disposing of a portion of § 1245 property or a depreciable
land improvement to which the partial disposition rule in § 1.168(i)– 8(d)(1) applies.
These specified changes are consistent
with §§ 1.168(i)– 8(c)(4)(i), 1.168(i)–
8(c)(4)(ii)(C) and (D), 1.168(i)– 8(f), and
1.168(i)– 8(g), as applicable. This change
also affects the determination of gain or
loss from disposing of the § 1245 property, the depreciable land improvement, or
a portion of the § 1245 property or depreciable land improvement, and may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)–3(e) or
(f)) under § 1.263(a)–3(k).
(b) Inapplicability. This change does
not apply to the following:
(i) Any asset (as determined under
§ 1.168(i)– 8(c)(4)) that is not depreciated
under § 168 under the taxpayer’s present
method of accounting and, if applicable,
under the taxpayer’s proposed method of
accounting;
(ii) Any building (including its structural components), condominium unit (including its structural components), coop-

Bulletin No. 2016 –21

erative unit (including its structural
components), or an improvement or addition (including its structural components)
thereto (but see section 6.15 of this revenue procedure for making this change);
(iii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.17 of this revenue procedure for making
a change for dispositions of tangible depreciable assets subject to a general asset
account election); or
(iv) Any disposition of a portion of an
asset in a transaction described in the last
sentence in § 1.168(i)– 8(d)(1) for which
the taxpayer did not make a partial disposition election in accordance with
§ 1.168(i)– 8(d)(2)(ii) or (iii), as applicable (but see section 6.10 of this revenue
procedure for making a late partial disposition election and section 6.12 of this revenue procedure for making a partial disposition election pursuant to § 1.168(i)–
8(d)(2)(iii)).
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer making this change.
(b) Special rule.
(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016.
(ii) If a taxpayer makes both a change
under this section 6.16 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.16(9)(b) or (c) of this revenue procedure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to the taxpayer for either
change.
(3) Covered changes. This section 6.16
only applies to the following changes in
methods of accounting for a § 1245 property, a depreciable land improvement, or
an improvement or addition thereto:
(a) For purposes of applying
§ 1.168(i)– 8(c)(4) (determination of asset

911

disposed of), a change to the appropriate
asset as determined under § 1.168(i)–
8(c)(4)(i), (ii)(C), or (ii)(D), as applicable;
(b) If the taxpayer makes the change
specified in section 6.16(3)(a) of this revenue procedure, and if the taxpayer disposed of the asset as determined under
section 6.16(3)(a) of this revenue procedure in a taxable year prior to the year of
change but continues to deduct depreciation for such disposed asset under the taxpayer’s present method of accounting, a
change from depreciating the disposed asset to recognizing gain or loss upon disposition;
(c) If the taxpayer makes the change
specified in section 6.16(3)(a) of this revenue procedure, and if the taxpayer disposed of a portion of the asset as determined under section 6.16(3)(a) of this
revenue procedure in a transaction described in the first sentence in § 1.168(i)–
8(d)(1) in a taxable year prior to the year
of change but under its present method of
accounting continues to deduct depreciation for such disposed portion, a change
from depreciating the disposed portion to
recognizing gain or loss upon disposition;
(d) If the taxpayer’s present method of
accounting for its § 1245 property, depreciable land improvements, or improvements or additions thereto is in accord
with § 1.168(i)– 8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of an
asset as determined under § 1.168(i)–
8(c)(4)(i) or (ii), as applicable, in a taxable
year prior to the year of change but under
its present method of accounting continues to deduct depreciation for this disposed asset, a change from depreciating
the disposed asset to recognizing gain or
loss upon disposition;
(e) If the taxpayer’s present method of
accounting for its § 1245 property, depreciable land improvements, or improvements or additions thereto is in accord
with § 1.168(i)– 8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of a
portion of an asset as determined under
§ 1.168(i)– 8(c)(4)(i) or (ii), as applicable,
in a transaction described in the first sentence in § 1.168(i)– 8(d)(1) in a taxable
year prior to the year of change but under
its present method of accounting continues to deduct depreciation for such disposed portion, a change from depreciating

May 23, 2016

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

May 23, 2016

ing the Consumer Price Index) to a reasonable method; or
(k) A change from recognizing gain or
loss under § 1.168(i)– 8T upon the disposition of a section 1245 property, depreciable land improvement, or improvement
or addition thereto included in a general
asset account to recognizing gain or loss
upon the disposition of the same asset
under § 1.168(i)– 8 if: (A) the taxpayer
makes the change specified in section 6.11
of this revenue procedure (revocation of a
general asset account election); (B) the
taxpayer made a qualifying disposition
election under § 1.168(i)–1T(e)(3)(iii) in a
taxable year prior to the year of change for
the disposition of such asset; (C) the taxpayer’s present method of accounting for
such asset is in accord with § 1.168(i)–
8(c)(4)(i) or (ii), as applicable; and (D) the
taxpayer recognized a gain or loss under
§ 1.168(i)– 8T on the disposition of such
asset in a taxable year prior to the year of
change.
(4) Manner of making change.
(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115
a statement with the following:
(i) A description of the assets to which
this change applies;
(ii) If the taxpayer is making a change
specified in section 6.16(3)(a) of this revenue procedure, a description of the assets
for disposition purposes under the taxpayer’s present and proposed methods of accounting;
(iii) If the taxpayer is making the
change specified in section 6.16(3)(f) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpayer’s present and proposed methods of accounting;
(iv) If the taxpayer is making the
change specified in section 6.16(3)(h) or
(j) of this revenue procedure, a description
of the methods of determining the unadjusted depreciable basis of the disposed
asset or disposed portion of the asset, as
applicable, under the taxpayer’s present
and proposed methods of accounting; and
(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer

912

agrees to the following additional terms
and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the application;
(B) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
application; and
(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.
(b) A qualified small taxpayer, as defined
in section 6.01(4)(b) of this revenue procedure, is required to complete only the following information on Form 3115 (Rev.
December 2015) to make this change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.16(3)(h) and (j) of this revenue procedure;
(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small
taxpayer is making a change in method of
accounting specified in section 6.16(3)(h)
or (j) of this revenue procedure;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015–13 for a change specified in section
6.16(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)– 8(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)– 8(c)(4). The director will ascertain whether the taxpayer’s determina-

Bulletin No. 2016 –21

tion of its asset under § 1.168(i)– 8(c)(4) is
permissible.
(6) Section 481(a) adjustment.
(a) A taxpayer changing its method of
accounting under section 6.16 of the revenue procedure may use statistical sampling
in determining the § 481(a) adjustment by
following the guidance provided in Rev.
Proc. 2011– 42, 2011–37 I.R.B. 318.
(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.
2015–20, 2015–9 I.R.B. 694, and that
changed its method of accounting under
section 6.39 of Rev. Proc. 2015–14
(which is now this section 6.16) by following section 5 of Rev. Proc. 2015–20 is
required to calculate a section § 481(a)
adjustment as of the first day of the year of
change that takes into account only dispositions in taxable years beginning on or
after January 1, 2014.
(7) Section 481(a) adjustment period.
(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:
(i) If the taxpayer is making the change
specified in section 6.16(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under § 1.168(i)– 8T
on the disposition of the § 1245 property,
depreciable land improvement, or improvement or addition thereto (or if applicable, a portion of such asset) in a taxable
year prior to the year of change; or
(ii) If the taxpayer is making the
change specified in section 6.16(3)(k) of
this revenue procedure.
(b) If section 6.16(7)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015–13 for the § 481(a)
adjustment period.
(8) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.16(6)(b) of this revenue procedure that takes into account only dispositions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of
Rev. Proc. 2015–13 for dispositions subject to a change under this section 6.16 in
taxable years beginning before January 1,
2014. See section 5.05 of Rev. Proc.
2015–20.
(9) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of

Bulletin No. 2016 –21

change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single negative § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in
that Form 3115 generating such positive
adjustment.
(b) A taxpayer making this change and
any
change
listed
in
section
6.16(9)(b)(i)–(iv) of this revenue procedure for the same year of change should
file a single Form 3115 for all of such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015–13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single
Form 3115 the information required to
be completed on Form 3115 by a qualified small taxpayer under this revenue
procedure for each change in method
of accounting included on that Form
3115. The listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.14 of this
revenue procedure;
(iii) A change under section 6.15 of
this revenue procedure; and
(iv) A change under section 6.17 of this
revenue procedure.
(c) A taxpayer making this change
and a change under section 6.11 of this
revenue procedure (revocation of a general asset account election) and/or any
change listed in section 6.16(9)(c)(i)–
(iii) of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and
must enter the designated automatic accounting method change numbers for
the changes on the appropriate line on
the Form 3115. This section 6.16(9)(c)
applies only if all of these changes are
made for any taxable year beginning on

913

or after January 1, 2012, and beginning
before January 1, 2015. See section
6.03(1)(b) of Rev. Proc. 2015–13 for
information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single
Form 3115 the information required to
be completed on Form 3115 by a qualified small taxpayer under this revenue
procedure for each change in method of
accounting included on that Form 3115.
The listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.14(3)(a)
of this revenue procedure; and
(iii) A change under section 6.15 of
this revenue procedure.
(10) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.16 is
“206.”
(11) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.17 Dispositions of tangible depreciable
assets in a general asset account
(§ 168(i)(4); § 1.168(i)–1).
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –54, 2014 – 41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.17(3) of this revenue procedure for disposing of an asset subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder. These
specified changes are consistent with
§§ 1.168(i)–1(e)(1), 1.168(i)–1(e)(2)(viii),
and 1.168(i)–1(j), as applicable. This
change also may affect the determination
of gain or loss from disposing of the asset
and may affect whether the taxpayer must
capitalize amounts paid to restore a unit of
property (as determined under § 1.263(a)–
3(e) or (f)) under § 1.263(a)–3(k).
(b) Inapplicability. This change does
not apply to the following:
(i) Any asset (as determined under
§ 1.168(i)–1(e)(2)(viii)) that is not depreciated under § 168 under the taxpayer’s pres-

May 23, 2016

ent method of accounting and, if applicable,
proposed method of accounting; or
(ii) Any asset not subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder (but see
sections 6.15 and 6.16 of this revenue
procedure for making a change for dispositions of tangible depreciable assets
not subject to a general asset account
election).
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer making this change.
(b) Special rule.
(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016.
(ii) If a taxpayer makes both a change
under this section 6.17 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2016, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.17(7)(b) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d)
and (f) of Rev. Proc. 2015–13 do
not apply to the taxpayer for either
change.
(3) Covered changes. This section 6.17
only applies to the following changes in
methods of accounting for an asset subject
to a general asset account election under
§ 168(i)(4) and the regulations thereunder:
(a) For purposes of applying
§ 1.168(i)–1(e)(2)(viii) (determination of
asset disposed of), a change to the appropriate asset as determined under
§ 1.168(i)–1(e)(2)(viii)(A) or (B), as applicable;
(b) A change in the method of identifying which assets or which portions of
assets have been disposed of from a
method of accounting not specified in
§ 1.168(i)–1(j)(2)(i)(A), (B), (C), or (D)
(for example, the last-in, first-out (LIFO)
method of accounting) to a method of
accounting specified in § 1.168(i)–
1(j)(2)(i)(A), (B), (C), or (D), as applicable;
(c) If § 1.168(i)–1(j)(3) applies (basis
of disposed asset or disposed portion of an

May 23, 2016

asset) and it is practicable from the taxpayer’s records to determine the unadjusted depreciable basis of the disposed
asset or the disposed portion of an asset,
as applicable, a change in the method of
determining the unadjusted depreciable
basis of the disposed asset or the disposed
portion of an asset, as applicable, from a
method of not using the taxpayer’s records to a method of using the taxpayer’s
records; or
(d) If § 1.168(i)–1(j)(3) applies (basis
of disposed asset or disposed portion of
an asset) and it is impracticable from the
taxpayer’s records to determine the unadjusted depreciable basis of the disposed asset or the disposed portion of an
asset, as applicable, a change in the
method of determining the unadjusted
depreciable basis of all assets in the
same general asset account from an unreasonable method (for example, discounting the cost of the replacement asset to its placed-in-service year cost
using the Consumer Price Index) to a
reasonable method.
(4) Manner of making change.
(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115
a statement with the following:
(i) A description of the assets to which
this change applies;
(ii) If the taxpayer is making the
change specified in section 6.17(3)(a) of
this revenue procedure, a description of
the assets for disposition purposes under
the taxpayer’s present and proposed methods of accounting;
(iii) If the taxpayer is making the
change specified in section 6.17(3)(b) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpayer’s present and proposed methods of accounting;
(iv) If the taxpayer is making the
change specified in section 6.17(3)(d) of
this revenue procedure, a description of
the methods of determining the unadjusted depreciable basis of the disposed
asset or disposed portion of the asset, as
applicable, under the taxpayer’s present
and proposed methods of accounting;
and

914

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:
(A) A normalization method of accounting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the application;
(B) As of the beginning of the year of
change, the taxpayer will adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
application; and
(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.
(b) A qualified small taxpayer, as defined
in section 6.01(4)(b) of this revenue procedure, is required to complete only the following information on Form 3115 (Rev.
December 2015) to make this change:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13, 15b,
16, 17, and 19 if the qualified small taxpayer
is not making a change in method of accounting specified in section 6.17(3)(a) and
(d) of this revenue procedure;
(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small
taxpayer is making a change in method of
accounting specified in section 6.17(3)(a)
or (d) of this revenue procedure;
(v) Part IV, all lines except line 25; and
(vi) Schedule E.
(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015–13 for a change specified in section
6.17(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)–1(e)(2)(viii) for determining what asset is disposed of by the
taxpayer and does not create any presumption that the proposed asset is per-

Bulletin No. 2016 –21

missible under § 1.168(i)–1(e)(2)(viii).
The director will ascertain whether the
taxpayer’s determination of its asset under
§ 1.168(i)–1(e)(2)(viii) is permissible.
(6) Section 481(a) adjustment period.
(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:
(i) If the taxpayer makes the change
specified in section 6.17(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under § 1.168(i)–1T or
§ 1.168(i)– 8T, as applicable, on the disposition of a portion of the asset in a
taxable year prior to the year of change; or
(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01 of Rev.
Proc. 2015–56, 2015– 49 I.R.B. 827, and
that is within the scope of section 3 of
Rev. Proc. 2015–56, and is making the
change specified in section 5.02(5)(b) of
Rev. Proc. 2015–56 on or before the first
taxable year that the qualified taxpayer uses
the remodel-refresh safe harbor provided in
section 5.02 of Rev. Proc. 2015–56.
(b) If section 6.17(6)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015–13 for the § 481(a)
adjustment period.
(c) Example. (i) X, a fiscal year taxpayer with a
taxable year beginning December 1 and ending November 30, acquired and placed in service a building
and its structural components in 2000. X depreciates
this building and its structural components under
§ 168. The roof is a structural component of the
building. X replaced the entire roof in June 2010. On
its federal tax return for the taxable year ended
November 30, 2010, X did not recognize a loss on
the retirement of the original roof and continues to
depreciate the original roof. X also capitalized the
cost of the replacement roof and has been depreciating this roof under § 168 since June 2010. The
adjusted depreciable basis of the original roof at the
time of its retirement in 2010 (taking into account
the applicable convention) is $11,000, and X
claimed depreciation of $1,000 for such roof after its
retirement (taking into account the applicable convention) and before the taxable year ended November 30, 2013 (2012 taxable year). Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year and $500 for

Bulletin No. 2016 –21

the taxable year ended November 30, 2014 (2013
taxable year).
(ii) In accordance with § 1.168(i)–1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011–14,
as modified by Rev. Proc. 2012–20, 2012–14 I.R.B.
700, X filed with its federal tax return for the taxable
year ended November 30, 2013, a Form 3115 to: (1)
make a late general asset account election to include
the building (including its structural components)
placed in service in 2000 in one general asset account and the replacement roof in a separate general
asset account; and (2) make a late qualifying disposition election for the retirement of the original roof
in 2010. As a result, X removed the original roof
from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of
$10,000 (adjusted depreciable basis of $11,000 for
the original roof at the time of its retirement (taking
into account the applicable convention) less depreciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable convention) and before the 2012 taxable year).
(iii) X complies with § 1.168(i)–1 beginning with
its taxable year ending November 30, 2015 (2014
taxable year). In accordance with section 6.17(3)(a)
of this revenue procedure, X files a Form 3115 with
its federal income tax return for the 2014 taxable
year to change to treating the building (including its
original roof and other original structural components) placed in service in 2000 as an asset and the
replacement roof as a separate asset for disposition
purposes. As a result, X must include the original
roof that X retired in 2010 in the general asset
account. Thus, the net positive § 481(a) adjustment
for this change is $9,000 (net loss of $10,000
claimed on the 2012 return for the retirement of the
original roof less depreciation of $1,000 for the
original roof for the 2012 and 2013 taxable years)
and is included in X’s taxable income for the 2014
taxable year.

(7) Concurrent automatic change.
(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single negative § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment

915

for all the changes that are included in that
Form 3115 generating such positive adjustment.
(b) A taxpayer making this change and
any change listed in section 6.17(7)(b)(i)–
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all of such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue procedure for each change in method of accounting included on that Form 3115. The
listed changes are:
(i) A change under section 6.01 of this
revenue procedure;
(ii) A change under section 6.14 of this
revenue procedure;
(iii) A change under section 6.15 of
this revenue procedure; and
(iv) A change under section 6.16 of this
revenue procedure.
(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.17 is
“207.”
(9) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.18 Summary of certain changes in
methods of accounting related to
dispositions of MACRS property.
(1) Final regulations. The following
chart summarizes the changes in methods
of accounting under § 1.167(a)– 4,
§ 1.168(i)–1, § 1.168(i)–7, and
§ 1.168(i)– 8 that a taxpayer may make
under Rev. Proc. 2016 –29.

May 23, 2016

SECTION # in in REV.
PROC. 2016–29
6.13

FINAL REGULATION SECTION
§ 1.167(a)–4, Depreciation of leasehold improvements
General Asset Accounts:
a. § 1.168(i)–1(c), Change in grouping assets
6.14
b. § 1.168(i)–1(e)(2)(viii), Change in determining asset disposed of
6.17
c. § 1.168(i)–1(j)(2), Change in method of identifying which assets or por6.14
tions of assets have been disposed of from one method to another method
specified in § 1.168(i)–1(j)(2)
d. § 1.168(i)–1(j)(2), Change in method of identifying which assets or
6.17
portions of assets have been disposed of from a method not specified in
§ 1.168(i)–1(j)(2) to a method specified in § 1.168(i)–1(j)(2)
e. § 1.168(i)–1(j)(3), Change in determining unadjusted depreciable basis
6.14
of disposed asset or disposed portion of an asset from one reasonable
method to another reasonable method when it is impracticable from the
taxpayer’s records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset
f. § 1.168(i)–1(j)(3), Change in determining unadjusted depreciable basis
6.17
of disposed asset or disposed portion of an asset from not using to using
the taxpayer’s records when it is practicable from the taxpayer’s records
to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset
g. § 1.168(i)–1(j)(3), Change in determining unadjusted depreciable basis
6.17
of disposed asset or disposed portion of an asset from an unreasonable
method to a reasonable method when it is impracticable from the taxpayer’s records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset
Single Asset Accounts or Multiple Asset Accounts for MACRS Property:
a. § 1.168(i)–7, Change from single asset accounts to multiple asset ac6.14
counts, or vice versa
b. § 1.168(i)–7(c), Change in grouping assets in multiple asset accounts
6.14
Dispositions of MACRS Property (not in a general asset account):
a. § 1.168(i)–8(c)(4), Change in determining asset disposed of
6.15 (Building or structural component)

6.16 (Property other than
a building or structural
component)
b. § 1.168(i)–8(f)(2) or (3), Change in determining unadjusted depreciable
6.14
basis of disposed asset in a multiple asset account or disposed portion of
an asset from one reasonable method to another reasonable method when
it is impracticable from the taxpayer’s records to determine the unadjusted
depreciable basis of disposed asset or disposed portion of asset
c. § 1.168(i)–8(f)(2) or (3), Change in determining unadjusted depreciable 6.15 (Building or strucbasis of disposed asset in a multiple asset account or disposed portion of
tural component)
an asset from not using to using the taxpayer’s records when it is practicable from the taxpayer’s records to determine the unadjusted depreciable 6.16 (Property other than
a building or structural
basis of disposed asset or disposed portion of asset
component)
d. § 1.168(i)–8(f)(2) or (3), Change in determining unadjusted depreciable 6.15 (Building or strucbasis of disposed asset in a multiple asset account or disposed portion of
tural component)
an asset from an unreasonable method to a reasonable method when it is
impracticable from the taxpayer’s records to determine the unadjusted de- 6.16 (Property other than
a building or structural
preciable basis of disposed asset or disposed portion of asset
component)

May 23, 2016

916

DESIGNATED
CHANGE
NUMBER (DCN)
199
200
207
200

207

200

207

207

200
200
205
206

200

205
206

205
206

Bulletin No. 2016 –21

SECTION # in in REV.
FINAL REGULATION SECTION
PROC. 2016–29
e. § 1.168(i)–8(g), Change in method of identifying which assets in a mul6.14
tiple asset account or portions of assets have been disposed of from one
method to another method specified in § 1.168(i)–8(g)(1) or (2)
f. § 1.168(i)–8(g), Change in method of identifying which assets in a mul- 6.15 (Building or structiple asset account or portions of assets have been disposed of from a
tural component)
method not specified in § 1.168(i)–8(g)(1) or (2) to a method specified in
6.16 (Property other than
§ 1.168(i)–8(g)(1) or (2)
a building or structural
component)
g. § 1.168(i)–8(h)(1), Change from depreciating a disposed asset or dis6.15 (Building or strucposed portion of an asset to recognizing gain or loss upon disposition
tural component)
when a taxpayer continues to depreciate the asset or portion that the tax6.16 (Property other than
payer disposed of prior to the year of change
a building or structural
component)
h. § 1.168(i)–8(d)(2)(iii), Partial disposition election for the disposition of
6.12
a portion of an asset to which the IRS’s adjustment pertains

DESIGNATED
CHANGE
NUMBER (DCN)
200

205
206

205
206

198

(2) Late elections or revocation of a general asset account election. The following chart summarizes the late elections under
§ 1.168(i)– 8 that are treated as a change in method of accounting for a limited period of time. The chart includes the revocation of
a general asset account election that also is treated as a change in method of accounting for a limited period of time.

TIME PERIOD FOR TREATING
ELECTION OR REVOCATION AS A
METHOD CHANGE

ELECTION OR REVOCATION
General Asset Accounts:
a. Revocation of a general asset account election
Taxable year beginning on or
made under § 1.168(i)–1, Prop. Reg. § 1.168(i)–1,
after 1/1/2012 and beginning before
or § 1.168(1)–1T, or made under section 6.32 in
1/1/2015
the APPENDIX of Rev. Proc. 2011–14 or section
6.32 in Rev. Proc. 2015–14, as applicable
Late Partial Disposition Election for MACRS Property (not in a general asset account):
a. Late partial disposition election made under
First or second taxable succeeding the
§ 1.168(i)–8(d)(2)(iv)(B)
applicable taxable year as defined in
§ 1.168(i)–8(d)(2)(iv)
b. Other late partial disposition elections made
Taxable year beginning on or
under § 1.168(i)–8(d)(2)(i)
after 1/1/2012 and beginning before
1/1/2015
.19 Depreciation of fiber optic transfer
node and fiber optic cable used by a
cable system operator (§§ 167 and 168).
(1) Description of change.
(a) Applicability. This change applies
to a cable system operator that is within
the scope of Rev. Proc. 2015–12, 2015–2
I.R.B. 266, and wants to change to the
safe harbor method of accounting provided in section 8.03 of Rev. Proc.
2015–12 for determining depreciation under §§ 167 and 168 of a fiber optic transfer
node and trunk line consisting of fiber
optic cable used in a cable distribution

Bulletin No. 2016 –21

network providing one-way and two-way
communication services. The safe harbor
method provided by section 8.03 of Rev.
Proc. 2015–12 determines the asset for
purposes of §§ 167 and 168.
(b) Inapplicability. This change does
not apply to the following:
(i) any property that is not depreciated
under § 168 under the taxpayer’s present
and proposed methods of accounting; or
(ii) any property that is not owned by
the taxpayer at the beginning of the year
of change.
(2) Certain eligibility rules inapplicable.

917

SECTION # IN
REV. PROC.
2016–29, AND
DCN
6.11
DCN 197

6.10
DCN 196
6.10
DCN 196

(a) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to a taxpayer
that makes this change for its first or second taxable year ending after December
31, 2013.
(b) The eligibility rule in section 5.01(d)
of Rev. Proc. 2015–13 does not apply to a
taxpayer that makes this change.
(3) Concurrent automatic change.
(a) A taxpayer that wants to make this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets and provide

May 23, 2016

a single net § 481(a) adjustment for all the
changes included in that Form 3115. If
one or more of the changes in that single
Form 3115 generate a negative § 481(a)
adjustment and other changes in that same
Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a
single negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment.
(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure, as
applicable, for the same year of change
should file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.19 is
“210.”
(5) Contact information. For further information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
.20 Revocation of partial disposition
election under the remodel-refresh safe
harbor described in Rev. Proc. 2015–56.
(1) Description of change.
(a) Applicability. This change applies
to a qualified taxpayer as defined in section 4.01 of Rev. Proc. 2015–56, 2015– 49
I.R.B. 827, and that is within the scope of
Rev. Proc. 2015–56 and wants to revoke a
partial disposition election, as provided in
section 5.02(4)(b)(ii)(B) of Rev. Proc.
2015–56, related to a qualified building,
as defined in section 4.02 of Rev. Proc.
2015–56, for which the qualified taxpayer
uses the remodel-refresh safe harbor
method of accounting provided in section
5.02 of Rev. Proc. 2015–56. See section
11.10 of this revenue procedure for making a change to this safe harbor method of
accounting.

May 23, 2016

(b) Inapplicability. This change does
not apply to a qualified taxpayer, as described in section 6.20(1)(a) of this revenue procedure, that makes the revocation
of the partial disposition specified in section 6.20(1)(a) of this revenue procedure
before or after the time specified in section 6.20(3) of this revenue procedure.
Any such revocation is not a change in
method of accounting pursuant to
§ 1.446 –1(e)(2)(ii)(d)(3)(iii).
(2) Change in method of accounting.
The IRS will treat the revocation of the
partial disposition election specified in
section 6.20(1)(a) of this revenue procedure as a change in method of accounting
only for the time specified in section
6.20(3) of this revenue procedure.
(3) Time for making the change. The
change under this section 6.20 must be
made by a qualified taxpayer for any taxable year beginning after December 31,
2013, and ending before December 31,
2016.
(4) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply
to a qualified taxpayer making this change
for any taxable year beginning after December 31, 2013, and ending before December 31, 2016.
(b) Concurrent automatic change. If a
qualified taxpayer makes both a change
under this section 6.20 and a change under
section 11.10 of this revenue procedure
for any taxable year beginning after December 31, 2013, and ending before December 31, 2016, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.20(7)(b), the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to the qualified taxpayer for
either change.
(5) Section 481(a) adjustment period.
A qualified taxpayer making this change
must take the entire § 481(a) adjustment
into account in computing taxable income
for the year of change.
(6) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, may
complete only the following information
on Form 3115 (Rev. December 2015):

918

(a) The identification section of page 1
(above Part I);
(b) The signature section at the bottom
of page 1;
(c) Part I, line 1(a);
(d) Part II, all lines except lines 5, 13,
15, 16, 17, and 19;
(e) Part IV, lines 25, 26, and 27; and
(f) Schedule E.
(7) Concurrent automatic change.
(a) A qualified taxpayer making this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets. The single
Form 3115 must provide a single net
§ 481(a) adjustment for all such changes.
(b) A qualified taxpayer making this
change and a change under section 11.10 of
this revenue procedure for the same year of
change should file a single Form 3115 for
both changes and must enter the designated
automatic accounting method change numbers for the changes on the appropriate line
on the Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015–13 for information on
making concurrent changes.
(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.20 is
“221.”
(9) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).
SECTION 7. RESEARCH AND
EXPERIMENTAL EXPENDITURES
(§ 174)
.01 Changes to a different method or
different amortization period.
(1) Description of change.
(a) This change applies to a taxpayer
that wants to change the treatment of expenditures that qualify as research and
experimental expenditures under § 174.
(b) Section 174 and the regulations
thereunder provide the specific rules for
changing a method of accounting under
§ 174 for research and experimental expenditures. Under § 174, a taxpayer may
treat research and experimental expenditures that are paid or incurred by the taxpayer during the taxable year in connection with the taxpayer’s trade or business

Bulletin No. 2016 –21

as expenses under § 174(a) or as deferred
expenses amortizable ratably over a period of not less than 60 months under
§ 174(b). Pursuant to § 1.174 –1, research
and experimental expenditures that are not
treated as expenses or deferred expenses
under § 174 must be treated as a charge to
capital account. Further, § 1.174 –1 provides that the expenditures to which § 174
applies may relate either to a general research program or to a particular project.
Finally, §§ 1.174 –3(a) and 1.174 – 4(a)(5)
provide that in no event will a taxpayer be
permitted to apply one method as to part
of the expenditures relative to a particular
project and apply a different method to the
balance of the expenditures relating to the
same project for the same taxable year.
(c) If a taxpayer has not treated research and experimental expenditures as
expenses under § 174(a), § 174(a)(2)(B)
and § 1.174 –3(b)(2) provide that the taxpayer may, with consent, adopt the expense method at any time.
(d) If a taxpayer has treated research
and experimental expenditures as expenses under § 174(a), § 174(a)(3) and
§ 1.174 –3(b)(3) provide that the taxpayer
may, with consent, change to a different
method of treating research and experimental expenditures.
(e) If a taxpayer has treated research
and experimental expenditures as deferred
expenses under § 174(b), § 174(b)(2) and
§ 1.174 – 4(b)(2) provide that the taxpayer
may, with consent, change to a different
method of treating research or experimental expenditures or to a different period of
amortization for deferred expenses.
(2) Applicability.
(a) In general. This change applies to
any taxpayer that is changing:
(i) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a)
to treating such expenditures as deferred
expenses under § 174(b), or vice versa;
(ii) to a different period of amortization
for research and experimental expenditures for a particular project or projects
that are being treated as deferred expenses
under § 174(b);
(iii) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a)
or deferred expenses under § 174(b) to

Bulletin No. 2016 –21

treating such expenditures as a charge to
capital account, or vice versa; or
(iv) from treating research and experimental expenditures under any provision
of the Code other than § 174 to treating
such expenditures under § 174 and the
regulations thereunder.
(b) Inapplicability. This change does
not apply to:
(i) a change in the treatment of computer software costs under Rev. Proc.
2000 –50, 2000 –1 C.B. 601, as modified
by Rev. Proc. 2007–16, 2007–1 C.B. 358
(but see section 9 of this revenue procedure for making that change); or
(ii) a change in the treatment of Year
2000 costs under Rev. Proc. 97–50,
1997–2 C.B. 525.
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, is not applicable to this
change.
(4) Manner of making change.
(a) This change is made on a cut-off
basis and applies to all research and experimental expenditures paid or incurred
for a particular project or projects on or
after the beginning of the year of change.
See § 174(b)(2), and §§ 1.174 –3(a),
1.174 –3(b)(2), and 1.174 – 4(a)(5) for
more information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is
neither permitted nor required.
(b) The requirement under §§ 1.174 –
3(b)(2), 1.174 –3(b)(3), and 1.174 –
4(b)(2) to file an application (that is, a
Form 3115) no later than the end of the
first taxable year in which the different
method or different amortization period is
to be used is waived for this change. However, see section 6.03 of Rev. Proc.
2015–13 for filing requirements applicable to a change under this section 7.01.
(c) The consent granted under section 9
of Rev. Proc. 2015–13 satisfies the consent
required under §§ 174(a)(2)(B), 174(a)(3),
and 174(b)(2), and §§ 1.174 –3(b)(2),
1.174 –3(b)(3), and 1.174 – 4(b)(2).
(5) Additional requirement. A taxpayer
must attach to its Form 3115 a written
statement providing:
(a) the information required in
§ 1.174 –3(b)(2) if the taxpayer is changing to treating research and experimental
expenditures as expenses under § 174(a);

919

(b) the information required in § 1.174 –
3(b)(3) if the taxpayer is changing from
treating research and experimental expenditures as expenses under § 174(a); or
(c) the information required in
§ 1.174 – 4(b)(2) if the taxpayer is changing from treating research and experimental expenditures as deferred expenses under § 174(b) or is changing to a different
period of amortization for research and
experimental expenditures being treated
as deferred expenses under § 174(b).
(6) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015–13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015–13.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
7.01 is “17.”
(8) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).
SECTION 8. ELECTIVE EXPENSING
PROVISIONS (§ 179D)
.01 Deduction for Energy Efficient
Commercial Buildings (§ 179D).
(1) Description of change. This
change, as described in Rev. Proc. 2012–
39, 2012– 41 I.R.B. 470, applies to a taxpayer that wants to change its method of
accounting to deduct under § 179D
amounts paid or incurred for the installation of energy efficient commercial building property, as defined in § 179D(c)(1).
The deduction for energy efficient commercial building property is subject to the
limits of § 179D(b) and must be claimed
in the taxable year in which the property is
placed in service. The basis of the energy
efficient commercial building property is
reduced by the amount of the § 179D
deduction taken and the remaining basis
of the energy efficient commercial building property is depreciated over its recovery period.
(2) Applicability. This change applies
to a taxpayer that places in service property for which a deduction is allowed under § 179D(a).
(3) Inapplicability. This change does
not apply to a designer to whom the owner

May 23, 2016

of a government building allocates the
§ 179D deduction.
(4) Manner of making change. A taxpayer making this change must attach to
its Form 3115 (the original, the copy filed
at Covington, KY, and any additional copies) a statement with a detailed description
of the tax treatment of the property under
the taxpayer’s present and proposed methods of accounting.
(5) Certification requirement. In addition to the statement required by section
8.01(4) of this revenue procedure, a taxpayer making this change must attach to
its Form 3115 a certification as required
by section 4 of Notice 2006 –52, 2006 –1
C.B. 1175, or section 5 of Notice 2008 –
40, 2008 –1 C.B. 725, to demonstrate that
the energy efficient commercial building
property has achieved the reduction in energy and power costs or in lighting power
density necessary to qualify for the
§ 179D deduction.
(6) No ruling on qualification. The
consent granted under section 9 of Rev.
Proc. 2015–13, 2015–5 I.R.B. 419, for a
change provided in this section 8.01 is not
a determination by the Commissioner that
the taxpayer qualifies for a deduction under section 179D. The director will ascertain whether the taxpayer qualifies for a
deduction under section 179D (including
a review of the required certifications).
See section 12 of Rev. Proc. 2015–13.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
8.01 is “152.”
(8) Contact information. For further information regarding a change under this
section, contact Jennifer Bernardini at
(202) 317-6853 (not a toll-free call).
SECTION 9. COMPUTER SOFTWARE
EXPENDITURES (§§ 162, 167, and
197)
.01 Computer software expenditures.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the costs of
computer software to a method described
in Rev. Proc. 2000 –50, 2000 –1 C.B. 601,
as modified by Rev. Proc. 2007–16,
2007–1 C.B. 358. Section 5 of Rev. Proc.
2000 –50 describes the methods applica-

May 23, 2016

ble to the costs of developing computer
software. Section 6 of Rev. Proc.
2000 –50 describes the method applicable
to the costs of acquired computer software. Section 7 of Rev. Proc. 2000 –50
describes the method applicable to leased
or licensed computer software.
(2) Scope. This change applies to all
costs of computer software as defined in
section 2 of Rev. Proc. 2000 –50. However, this change does not apply to any
computer software that is subject to amortization as an “amortizable section 197
intangible” as defined in § 197(c) and the
regulations thereunder, or to costs that a
taxpayer has treated as research and experimentation expenditures under § 174.
(3) Statement required. If a taxpayer is
changing to the method described in section 5.01(2) of Rev. Proc. 2000 –50, the
taxpayer must attach to its Form 3115 a
statement providing the information required in section 8.02(2) of Rev. Proc.
2000 –50.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
9.01 is “18.”
(5) Contact information. For further information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).
SECTION 10. START-UP
EXPENDITURES (§ 195)
.01 Start-up expenditures.
(1) Description of change and scope.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting under § 195 to
change:
(i) the characterization of an item as a
start-up expenditure; or
(ii) the determination of the taxable
year in which the taxpayer’s active trade
or business to which the start-up expenditures relate begins.
(b) Inapplicability. This change does
not apply to:
(i) start-up expenditures paid or incurred before October 23, 2004; or
(ii) start-up expenditures paid or incurred after October 22, 2004, and before
August 17, 2011, if the period of limitations on assessment of tax for the taxable

920

year the election under § 1.195–1(b) is
deemed made has expired.
(2) No rulings.
(a) Characterization of item. The consent granted under section 9 of Rev. Proc.
2015–13 for a change specified in section
10.01(1)(a)(i) of this revenue procedure is
not a determination by the Commissioner
that the taxpayer has properly characterized an item as a start-up expenditure and
does not create any presumption that the
proposed characterization of an item as a
start-up expenditure is permissible under
§ 195(c)(1). The director will ascertain
whether the taxpayer’s characterization of
an item as a start-up expenditure is permissible.
(b) When active trade or business begins. The consent granted under section 9
of Rev. Proc. 2015–13 for a change specified in section 10.01(1)(a)(ii) of this revenue procedure is not a determination by
the Commissioner that the taxpayer has
properly determined the taxable year in
which the taxpayer’s active trade or business to which the start-up expenditures
relate begins and does not create any presumption that the proposed taxable year in
which the taxpayer’s active trade or business to which the start-up expenditures
relate begins is permissible under
§ 195(c)(2). The director will ascertain
whether the taxpayer’s determination of
the taxable year in which the taxpayer’s
active trade or business to which the
start-up expenditures relate begins is permissible.
(3) Designated automatic accounting
method change number. The designated
accounting method change number for a
change to a method of accounting under
this section 10.01 is “223.”
(4) Contact information. For further information regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free number).
SECTION 11. CAPITAL
EXPENDITURES (§ 263)
.01 Package design costs.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package design
costs that are within the scope of Rev.
Proc. 97–35, 1997–2 C.B. 448, as modi-

Bulletin No. 2016 –21

fied by Rev. Proc. 98 –39, 1998 –1 C.B.
1320, to one of the three alternative methods of accounting for package design
costs described in section 5 of Rev. Proc.
97–35, which are: (i) the capitalization
method, (ii) the design-by-design capitalization and 60-month amortization
method, and (iii) the pool-of-cost capitalization and 48-month amortization
method.
(b) Inapplicability. This change does
not apply to a taxpayer that wants to
change to the capitalization method for
costs of developing or modifying any
package design that has an ascertainable
useful life.
(2) Additional requirements. If a taxpayer is changing its method of accounting for package design costs to the capitalization method or the design-by-design
capitalization and 60-month amortization
method, the taxpayer must attach a statement to its timely filed Form 3115. The
statement must provide a description of each
package design, the date on which each was
placed in service, and the cost basis of each
(as determined under sections 5.01(2) or
5.02(2) of Rev. Proc. 97–35).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.01 is “19.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.02 Line pack gas or cushion gas.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for line pack gas
or cushion gas to a method consistent with
the holding in Rev. Rul. 97–54, 1997–2
C.B. 23. Rev. Rul. 97–54 holds that the
cost of line pack gas or cushion gas is a
capital expenditure under § 263, the cost
of recoverable line pack gas or recoverable cushion gas is not depreciable, and
the cost of unrecoverable line pack gas or
unrecoverable cushion gas is depreciable
under §§ 167 and 168.
(2) Additional requirements. A taxpayer that changes its method of accounting for unrecoverable line pack gas or
unrecoverable cushion gas under this section 11.02 must change to a permissible

Bulletin No. 2016 –21

method of accounting for depreciation for
the cost of that gas as part of this change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.02 is “20.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.03 Removal costs.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for certain costs in
the retirement and removal of a depreciable asset to conform with Rev. Rul.
2000 –7, 2000 –1 C.B. 712, as modified by
this revenue procedure, or for removal
costs in disposal of a depreciable asset,
including a partial disposition, as described under § 1.263(a)–3(g)(2)(i).
(b) Inapplicability. This change does
not apply to a taxpayer that wants to
change its method of accounting for removal costs in the disposal of a component of a unit of property where the disposal of the component is not a
disposition for federal tax purposes. To
make that change, see section 11.08 of
this revenue procedure.
(c) Manner of making change. A qualified small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015):
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13, 15,
16, 17, and 19, if the change is not to
depreciating property;
(v) Part II, all lines except lines 13,
15b, 16, 17, and 19, if the change is to
depreciating property;
(vi) Part IV, lines 26 and 27; and
(vii) Schedule E, if applicable.
(2) Additional requirements.
(a) Except for assets for which depreciation is determined in accordance with
§ 1.167(a)–11 (ADR), the taxpayer’s proposed method of treating removal costs

921

for assets accounted for in a multiple asset
account must be consistent with the taxpayer’s method of treating salvage proceeds. See Rev. Rul. 74 – 455, 1974 –2
C.B. 63. (See section 6.02 of this revenue
procedure for changing a taxpayer’s present method of treating salvage proceeds.)
(b) If this change involves assets that
are public utility property within the
meaning of § 168(i)(10) or former
§ 167(l)(3)(A), the taxpayer must comply
with the terms and conditions in section
6.01(3)(b)(v) of this revenue procedure.
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.03 is “21.”
(5) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.04 Distributor commissions.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change from
currently deducting distributor commissions (as defined by section 2 of Rev.
Proc. 2000 –38, 2002–2 C.B. 310, as modified by Rev. Proc. 2007–16, 2007–1 C.B.
358) to a method of capitalizing and amortizing distributor commissions using the
distribution fee period method, the 5-year
method, or the useful life method (all described in Rev. Proc. 2000 –38).
(b) Inapplicability. This change does
not apply to an amortizable section 197
intangible (including any property for
which
a
timely
election
under
§ 13261(g)(2) of the Revenue Reconciliation Act of 1993, 1993–3 C.B. 1, 128,
was made).
(2) Manner of making change. This
change is made on a cut-off basis and
applies only to distributor commissions
paid or incurred on or after the beginning
of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

May 23, 2016

number for a change under this section
11.04 is “47.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.05 Intangibles.
(1) Description of change. This change
applies to a taxpayer that wants to change
its treatment of an item to a method of
accounting permitted by §§ 1.263(a)– 4,
1.263(a)–5, and 1.167(a)–3(b). See Rev.
Proc. 2006 –12, 2006 –1 C.B. 310, as
modified by Rev. Proc. 2006 –37, 2006 –2
C.B. 499, for the specific requirements,
information, and documentation required
for this change.
(2) Section 481(a) adjustment. In computing the § 481(a) adjustment for this
change, the taxpayer takes into account
only amounts paid or incurred in taxable
years ending on or after January 24, 2002.
See section 5 of Rev. Proc. 2006 –12 for
detailed rules for computing the § 481(a)
adjustment and reporting it on Form 3115.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.05 is “78.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.06 Rotable spare parts safe harbor
method.
(1) Description of change. This change
applies to a taxpayer that maintains a pool
or pools of rotable spare parts that are
primarily used to repair customer-owned
(or customer-leased) equipment under
warranty or maintenance agreements, and
wants to change its method of accounting
for the rotable spare parts to the safe harbor method of accounting provided in
Rev. Proc. 2007– 48, 2007–2 C.B. 110.
The taxpayer must meet the requirements
in section 4.01 of Rev. Proc. 2007– 48 to
use this safe harbor method of accounting.
(2) Change from safe harbor method.
A taxpayer that is required to change its
method of accounting from the safe harbor method under section 5.06 of Rev.
Proc. 2007– 48, must make the change

May 23, 2016

under section 21.09 of this revenue procedure.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.06 is “109.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.07 Repairable and reusable spare parts.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting to treat repairable
and reusable spare parts as depreciable
property to conform with the holdings in
Rev. Rul. 69 –200, 1969 –1 C.B. 60, and
Rev. Rul. 69 –201, 1969 –1 C.B. 60. This
change applies to repairable and reusable
spare parts that: are owned by the taxpayer at the beginning of the year of
change; are used to repair equipment
owned by the taxpayer; are acquired by
the taxpayer for a specific type of equipment at the time that the related equipment is acquired; usually have the same
useful life as the related equipment; and
have been placed in service by the taxpayer after 1986. A taxpayer making a
change in method of accounting under this
section 11.07 may treat its repairable and
reusable spare parts as tangible property
for which depreciation is allowable at the
time that the related equipment is placed
in service by the taxpayer. The method of
computing depreciation for the repairable
and reusable spare parts is the same
method of computing depreciation for the
related equipment.
(b) Inapplicability. This change does
not apply to:
(i) A taxpayer that is currently capitalizing and depreciating the cost of its repairable and reusable spare parts, or that is
currently capitalizing the cost of its repairable and reusable spare parts and treating
these parts as nondepreciable property
(but see section 6.01 of this revenue procedure for making a change from an impermissible to a permissible method of
accounting for depreciation);
(ii) A taxpayer that is using an impermissible method of accounting for depreciation for the related equipment for

922

which the repairable and reusable spare
parts are acquired, unless the taxpayer
concurrently changes its method to use a
permissible method of accounting for depreciation under section 6 of this revenue
procedure;
(iii) A repairable and reusable spare
part that meets the definition of rotable
spare parts, temporary spare parts, or
standby emergency spare parts in § 1.162–
3(c)(2) or (3), for which the cost was paid
or incurred by the taxpayer in a taxable
year beginning on or after January 1, 2014
(or in a taxable year beginning on or after
January 1, 2012, if the taxpayer chooses to
apply § 1.162–3 to amounts paid or incurred in those taxable years), and for
which the taxpayer did not make the election under § 1.162–3(d) to capitalize and
depreciate such repairable and reusable
spare part; or
(iv) a taxpayer that chooses to apply
§ 1.162–3T to a repairable and reusable
spare part that meets the definition of rotable spare parts or temporary spare parts
in § 1.162–3T(c)(2), for which the cost
was paid or incurred by the taxpayer in a
taxable year beginning on or after January
1, 2012, and before January 1, 2014, and
for which the taxpayer did not make the
election under § 1.162–3T(d) to capitalize
and depreciate such repairable and reusable spare part.
(2) Additional requirements.
(a) To change a method of accounting
under this section 11.07, a taxpayer (including a qualified small taxpayer as defined in section 6.01(4)(b) of this revenue
procedure) must complete Schedule E of
Form 3115 for the repairable and reusable
spare parts and also attach the following
information to the completed Form 3115:
(i) A description of the repairable and
reusable spare parts;
(ii) A list of related equipment for
which the repairable and reusable spare
parts are acquired; and
(iii) A complete description of the
method of computing depreciation (for
example, depreciation method, recovery
period, convention, and applicable asset
class under Rev. Proc. 87–56, 1987–2
C.B. 674, as clarified and modified by
Rev. Proc. 88 –22, 1988 –1 C.B. 785) that
the taxpayer uses for the related equipment for which the repairable and reusable spare parts are acquired.

Bulletin No. 2016 –21

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015):
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19; and
(v) Part IV, all lines except line 25.
(3) Concurrent automatic change.
(a) A taxpayer making both this change
and a change to a UNICAP method under
section 12.01, 12.02, 12.08, or 12.12 of
this revenue procedure (as applicable) for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes. For example,
a qualified small taxpayer, as defined in
section 6.01(4)(b) of this revenue procedure, must include on the single Form
3115 the information required by section
11.07(2)(b) of this revenue procedure and
the information required by the lines on
Form 3115, applicable to the UNICAP
method change, including Part II line 14
and 15, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer’s response is different for this change and the change to a
UNICAP method.
(b) A taxpayer making both this
change and a change to a permissible
method of accounting for depreciation for
repairable and reusable spare parts, or for
the related equipment for which the repairable and reusable spare parts are acquired, under section 6 of this revenue
procedure (as applicable) for the same
year of change should file a single Form
3115 for both changes, in which case the
taxpayer must enter the designated automatic accounting method change numbers

Bulletin No. 2016 –21

for both changes on the appropriate line
on that Form 3115. See section 6.03(1)(b)
of Rev. Proc. 2015–13 for information on
making concurrent changes. For example,
a qualified small taxpayer must include on
the single Form 3115 the information required to be completed on Form 3115 by
a qualified small taxpayer under this revenue procedure for each change in method
of accounting included on that Form 3115.
(c) A taxpayer making this change also
may establish pools for the repairable and
reusable spare parts or may identify disposed repairable and reusable spare parts
in accordance with section 6.14 of this
revenue procedure. A taxpayer making
both this change and the change under
section 6.14 of this revenue procedure for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be completed on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting included on that Form 3115.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.07 is “121”.
(5) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.08 Tangible property.
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –16, 2014 –9
I.R.B. 606, applies to a taxpayer that
wants to make a change to a method of
accounting specified in section 11.08(3) of
this revenue procedure and permitted under:
(i) Section 1.162–3, § 1.162– 4,
§ 1.263(a)–1, § 1.263(a)–2, or
§ 1.263(a)–3 (the final tangible property
regulations) for taxable years beginning
on or after January 1, 2012; or

923

(ii) Section 1.446 –1(e)(2)(ii)(d)(2) if
the property for which the taxpayer is
otherwise changing its method of accounting under this section is depreciable under
either the present or the proposed method
of accounting.
(b) Inapplicability. This change does
not apply to:
(i) A taxpayer that wants to change its
method of accounting for dispositions of
depreciable property, including a change
in the asset disposed of (but see sections
6.10, 6.11, 6.12, 6.15, 6.16, and 6.17 of
this revenue procedure);
(ii) Amounts paid or incurred for certain materials and supplies that the taxpayer has elected to capitalize and depreciate under § 1.162–3(d);
(iii) Amounts paid or incurred to which
the taxpayer has elected to apply the de
minimis safe harbor under § 1.263(a)–
1(f);
(iv) Amounts paid or incurred for employee compensation or overhead that the
taxpayer has elected to capitalize under
§ 1.263(a)–2(f)(2)(iv)(B);
(v) Amounts paid or incurred to which
the taxpayer has elected to apply the safe
harbor for small taxpayers under
§ 1.263(a)–3(h);
(vi) Amounts paid or incurred for repair and maintenance costs that the taxpayer has elected to capitalize under
§ 1.263(a)–3(n);
(vii) Amounts paid or incurred to facilitate the acquisition or disposition of assets that constitute a trade or business (but
see section 10.05 of this revenue procedure); or
(viii) Amounts paid or incurred for repair and maintenance costs that the taxpayer is changing from capitalizing to deducting and for which the taxpayer has
claimed a federal income tax credit or
elected to apply § 168(k)(4).
(2) Certain eligibility rules temporarily
inapplicable.
(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply
to a taxpayer that makes one or more
changes in method of accounting under
this section for any taxable year beginning
before January 1, 2016.
(b) Concurrent automatic change. If
the taxpayer makes both a change under
this section 11.08 and a change to a UNI-

May 23, 2016

CAP method under section 12.01, 12.02,
12.08, or 12.12 of this revenue procedure
(as applicable) for any taxable year beginning before January 1, 2016, on a single
Form 3115 for the same year of change in
accordance with section 11.08(5) of this
revenue procedure, the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13 do not apply to the taxpayer for
either change. See section 6.03(1)(b) of
Rev. Proc. 2015–13 for information on
making concurrent changes.
(3) Covered changes. This section
11.08 only applies to the following
changes in methods of accounting:
(a) A change to deducting amounts
paid or incurred to acquire or produce
non-incidental materials and supplies in
the taxable year in which they are first
used in the taxpayer’s operations or consumed in the taxpayer’s operations in accordance with §§ 1.162–3(a)(1) and
1.162–3(c)(1);
(b) A change to deducting amounts to
acquire or produce incidental materials
and supplies in the taxable year in which
paid or incurred in accordance with
§§ 1.162–3(a)(2) and 1.162–3(c)(1);
(c) A change to deducting amounts
paid or incurred to acquire or produce
non-incidental rotable and temporary
spare parts in the taxable year which the
taxpayer disposes of the parts in accordance with §§ 1.162–3(a)(3) and 1.162–
3(c)(2);
(d) A change to the optional method of
accounting for rotable and temporary
spare parts in accordance with § 1.162–
3(e);
(e) A change to deducting amounts
paid or incurred for repair and maintenance in accordance with § 1.162– 4, including a change, if any, in identifying the
unit of property under § 1.263(a)–3(e) or,
in the case of a building, identifying the
building structure or building systems under § 1.263(a)–3(e)(2) for purposes of
making the change to deducting the
amounts;
(f) A change to capitalizing amounts
paid or incurred for improvements to tangible property in accordance with
§ 1.263(a)–3 and, if depreciable, to depreciating such property under § 167 or
§ 168, including a change, if any, in identifying the unit of property under
§ 1.263(a)–3(e) or, in the case of a build-

May 23, 2016

ing, identifying the building structure or
building systems under § 1.263(a)–3(e)(2)
for purposes of making the change to capitalizing the amounts;
(g) A change by a dealer in property to
deduct amounts paid or incurred for commissions and other costs that facilitate the
sale of property in accordance with
§ 1.263(a)–1(e)(2);
(h) A change by a non-dealer in property to capitalizing amounts paid or incurred for commissions and other costs
that facilitate the sale of property in accordance with § 1.263(a)–1(e);
(i) A change to capitalizing amounts
paid or incurred to acquire or produce
property in accordance with § 1.263(a)–2,
and if depreciable, to depreciating such
property under § 167 or § 168;
(j) A change to deducting amounts paid
or incurred in the process of investigating
or otherwise pursuing the acquisition of
real property if the amounts meet the requirements of § 1.263(a)–2(f)(2)(iii); and
(k) A change to the optional regulatory
accounting method in accordance with
§ 1.263(a)–3(m) to determine whether
amounts paid or incurred to repair, maintain, or improve tangible property are
treated as deductible expenses or capital
expenditures.
(4) Manner of making change.
(a) Form 3115. In addition to the other
information required on line 14 of Form
3115, the taxpayer must include the following:
(i) The citation to the paragraph of the
final tangible property regulations that
provides for the proposed method, or
methods, of accounting to which the taxpayer is changing (for example, § 1.162–
3(a), § 1.263(a)–3(i), § 1.263(a)–3(k));
and
(ii) If the taxpayer is changing any
unit(s) of property under § 1.263(a)–3(e)
or, in the case of a building, is changing
the identification of any building structure(s) or building system(s) under
§ 1.263–3(e)(2) for purposes of determining whether amounts are deducted as repair and maintenance costs under section
§ 1.162– 4 or capitalized as improvement
costs under § 1.263(a)–3, the taxpayer
must include a detailed description of the
unit(s) of property, building structure(s),
or buildings system(s) used under its present method of accounting and a detailed

924

description of the unit(s) of property,
building structure(s), and building system(s) under its proposed method of accounting, together with a citation to the
paragraph of the final tangible property
regulations under which the unit of property is permitted.
(iii) A taxpayer changing its method of
accounting under this section 11.08 to
capitalizing amounts paid or incurred and
to depreciating such property under § 167
or § 168, as applicable, must complete
Schedule E of Form 3115.
(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. December 2015):
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines 13, 15,
16, 17, and 19, if the change is to not
depreciating property;
(v) Part II, all lines except line 13, line
15b, 16, 17, and 19, if the change is to
depreciating property;
(vi) Part IV, lines 26 and 27; and
(vii) Schedule E, if applicable.
(5) Concurrent automatic change.
(a) A taxpayer making two or more
changes in method of accounting pursuant
to this section 11.08 should file a single
Form 3115 for all of these changes and
must enter the designated automatic accounting method change numbers for all
of these changes on the appropriate line
on the Form 3115.
(b) A taxpayer making both one or
more changes in method of accounting
pursuant to this section 11.08 and a
change to a UNICAP method under section 12 of this revenue procedure (as applicable) for the same year of change
should file a single Form 3115 that includes all of these changes and must enter
the designated automatic accounting
method change numbers for all of these
changes on the appropriate line on that
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015–13 for information on making
concurrent changes. For example, a qualified small taxpayer, as defined in section

Bulletin No. 2016 –21

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

(ii) Small business exception. A taxpayer that met the scope requirements of
section 4 of Rev. Proc. 2015–20, 2015–9
I.R.B. 694, and that changed its method of
accounting under section 10.11(3)(a) of
Rev. Proc. 2015–14 (which is now section
11.08(3) of this revenue procedure) by
following section 5 of Rev. Proc. 2015–20
is required to calculate a § 481(a) adjustment as of the first day of the year of
change that takes into account only
amounts paid or incurred in taxable years
beginning on or after January 1, 2014.
(c) Itemized listing on Form 3115. A
taxpayer changing to a method of accounting provided in this section 11.08
must include on Form 3115 (Rev. December 2015), Part IV, line 26, the total
§ 481(a) adjustment for each change in
method of accounting being made. If the
taxpayer is making more than one change
in method of accounting under the final
tangible property regulations, the taxpayer
(including a qualified small taxpayer)
must include on an attachment to Form
3115:
(i) The information required by Part
IV, line 26 of Form 3115 (Rev. December
2015) for each change in method of accounting (including the amount of the
§ 481(a) adjustment for each change in
method of accounting, which includes the
portion of the § 481(a) adjustment attributable to UNICAP);
(ii) The information required by Part II,
line 14 of Form 3115 (Rev. December
2015) for each change; and
(iii) The citation to the paragraph of the
final tangible property regulations that

provides for each proposed method of accounting.
(d) Repair allowance property. A taxpayer changing to a method of accounting
provided by § 1.263(a)–3 under this section 11.08 must not include in the § 481(a)
adjustment any amount attributable to
property for which the taxpayer elected to
apply the repair allowance under
§ 1.167(a)–11(d)(2) for any taxable year
in which the repair allowance election was
made.
(e) Statistical Sampling. Except for any
change in accounting method for which a
taxpayer is required to compute a § 481(a)
adjustment under section 11.08(6)(b) of
this revenue procedure, a taxpayer changing its method of accounting under this
section 11.08 may use statistical sampling
in determining the § 481(a) adjustment by
following the guidance provided in Rev.
Proc. 2011– 42, 2011–37 I.R.B. 318.
(7) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 11.08(6)(b)(ii) of this revenue procedure that takes into account only
amounts paid or incurred in taxable years
beginning on or after January 1, 2014, does
not receive audit protection under section
8.01 of Rev. Proc. 2015–13 for amounts
subject to a change under this section 11.08
that are paid or incurred in taxable years
beginning before January 1, 2014. See section 5.02 of Rev. Proc. 2015–20.
(8) Designated automatic accounting
method change number. See the following
table for the designated automatic accounting method change numbers (DCN)
for the changes in method of accounting
under this section 11.08.

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

DCN
184

Citation
§§ 1.162–4,
1.263(a)–3

185
186

Change to deducting non-incidental rotable and temporary spare parts when disposed of.

188

§ 1.263(a)–3(m)
§§ 1.162–3(a)(1),
(c)(1)
§§ 1.162–3(a)(2),
(c)(1)
§ 1.162–3(a)(3),
(c)(2)

Bulletin No. 2016 –21

925

187

May 23, 2016

Description of Change
Change to the optional method for rotable and temporary spare parts.
Change by a dealer in property to deduct commissions and other costs that facilitate the sale of property.
Change by a non-dealer in property to capitalizing commissions and other costs
that facilitate the sale of property.
Change to capitalizing acquisition or production costs and, if depreciable, to depreciating such property under § 167 or § 168.
Change to deducting certain costs for investigating or pursuing the acquisition of
real property (whether and which).

(8) Contact information. For further information regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).
.09 Railroad track structure expenditures.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for railroad track
structures to:
(a) the safe harbor method provided in
Rev. Proc. 2002– 65, 2002–2 C.B. 700; or
(b) the safe harbor method provided in
Rev. Proc. 2001– 46, 2001–2 C.B. 263.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.09 is “213.”
(3) Contact information. For further information regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).
.10 Remodel-refresh safe harbor method.
(1) Description of change.
(a) Applicability. This change applies
to a qualified taxpayer as defined in section 4.01 of Rev. Proc. 2015–56, 2015– 49
I.R.B. 827, and within the scope of Rev.
Proc. 2015–56 that wants to change to the
remodel-refresh safe harbor method of accounting provided in section 5.02 of Rev.
Proc. 2015–56 for its qualified costs, including the making of a late general asset
account election as provided under section
5.02(6)(d) of Rev. Proc. 2015–56.
(b) Inapplicability. This change does
not apply to the following:
(i) The revocation of a partial disposition election that is made pursuant to section 5.02(4)(b)(ii)(B) of Rev. Proc.

May 23, 2016

2015–56 (but see section 6.20 of this revenue procedure for making this revocation);
(ii) A change in determination of the
asset disposed of described in section
5.02(5) of Rev. Proc. 2015–56 (which is
made under section 6.15(3)(a) or
6.17(3)(a) of this revenue procedure, as
applicable). See section 11.10(6)(b) of
this revenue procedure for making the
change under section 6.15(3)(a) or
6.17(3)(a) of this revenue procedure as a
concurrent change;
(iii) The making of a late general asset
account election not provided under section 5.02(6)(d) of Rev. Proc. 2015–56;
(iv) If section 5.02(4)(c) of Rev. Proc.
2015–56 applies to a qualified building
(partial disposition election made in a
prior year and the qualified taxpayer did
not revoke such election within the time
and in the manner provided in section
5.02(4)(b)(ii) of Rev. Proc. 2015–56),
any qualified costs paid for that qualified building prior to the year of change
for a Form 3115 filed to make the
change to the remodel-refresh safe harbor method of accounting under this
section 11.10; or
(v) If section 5.02(5)(b) of Rev. Proc.
2015–56 applies to a qualified building (recognized gain or loss under § 1.168(i)–1T or
§ 1.168(i)– 8T, or in a taxable year beginning before January 1, 2012, for disposition
of a component of a qualified building) and
the qualified taxpayer did not make the required change in method of accounting to be
in accord with § 1.168(i)–1(e)(2)(viii) or
§ 1.168 – 8(c)(4), as applicable, on or before the first taxable year that the qualified taxpayer uses the remodel-refresh
safe harbor and take the entire amount
of the § 481(a) adjustment into account

926

DCN
189
190

Citation
§ 1.162–3(e)
§ 1.263(a)–1(e)(2)

191

§ 1.263(a)–1(e)(1)

192

§ 1.263(a)–2

193

§ 1.263(a)–
2(f)(2)(iii)

in computing the qualified taxpayer’s
taxable income for that year of change,
any qualified costs paid for that qualified building prior to the first taxable
year that the qualified taxpayer or the
IRS makes the change specified in section 6.15(3)(a) or 6.17(3)(a) of this revenue procedure, as applicable, for that
qualified building and takes into account the
entire amount of the § 481(a) adjustment in
computing taxable income for the year of
change.
(2) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, do not apply to a qualified taxpayer that changes
to a method of accounting provided under this section 11.10 for any taxable
year beginning after December 31,
2013, and ending before December 31,
2016.
(b) Concurrent automatic change. If a
qualified taxpayer makes both a change
under this section 11.10 and a change
under section 6.14(3)(b), 6.15(3)(a),
and/or 6.17 of this revenue procedure for
any taxable year beginning after December 31, 2013, and ending before December 31, 2016, on a single Form 3115 for
the same asset for the same year of
change in accordance with section
11.10(7)(b) of this revenue procedure,
the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply to the qualified taxpayer for
either change.
(3) No audit protection. If section
5.02(4)(c) or 5.02(5)(b) of Rev. Proc.
2015–56 applies to a qualified building
(and, in the case of section 5.02(5)(b), the
qualified taxpayer does not make the required change on or before the first tax-

Bulletin No. 2016 –21

able year that the qualified taxpayer uses
the remodel-refresh safe harbor), the qualified taxpayer does not receive audit protection under section 8.01 of Rev. Proc.
2015–13 in connection with this change
for that qualified building. See section
8.02(2) of Rev. Proc. 2015–13.
(4) Manner of making change.
(a) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure,
may complete only the following information on Form 3115 (Rev. December
2015):
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) Part II, all lines except lines5, 13,
15, 16, 17, and 19;
(v) Part IV, lines 25, 26, and 27;
(vi) Schedule E; and
(vii) If applicable, the election statement described in section 11.10(4)(b)(ii).
(b) Late general asset account election.
(i) In general. If under section 5.02(6)(d)
of Rev. Proc. 2015–56 the qualified taxpayer is required to make a late general asset
account election, the late general asset
account election change is made using a
modified cut-off method under which
the unadjusted depreciable basis and the
depreciation reserve of the asset as of
the beginning of the year of change are
accounted for using the new method of
accounting. The late general asset account election change requires the general asset account to include a beginning
balance for both the unadjusted depreciable basis and the depreciation reserve. The beginning balance for the
unadjusted depreciable basis of each
general asset account is equal to the sum
of the unadjusted depreciable bases as of
the beginning of the year of change for
all assets included in that general asset
account. The beginning balance of the
depreciation reserve of each general asset account is equal to the sum of the
greater of the depreciation allowed or
allowable as of the beginning of the year
of change for all assets included in that
general asset account.
(ii) Election statement. The qualified
taxpayer (including a qualified small tax-

Bulletin No. 2016 –21

payer) must attach to its Form 3115 a
statement providing that the qualified taxpayer agrees to the following additional
terms and conditions:
(A) The qualified taxpayer consents
to, and agrees to apply, all of the provisions of § 1.168(i)–1 to the assets that
are subject to the election specified in
section 5.02(6)(d) of Rev. Proc. 2015–
56; and
(B) Except as provided in § 1.168(i)–
1(c)(1)(iii)(A), (e)(3), (g), or (h), the election made by the qualified taxpayer under
section 5.02(6)(d) of Rev. Proc.
2015–56 is irrevocable and will be binding on the qualified taxpayer for computing taxable income for the year of
change and for all subsequent taxable
years with respect to the assets that are
subject to this election.
(c) Cut-off method required for certain
changes.
(i) If section 5.02(4)(c) of Rev. Proc.
2015–56 applies to a qualified building, the
change to the remodel-refresh safe harbor
method of accounting for that qualified
building, and any improvements to that
qualified building, is made using a cut-off
method and applies only to qualified costs
paid or incurred for that qualified building,
and any improvements to that qualified
building, beginning in the year of change for
the change made to the remodel-refresh safe
harbor method of accounting.
(ii) If section 5.02(5)(b) of Rev. Proc.
2015–56 applies to a qualified building
and the qualified taxpayer does not
change its present method of accounting
to be in accord with § 1.168(i)–
1(e)(2)(viii) or § 1.168(i)– 8(c)(4), as
applicable, on or before the first taxable
year that the qualified taxpayer used the
remodel-refresh safe harbor and take the
entire amount of the § 481(a) adjustment
into account in computing the qualified
taxpayer’s taxable income for that year
of change, the change to the remodelrefresh safe harbor method of accounting for that qualified building, and any
improvements to that qualified building,
is made using a cut-off method and applies only to qualified costs paid or incurred for that qualified building, and
any improvements to that qualified
building, beginning in the year of
change for the change made to comply
with
§
1.168(i)–1(e)(2)(viii)
or

927

§ 1.168(i)– 8(c)(4), as applicable. See
section 6.15(3)(a) and section 6.17(3)(a)
of this revenue procedure, as applicable.
(5) Section 481(a) adjustment.
(a) In general. A qualified taxpayer
changing its method of accounting under
this section 11.10 must apply § 481(a)
and take into account any applicable
§ 481(a) adjustment in the manner provided in section 7.03 of Rev. Proc.
2015–13. However, a § 481(a) adjustment is neither required nor permitted
for the late general asset account election under section 5.02(6)(d) of Rev.
Proc. 2015–56 or, if section 5.02(4)(c)
or 5.02(5)(b) of Rev. Proc. 2015–56 applies to a qualified building, and an improvement to a qualified building (and,
in the case of section 5.02(5)(b) of Rev.
Proc. 2015–56, the qualified taxpayer
did not make the required change on or
before the first taxable year that the
qualified taxpayer uses the remodelrefresh safe harbor), for the change to
the remodel-refresh safe harbor method
of accounting for that qualified building
and an improvement to that qualified
building.
(b) Repair allowance property. A qualified taxpayer changing to the method of
accounting provided under this section
11.10 must not include in the § 481(a)
adjustment any amount attributable to
property for which the qualified taxpayer
elected to apply the repair allowance under § 1.167(a)–11(d)(2) for any taxable
year in which the repair allowance election was made.
(c) Statistical sampling. A qualified
taxpayer changing its method of accounting under this section 11.10 may use statistical sampling in determining the
§ 481(a) adjustment only by following the
sampling procedures provided in Rev.
Proc. 2011– 42, 2011–37 I.R.B. 318.
(6) Concurrent automatic change.
(a) A qualified taxpayer making this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets. The single Form 3115 must provide a single net
§ 481(a) adjustment for all such
changes.
(b) A qualified taxpayer making this
change, a change under section 6.15(3)(a)
or 6.20 of this revenue procedure, and any
change listed in section 6.14(3)(b) or sec-

May 23, 2016

tion 6.17 of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(7) Designated automatic accounting
method change number. The designated automatic accounting method change number
for a change to the method of accounting
under this section 11.10 is “222.”
(8) Contact information. For further
information regarding a change under
this section, contact Merrill Feldstein at
(202) 317-5100 (not a toll-free call).
SECTION 12. UNIFORM
CAPITALIZATION (UNICAP)
METHODS (§ 263A)
.01 Certain uniform capitalization
(UNICAP) methods used by resellers
and reseller-producers.
(1) Description of change.
(a) Applicability. This change applies to:
(i) a small reseller of personal property
that wants to change from a permissible
UNICAP method to a permissible nonUNICAP inventory capitalization method
in any taxable year that it qualifies as a
small reseller;
(ii) a formerly small reseller that wants
to change from a permissible nonUNICAP inventory capitalization method
to a permissible UNICAP method in the
first taxable year that it does not qualify as
a small reseller;
(iii) a reseller-producer that wants to
change from a permissible UNICAP
method for both its production and resale
activities to a permissible simplified resale
method described in § 1.263A–3(d)(3) in
any taxable year that it qualifies to use a
simplified resale method for both its production and resale activities under
§ 1.263A–3(a)(4) (resellers with de minimis production activities);
(iv) a reseller-producer that wants to
change from a permissible simplified resale method described in § 1.263A–
3(d)(3) for both its production and resale
activities to a permissible UNICAP
method for both its production and resale
activities in the first taxable year that it

May 23, 2016

does not qualify to use a simplified resale
method for both its production and resale
activities under § 1.263A–3(a)(4);
(v) a reseller that wants to change its
permissible UNICAP method to include
a special reseller cost allocation rule;
(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 proposed method in any taxable
year, other than the first taxable year, that
it does not qualify as a small reseller; or
(vii) a reseller or reseller-producer that
wants to change from not capitalizing a
cost subject to § 263A to capitalizing that
cost under a UNICAP method (or methods) specifically described in the regulations that the reseller or reseller-producer
is already using.
(b) Inapplicability.
(i) Self-constructed assets. This change
does not apply to a taxpayer that wants to
use either the simplified service cost
method 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).
(ii) Historic absorption ratio. This
change does not apply to a taxpayer that
wants to make an historic absorption 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 12.01(1)(a)(i) of this revenue procedure.
(iii) Interest capitalization. This
change does not apply to a change in
method of accounting for interest capitalization (but see section 12.14 of this revenue procedure for making this change).

928

(iv) Recharacterizing costs under the
simplified resale method. This change
does not include a change for purposes of
recharacterizing “section 471 costs” as
“additional § 263A costs” (or vice versa)
under the simplified resale method.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to the changes
described insection 12.01(1)(a)(i) and (ii)
of this revenue procedure.
(3) Definitions.
(a) “Reseller” means a taxpayer that
acquires real or personal property described in § 1221(a)(1) for resale.
(b) “Small reseller” means a reseller
whose average annual gross receipts for
the three immediately preceding taxable
years (or fewer, if the taxpayer has not
been in existence for the three preceding
taxable years) do not exceed $10,000,000.
See § 263A(b)(2)(B).
(c) “Formerly small reseller” means a
reseller that no longer qualifies as a small
reseller.
(d) “Producer” means a taxpayer that
produces real or tangible personal property.
(e) “Reseller-producer” means a taxpayer that is both a producer and a reseller.
(f) “Permissible UNICAP method”
means a method of capitalizing costs that
is permissible under § 263A.
(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 laborbased allocation ratio), and the simplified
resale method without the historic absorption ratio election (§ 1.263A–3(d)), but
does not include any other reasonable al-

Bulletin No. 2016 –21

location method within the meaning of
§ 1.263A–1(f)(4).
(h) “Special reseller cost allocation rule”
means the 90 –10 de minimis rule to allocate
a mixed service department’s costs to property acquired for resale (§ 1.263A–
1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate
labor costs of personnel to purchasing activities (§ 1.263A–3(c)(3)(ii)(A)), and the
90 –10 de minimis rule to allocate a dualfunction storage facility’s costs to property
acquired for resale (§ 1.263A–3(c)(5)(iii)(C)).
(i) “Permissible non-UNICAP inventory capitalization method” means a
method of capitalizing inventory costs
that is permissible under § 471.
(4) Section 481(a) adjustment period.
Beginning with the year of change, a taxpayer changing its method of accounting
for costs pursuant to section 12.01(1)(a)(i),
12.01(1)(a)(iii), or 12.01(1)(a)(iv) of this
revenue procedure generally must take any

applicable net positive § 481(a) adjustment
for such change into account ratably over
the same number of taxable years, not to
exceed four, that the taxpayer used its former method of accounting. A taxpayer
changing its method of accounting for costs
pursuant to section 12.01(1)(a)(ii),
12.01(1)(a)(v), or 12.01(1)(a)(vi) of this revenue procedure must take any applicable net
positive § 481(a) adjustment for such
change into account as provided in section
7.03 of Rev. Proc. 2015–13.
(5) Multiple changes. A taxpayer making both this change and another change
in method of accounting for the same year
of change must comply with the ordering
rules of § 1.263A–7(b)(2).
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.01 is “22.”

Current
Taxable
Year

(7) Example. The following example
illustrates the principles of this section
12.01 for small resellers and formerly
small resellers.
Assume X, a corporate reseller of personal property, incorporated January 2,
2005, adopted a taxable year ending December 31. In determining whether X is a
small reseller, as provided in section
12.01(3)(b) of this revenue procedure, X
calculates its average annual gross receipts for the three taxable years (or
fewer, if applicable) immediately preceding the taxable year being analyzed. For
each of the taxable years 2005 through
2014, X calculates the corresponding average annual gross receipts for the three
immediately preceding taxable years (or
fewer, if applicable). The results are
shown in the table below:

Average Annual Gross
Receipts for the Three Taxable
Years Immediately Preceding the
Current Taxable Year

2005
$0
2006
5,000,000
2007
6,000,000
2008
7,000,000
2009
11,000,000
2010
11,000,000
2011
9,000,000
2012
8,000,000
2013
11,000,000
2014
12,000,000
Furthermore, X which adopted the dollar-value LIFO inventory method, has the following LIFO inventory balances determined
without considering the effects of the UNICAP method:

2009
2010
2011
2012
2013
2014

X was required by § 263A to change to
the UNICAP method for 2009 because its
average annual gross receipts for the three

Bulletin No. 2016 –21

Beginning
$1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000

taxable years immediately preceding 2009
were $11,000,000, which exceeded the
$10,000,000 ceiling permitted by the small

929

Ending
$1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
1,600,000

reseller exception. Assume that X was required to capitalize $80,000 of “additional
§ 263A costs” to the cost of its 2009 begin-

May 23, 2016

ning inventory because of this change in
inventory method. In addition, X was required to include one-fourth of the § 481(a)
adjustment when computing taxable income
for each of the four taxable years beginning
with 2009. Thus, X was required to include

a $20,000 positive § 481(a) adjustment in its
2009 taxable income.
X elected to use the simplified resale
method without an historic absorption ratio
election under § 1.263A–3(d)(3) for determining the amount of additional § 263A

costs to be capitalized to each LIFO layer.
Assume that X was required to add $10,000
of additional § 263A costs to the cost of its
2009 ending inventory because of the
$100,000 increment for 2009.

X’s 2009 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
2009 Increment
Additional § 263A Costs in Beginning Inventory
Additional § 263A Costs in 2009 Increment
Total 2009 Ending Inventory

$1,000,000
100,000
80,000
10,000
$1,190,000

X’s Unamortized 2009 § 481(a) Adjustment:
2009 § 481(a) Adjustment
Amount included in 2009 Taxable Income
Unamortized 2009 § 481(a) Adjustment—12/31/09

$80,000
⬍20,000⬎
$60,000

Because X failed to satisfy the small reseller exception for 2010, X was required to continue using the UNICAP method for its
inventory costs. Furthermore, X was required to include $20,000 of the unamortized 2009 positive § 481(a) adjustment in 2010
taxable income. Assume that X was required to add $10,000 of additional § 263A costs to the cost of its 2010 ending inventory
because of the $100,000 increment for 2010.
X’s 2010 Ending Inventory:
Beginning Inventory (With UNICAP costs)
2010 Increment
Additional § 263A Costs in 2010 Increment

$1,190,000
100,000
10,000

Total 2010 Ending Inventory

$1,300,000

X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment—12/31/09
Amount Included in 2010 Taxable Income

$60,000
⬍20,000⬎

Unamortized 2009 § 481(a) Adjustment—12/31/10

$40,000

Because X satisfied the small reseller exception for 2011, X may change voluntarily from the UNICAP method to a permissible
non-UNICAP inventory capitalization method (such a change for a current taxable year is provided in section 12.01 of this revenue
procedure). To reflect the removal of the additional § 263A costs from the cost of its 2011 beginning inventory, X must compute a
corresponding § 481(a) adjustment, which is a negative $100,000 ($1,200,000 - $1,300,000). The entire amount of this negative
§ 481(a) adjustment is included in the computation of X’s taxable income for 2011. In addition, X must include $20,000 of the
unamortized 2009 § 481(a) adjustment in 2011 taxable income.
X’s 2011 Ending Inventory:

May 23, 2016

930

Bulletin No. 2016 –21

$1,300,000

Beginning Inventory (With UNICAP costs)
2011 Increment
2011 § 481(a) Adjustment ⬍Negative⬎

100,000
⬍100,000⬎

Total 2011 Ending Inventory

$1,300,000

X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment—12/31/10
Amount included in 2011 Taxable Income

$40,000
⬍20,000⬎

Unamortized 2009 § 481(a) Adjustment—12/31/11

$20,000

X’s Unamortized 2011 § 481(a) Adjustment:
2011 § 481(a) Adjustment ⬍Negative⬎
Amount included in 2011 Taxable Income

$⬍100,000⬎
100,000

Unamortized 2011 § 481(a) Adjustment—12/31/11

$0

X also satisfies the small reseller exception for 2012 and, therefore, is not required to return to the UNICAP method for 2012. X,
however, must include $20,000 of the unamortized 2009 positive § 481(a) adjustment in its 2012 taxable income.
X’s 2012 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,300,000
2012 Increment
100,000
Total 2012 Ending Inventory
$1,400,000
X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment—12/31/11
Amount in 2012 Taxable Income

$20,000
⬍20,000⬎

Unamortized 2009 § 481(a) Adjustment—12/31/12

$0

In 2013, X fails to satisfy the small reseller exception and, therefore, must return to the UNICAP method (such a change for a
current taxable year is provided in section 12.01 of this revenue procedure). X changes to the simplified resale method without a
historic absorption ratio election under § 1.263A–3(d)(3). Assume that X must capitalize $120,000 of additional § 263A costs to the
cost of its 2013 beginning inventory because of this change in inventory method. Because X used a non-UNICAP method for two
taxable years prior to 2013, the § 481 spread period for the positive § 481(a) adjustment is two years. Therefore, X must include
one-half of the § 481(a) adjustment ($60,000) when computing taxable income for 2013 and 2014. Assume that X must add $10,000
of additional § 263A costs to the cost of its 2013 ending inventory because of the $100,000 increment for 2013.
X’s 2013 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
2013 Increment
Additional § 263A costs in Beginning Inventory
Additional § 263A costs in 2013 Increment

$1,400,000
100,000
120,000
10,000

Total 2013 Ending Inventory

$1,630,000

X’s Unamortized 2013 § 481(a) Adjustment:

Bulletin No. 2016 –21

931

May 23, 2016

2013 § 481 Adjustment
Amount included in 2013 Taxable Income
Unamortized 2013 § 481(a) Adjustment—12/
31/13

$ 120,000
⬍60,000⬎
$ 60,000

Because X fails to satisfy the small reseller exception for 2014, X must continue using the UNICAP method for its inventory costs.
Furthermore, X is required to include $60,000 of the unamortized 2013 positive § 481(a) adjustment in 2014 taxable income. Assume
that X is required to add $10,000 of additional § 263A costs to the cost of its 2014 ending inventory because of the $100,000
increment for 2014.
X’s 2014 Ending Inventory:
Beginning Inventory (With UNICAP costs)
2014 Increment
Additional § 263A Costs in 2014 Increment

$1,630,000
100,000
10,000

Total 2014 Ending Inventory

$1,740,000

X’s Unamortized 2013 § 481(a) Adjustment:
Unamortized 2013 § 481(a) Adjustment—12/31/13
Amount included in 2014 Taxable Income

$ 60,000
⬍60,000⬎

Unamortized 2013 § 481(a) Adjustment—12/31/14

$ ___ 0

(8) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux, at
(202) 317-7007 (not a toll-free call).
.02 Certain uniform capitalization
(UNICAP) methods used by producers
and reseller-producers.
(1) Description of change.
(a) Applicability. This change applies
to a producer (as defined in section
12.01(3)(d) of this revenue procedure)
or a reseller-producer (as defined in section 12.01(3)(e) of this revenue procedure) that wants to change to a UNICAP
method (or methods) specifically described in the regulations, including any
necessary changes in the identification
of costs subject to § 263A that will be
accounted for using the proposed
method. 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 under a UNICAP method (or methods)
specifically described in the regulations
that the producer or reseller-producer is
already using.

May 23, 2016

(b) Inapplicability.
(i) Self-constructed assets. This change
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).
(ii) Historic absorption ratio. This
change does not apply to a taxpayer that
wants to make an historic absorption 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 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.
(iii) Interest capitalization. This
change does not apply to a change in
method of accounting for interest capitalization (but see section 12.14 of this revenue procedure for making this change).

932

(iv) Recharacterizing costs under the
simplified production method. 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) Definition. A “UNICAP method
specifically described in the regulations”
includes the 90 –10 de minimis rule to
allocate a mixed service department’s
costs to production or resale activities
(§ 1.263A–1(g)(4)(ii)), 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 (§ 1.263–1(h)) (with either a
labor-based allocation ratio or a produc-

Bulletin No. 2016 –21

tion cost allocation ratio), and the simplified production method without the historic absorption ratio election (§ 1.263A–
2(b)), but does not include any other
reasonable allocation method within the
meaning of § 1.263A–1(f)(4).
(3) Multiple changes. A taxpayer making both this change and another change
in method of accounting in the same year
of change must comply with the ordering
rules of § 1.263A–7(b)(2).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.02 is “23.”
(5) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux, at
(202) 317-7007 (not a toll-free call).

taxpayer enters the designated automatic
change numbers for both changes on the
appropriate line on that Form 3115, and
complies with the ordering rules of
§ 1.263A–7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015–13, 2015–5 I.R.B.
419, for information on making concurrent changes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.04 is “77.”
(4) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).
.05 Change in allocating environmental
remediation costs under § 263A.

.03 Impact fees.
(1) Description of change. This change
applies to a taxpayer that incurs impact
fees as defined in Rev. Rul. 2002–9,
2002–1 C.B. 614, in connection with the
construction of a new residential rental
building that wants to capitalize the costs
to the building under §§ 263(a) and 263A.
See Rev. Rul. 2002–9 for further information.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.03 is “25.”
(3) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).
.04 Change to capitalizing
environmental remediation costs under
§ 263A.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for environmental remediation costs from a method that
does not comply with the holding in Rev.
Rul. 2004 –18, 2004 –1 C.B. 509, to capitalizing them to inventory under § 263A.
(2) Concurrent automatic changes. A
taxpayer making both this change and another automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the

Bulletin No. 2016 –21

(1) Description of change. This change
applies to a taxpayer that capitalizes environmental remediation costs to inventory
under § 263A, but allocates these costs to
inventory using a method of accounting
that does not comply with the holding in
Rev. Rul. 2005– 42, 2005–2 C.B. 67, and
wants to change to allocating these costs
to inventory produced during the taxable
year in which the costs are incurred under
§ 263A. See Rev. Rul. 2005– 42 for further information.
(2) Concurrent automatic changes. A
taxpayer making both this change and another automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A–7(b)(2). See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.05 is “92.”
(4) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).

933

.06 Safe harbor methods under § 263A
for certain dealerships of motor
vehicles.
(1) Description of change. This change
applies to a motor vehicle dealership, as
defined in section 4 of Rev. Proc. 2010 –
44, 2010 – 49 I.R.B. 811, that is within the
scope of section 3 of Rev. Proc. 2010 – 44
and wants to change its method of accounting to (1) treat its sales facility as a
retail sales facility or (2) be treated as a
reseller without production activities, as
described in section 5 of Rev. Proc. 2010 –
44. A motor vehicle dealership that wants
to make an automatic change in method of
accounting to use one or both safe harbor
methods described in section 5 of Rev.
Proc. 2010 – 44 may make any corresponding changes in the identification of
costs subject to § 263A that will be accounted for using the proposed method
(for example, to remove internal profit
from inventory costs) or to no longer include negative amounts as additional
§ 263A costs in the numerator of the simplified resale method formula or the simplified production method formula. However, except as provided in the preceding
sentence, a change under this section does
not include a change for purposes of recharacterizing “§ 471 costs” as “additional § 263A costs” (or vice versa) under
the simplified resale method or the simplified production method.
(2) Concurrent automatic changes. A
motor vehicle dealership making an automatic change to one or both safe harbor
methods described in section 5 of Rev.
Proc. 2010 – 44 and another automatic
change under § 263A for the same taxable
year may file one Form 3115 to make both
changes, provided the dealership enters
the designated automatic change numbers
for all such changes in Part I on that Form
3115, and complies with the ordering
rules of § 1.263A–7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, for information on making
concurrent changes.
(3) Multiple adjustments. In the event
that a motor vehicle dealership is taking
into account a § 481(a) adjustment from
another accounting method change in addition to the § 481(a) adjustment required
by a change to a safe harbor method described in section 5 of Rev. Proc. 2010 –

May 23, 2016

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

May 23, 2016

2013–18, 2013–14 I.R.B. 742, or its successor.
(2) Certain eligibility rule temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer that wants to make the change
for its first or second taxable year ending
after February 15, 2013.
(3) Audit protection. If a taxpayer currently does not apply § 263A to its blackberry, raspberry, or papaya plants in a
manner that complies with the requirements of § 263A(d)(1) and § 1.263A–
4(a)(2), the IRS will not raise such method
of accounting for a taxable year that ends
on or before February 15, 2013. Also, if
the use of such a method of accounting by
a taxpayer is an issue under consideration
(within the meaning of section 3.08 of
Rev. Proc. 2015–13) for taxable years in
examination, before an Appeals office, or
before the U.S. Tax Court in a taxable
year that ends on or before February 15,
2013, the IRS will not further pursue that
issue.
(4) Manner of making change. A
change under this section 12.07 is made
with any necessary adjustments under
§ 481(a). For example, the revocation of
an election under § 263A(d)(3) results in a
§ 481(a) adjustment that must take into
account the change in depreciation from
the alternative depreciation system to the
general depreciation system included
within such revocation.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.07 is “181.”
(6) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).
.08 Change to a reasonable allocation
method described in § 1.263A–1(f)(4)
for self-constructed assets.
(1) Description of change.
(a) Applicability. This change, as described in Rev. Proc. 2014 –16, 2014 –9
I.R.B. 606, applies to a producer (as defined in section 12.01(3)(d) of this revenue procedure) or a reseller-producer (as
defined in section 12.01(3)(e) of this revenue procedure) that wants to change to a

934

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

Bulletin No. 2016 –21

(5) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).
.09 Real property acquired through
foreclosure.
(1) Applicability. This change, as described in Rev. Proc. 2014 –16, 2014 –9
I.R.B. 606, applies to a taxpayer that capitalizes costs under § 263A(b)(2) and
§ 1.263A–3(a)(1) to real property acquired through foreclosure, or similar
transaction, where the taxpayer wants to
change its method of accounting to an
otherwise permissible method of accounting under which the acquisition and holding costs for real property acquired
through foreclosure, or similar transaction, are not capitalized under
§ 263A(b)(2) and § 1.263A–3(a)(1). To
qualify for this change in method of accounting, a taxpayer must:
(a) originate, or acquire and hold for
investment, loans that are secured by real
property; and
(b) acquire the real property that secures the loans at a foreclosure sale, by
deed in lieu of foreclosure, or in another
similar transaction.
(2) Inapplicability. This change does
not apply to costs capitalized under
§ 263A(b)(1) and § 1.263A–2(a)(1) by the
taxpayer to the acquired real property as a
result of production activities.
(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer that makes this change for its
first or second taxable year ending after
December 31, 2012.
(4) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
12.09 is “195.”
(5) Contact information. For further information regarding a change under this
section, contact Sue-Jean Kim at (202)
317-7007 (not a toll-free call).
.10 Sales-Based Royalties.
(1) Description of change. This
change, as described in Rev. Proc. 2014 –
33, 2014 –22 I.R.B. 1060, applies to a

Bulletin No. 2016 –21

taxpayer that wants to change its method
of accounting for sales-based royalties (as
described in § 1.263A–1(e)(3)(ii)(U)(2))
that are properly allocable to inventory
property:
(a) From not capitalizing sales-based
royalties to capitalizing these costs and
allocating them entirely to cost of goods
sold under a taxpayer’s method of accounting;
(b) From not capitalizing sales-based
royalties to capitalizing these costs and
allocating them to inventory property under a taxpayer’s method of accounting;
(c) From capitalizing sales-based royalties and allocating these costs to inventory property to allocating them entirely to
cost of goods sold; or
(d) From capitalizing sales-based royalties and allocating these costs entirely to
cost of goods sold to allocating them to
inventory property.
(2) Limitations.
(a) A taxpayer may not make a change
in method of accounting under this section
12.10 if the taxpayer wants to change to
capitalizing sales-based royalties and allocating them to inventory property using an
other reasonable allocation method within
the meaning of § 1.263A–1(f)(4).
(b) A taxpayer making the changes described in section 12.10(1)(a) or
12.10(1)(c) of this revenue procedure that
uses a simplified method to determine the
additional § 263A costs allocable to inventory property on hand at year end must
remove sales-based royalties allocated to
cost of goods sold from the formulas used
to allocate additional § 263A costs to ending inventory in the same manner that the
taxpayer included these amounts in the
formulas.
(c) A taxpayer making a change in
method of accounting under this section
12.10 that uses a simplified method with
an historic absorption ratio election (see
§§ 1.263A–2(b)(4) and 1.263A–3(d)(4))
and currently includes, or is changing its
method to include, sales-based royalties in
any part of its historic absorption ratio
must revise its previous and current historic absorption ratios. To revise its historic absorption ratios, the taxpayer must
apply its proposed method of accounting
during the test period, during all recomputation years, and during all updated test
periods to determine the § 471 costs and

935

additional § 263A costs that were incurred. The revised historic absorption ratios must be used to revalue beginning
inventory and must be accounted for in
the taxpayer’s § 481(a) adjustment. The
taxpayer must use a method described in
§ 1.263A–7(c) to revalue beginning inventory.
(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to this
change for a taxpayer’s first and second
taxable years ending on or after January
13, 2014.
(4) Concurrent automatic changes. A
taxpayer making a change under this section 12.10 and one or more automatic
changes in method of accounting under
§ 263A for the same year of change may
file a single Form 3115 for all changes,
provided the taxpayer enters the designated automatic change numbers for all
changes on the appropriate line on the
Form 3115 and complies with the ordering rules of § 1.263A–7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of accounting under this section 12.10 is “201.”
(6) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).
.11 Treatment of Sales-Based Vendor
Chargebacks under a Simplified Method.
(1) Description of change. This
change, as described in Rev. Proc. 2014 –
33, 2014 –22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of accounting to no longer include cost
adjustments for sales-based vendor
chargebacks described in § 1.471–3(e)(1)
in the formulas used to allocate additional
§ 263A costs to ending inventory under a
simplified method.
(2) Limitations.
(a) A taxpayer making this change that
uses a simplified method to determine the
additional § 263A costs allocable to inventory property on hand at year end must
remove sales-based vendor chargebacks
from the formulas used to allocate addi-

May 23, 2016

tional § 263A costs to ending inventory in
the same manner that the taxpayer included these amounts in the formulas.
(b) A taxpayer making a change in
method of accounting under this section
12.11 that uses a simplified method with
an historic absorption ratio election (see
§§ 1.263A–2(b)(4) and 1.263A–3(d)(4))
and currently includes sales-based vendor
chargebacks in any part of its historic absorption ratio must revise its previous and
current historic absorption ratio(s). To revise its historic absorption ratios, the taxpayer must apply its proposed method of
accounting during the test period, during
all recomputation years, and during all
updated test periods to determine the
§ 471 costs and additional § 263A costs
that were incurred. The revised historic
absorption ratios must be used to revalue
beginning inventory and must be accounted for in the taxpayer’s § 481(a)
adjustment. The taxpayer must use a
method described in § 1.263A–7(c) to revalue beginning inventory.
(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to this
change for a taxpayer’s first and second
taxable years ending on or after January
13, 2014.
(4) Concurrent automatic changes. A
taxpayer making both this change and one
or more automatic changes under § 263A,
or both this change and the change described in section 21.15 of this revenue
procedure for the same taxable year of
change may file a single Form 3115 for
both changes, provided the taxpayer enters the designated automatic change
numbers for all changes on the appropriate line on the Form 3115 and complies
with the ordering rules of § 1.263A–
7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015–13 for information on making
concurrent changes.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of accounting under this section 12.11 is “202”.
(6) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).

May 23, 2016

.12 U.S. ratio method.
(1) Change to the U.S. ratio method.
(a) Description of change. This change
applies to a foreign person, as defined in
Notice 88 –104, 1988 –2 C.B. 443, as
modified by Notice 89 – 67, 1989 –1 C.B.
723, that is required to capitalize costs
under § 263A and wants to change its
method of accounting to the U.S. ratio
method, as described in Notice 88 –104.
(b) Manner of making change. A taxpayer requesting a change on behalf of a
foreign person under section 12.12(1) of
this revenue procedure must attach a statement to the Form 3115 providing the following information:
(i) Foreign person requirement. A representation that the foreign person is a
qualified business unit (QBU), as defined
in § 1.989(a)–1(b), of a foreign person, or
the foreign branch of a U.S. person that
constitutes a separate QBU, within the
meaning of Notice 88 –104. If the taxpayer is requesting a change in method of
accounting on behalf of multiple foreign
persons, please provide a representation
that each foreign person is a QBU, as
defined in § 1.989(a)–1(b), of a foreign
person or the foreign branch of a U.S.
person that constitutes a separate QBU,
within the meaning of Notice 88 –104;
(ii) Description of trade or business.
The name and employer identification
number (if applicable) for each foreign
person and an explanation of each trade or
business, as defined in § 1.446 –1(d), for
which a request to change to the U.S. ratio
method is being made under this section
12.12(1);
(iii) Applicable U.S. trade or business
requirement. The identity of the “applicable U.S. trade or business,” as defined in
Notice 88 –104, that the foreign person
wishes to use and an explanation of how
this U.S. trade or business is “the same as,
or most similar to” the trade or business
conducted by the foreign person. If the
taxpayer is requesting a change in method
of accounting for multiple foreign persons, the taxpayer must identify the “applicable U.S. trade or business” for each
foreign person, and explain how the respective U.S. trade or business is “the
same as, or most similar to” the trade or
business conducted by the foreign person;
and

936

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

Bulletin No. 2016 –21

(iv) The U.S. ratio is determined, and
the ratio is applied to the costs of property
produced or property acquired for resale
incurred by the foreign person, in accordance with Notice 88 –104; and
(v) If any foreign person is unable to
obtain a U.S. ratio from the applicable
U.S. trade or business identified in section
12.12(2)(b)(iii) of this revenue procedure,
or is otherwise no longer eligible to use
the U.S. ratio method, the foreign person
is no longer permitted to use the U.S. ratio
method. However, the foreign person is
not ineligible to use the U.S. ratio method
if the foreign person is able to obtain a
U.S. ratio from a different applicable U.S.
trade or business, and changes the applicable U.S. trade or business pursuant to
section 12.12(2) of this revenue procedure
or under the non-automatic change procedures of this revenue procedure, as applicable. If a foreign person is no longer
eligible to use the U.S. ratio method, it is
required to change its method of accounting to a method that complies with
§§ 263A and 471 using either the automatic change procedures of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, and sections
12.01, 12.02, or 12.08, as applicable, of
this revenue procedure or the nonautomatic change procedures of Rev.
Proc. 2015–13.
(2) Change within U.S. ratio method.
This change applies to a foreign person
currently using the U.S. ratio method that
wants to use the U.S. ratio of a different
applicable U.S. trade or business for purposes of applying the U.S. ratio method as
described in section 12.12(2)(a) or
12.12(2)(b) of this revenue procedure.
(a) Required change in the applicable
U.S. trade or business.
(i) In general. A foreign person is permitted to change its method of accounting
under this section 12.12(2)(a) to use the
U.S. ratio of a different applicable U.S.
trade or business, as defined in Notice
88 –104, if the foreign person is no longer
able to obtain the U.S. ratio from the
applicable U.S. trade or business previously identified and if: (A) the U.S. person
or related person in which the applicable
U.S. trade or business is conducted terminates its existence; (B) the foreign person
is no longer related, within the meaning of
§ 267(b) or § 707(b), to the U.S. person or
related person in which the applicable

Bulletin No. 2016 –21

U.S. trade or business is conducted; or (C)
the U.S. person or related person ceases to
conduct the applicable U.S. trade or business.
(ii) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13 does not
apply to the change described in section
12.12(2)(a) of this revenue procedure.
(iii) Manner of making change. A foreign person making a change in method of
accounting under this section 12.12(2)(a)
must make the change in accordance with
the requirement set forth in section
12.12(2)(c) of this revenue procedure.
(b) Other changes in the applicable
U.S. trade or business.
(i) In general. If the foreign person
cannot make the change in method of accounting described in section 12.12(2)(a)
of this revenue procedure, or there is more
than one U.S. trade or business that can
reasonably be considered the “same as, or
most similar to” the foreign person’s trade
or business, the foreign person is permitted to change its method of accounting
under this section 12.12(2)(b) to use the
U.S. ratio of a different applicable U.S.
trade or business.
(ii) Manner of making change. A foreign person making a change in method of
accounting under this section 12.12(2)(b)
must make the change in accordance with
the requirement set forth in section
12.12(2)(c) of this revenue procedure.
(c) Short Form 3115 in lieu of a Form
3115. In accordance with § 1.446 –
1(e)(3)(ii), the requirement of § 1.446 –
1(e)(3)(i) to file a Form 3115 is waived
and pursuant to section 6.02(2) of Rev.
Proc. 2015–13, a short Form 3115 is authorized for a change described in section
12.12(2)(a) or 12.12(2)(b) of this revenue
procedure. The short Form 3115 (Rev.
December 2015) must include the following information:
(i) the identification section of page 1
(above Part I);
(ii) the signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) the information required under
section 12.12(1)(b) of this revenue procedure; and
(v) a statement that the change in
method of accounting is made under sec-

937

tion 12.12(2)(a) or 12.12(2)(b) of Rev.
Proc. 2016 –29, as applicable.
(3) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
12.12 is “214.”
(4) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).
.13 Depletion.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for depletion to
treat these amounts as an indirect cost that
is only properly allocable to property that
has been sold (that is, for purposes of
determining gain or loss on the sale of the
property) under § 1.263A–1(e)(3)(ii)(J).
(2) Limitation.
(a) A taxpayer making this change in
method of accounting that uses a simplified method to determine the additional
§ 263A costs allocable to inventory property on hand at year end must remove
depletion allocated to cost of goods sold
from the formulas used to allocate additional § 263A costs to ending inventory in
the same manner that the taxpayer included these amounts in the formulas.
(b) A taxpayer making this change in
method of accounting that uses a simplified method with an historic absorption
ratio election (see §§ 1.263A–2(b)(4) and
1.263A–3(d)(4)) and currently includes
depletion in any part of its historic absorption ratio must revise its previous and
current historic absorption ratios. To revise its historic absorption ratios, the taxpayer must apply its proposed method of
accounting during the test period, during
all recomputation years, and during all
updated test periods to determine the
§ 471 costs and additional § 263A costs
that were incurred. The revised historic
absorption ratios must be used to revalue
beginning inventory and must be accounted for in the taxpayer’s § 481(a)
adjustment. The taxpayer must use a
method described in § 1.263A–7(c) to revalue beginning inventory
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.

May 23, 2016

(4) Concurrent automatic changes. A
taxpayer making both this change and another automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
change numbers for both changes on the
appropriate line on that Form 3115 and
complies with the ordering rules of
§ 1.263A–7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015–13 for information on
making concurrent changes.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under this section 12.13 is
“215.”
(6) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).

file a single Form 3115 for all changes,
provided the taxpayer enters the designated automatic change numbers for all
changes on the appropriate line on the
Form 3115 and complies with the ordering rules of § 1.263A–7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of accounting under this section 12.14 is
“224.”
(5) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 3177007 (not a toll-free call).
SECTION 13. LOSSES, EXPENSES,
AND INTEREST WITH RESPECT TO
TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)

.14 Interest capitalization.
.01 Change to comply with § 267.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for interest from
either not capitalizing any interest or capitalizing interest in accordance with its
book method of accounting, with respect
to the production of designated property,
to capitalizing interest with respect to the
production of designated property in accordance with §§ 1.263A– 8 through 14.
(2) Manner of making change. A taxpayer requesting a change under this section 12.14 must attach a statement to the
Form 3115 with the following information:
(a) Whether the taxpayer elects to not
trace debt under § 1.263A–9(d);
(b) The computation period(s) and
measurement dates used under the new
method;
(c) A representation that the taxpayer’s
method is in accordance with the avoided
cost method under § 1.263A–9; and
(d) A representation that the taxpayer
will comply with § 1.263A–14 and Notice
88 – 89, 1988 –2 C.B. 422, should the taxpayer incur average excess expenditures
allocable to related persons.
(3) Concurrent automatic changes. A
taxpayer making a change under this section 12.14 and one or more automatic
changes in method of accounting under
§ 263A for the same year of change may

May 23, 2016

(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of § 267,
which disallows or defers certain deductions attributable to transactions between
related taxpayers. However, this change
does not apply to a change for original
issue discount (OID), including stated interest that is OID because it is not qualified stated interest (as defined in
§ 1.1273–1(c)). See section 5.02 of this
revenue procedure for a change to comply
with § 163(e)(3) for OID on an obligation
held by a related foreign person.
(2) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(e) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change to comply with § 267(a)(3).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
13.01 is “26.”
(4) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 317–
7007 (not a toll-free call). For further information regarding a change to comply
with § 267(a)(3), contact Joseph Vetting
at (202) 317-4960 (not a toll-free call).

938

SECTION 14. DEFERRED
COMPENSATION (§ 404)
.01 Deferred compensation.
(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that wants to
change its method of accounting to treat
bonuses or vacation pay as follows (see
§ 404(a)(5) and § 1.404(b)–1T, Q&A 2):
(a) Applicability.
(i) Bonuses.
(A) Bonuses not subject to capitalization under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
a bonus and the amount of the liability can
be determined with reasonable accuracy
(see § 1.446 –1(c)(1)(ii)), and the bonus is
otherwise deductible, but the bonus is received by the employee after the 15th day
of the 3rd calendar month after the end of
that taxable year, to treat the bonus as
deductible in the taxable year of the employer in which or with which ends the
taxable year of the employee in which the
bonus is includible in the gross income of
the employee; or
(B) Bonuses that are subject to capitalization under § 263A. If by the end of
the taxable year all the events have occurred that establish the fact of the liability to pay a bonus and the amount of the
liability can be determined with reasonable accuracy (see § 1.446 –1(c)(1)(ii)),
and the bonus is otherwise deductible
(without regard to § 263A), but the bonus
is received by the employee after the 15th
day of the 3rd calendar month after the end
of that taxable year, to treat the bonus as
capitalizable (within the meaning of
§ 1.263A–1(c)(3)) in the taxable year of
the employer in which or with which ends
the taxable year of the employee in which
the bonus is includible in the gross income
of the employee.
(ii) Vacation pay.
(A) Vacation pay not subject to capitalization under § 263A. If by the end of
the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of
the liability can be determined with reasonable accuracy (see § 1.446 –
1(c)(1)(ii)), and the vacation pay is otherwise deductible but the vacation pay is
received by the employee after the 15th

Bulletin No. 2016 –21

day of the 3rd calendar month after the end
of that taxable year, to treat the vacation
pay as deductible in the taxable year of the
employer in which the vacation pay is
paid to the employee; or
(B) Vacation pay that is subject to capitalization under § 263A. If by the end of
the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of
the liability can be determined with reasonable accuracy (see § 1.446 –
1(c)(1)(ii)), and the vacation pay is otherwise deductible (without regard to
§ 263A), but the vacation pay is received
by the employee after the 15th day of the
3rd calendar month after the end of that
taxable year, to treat the vacation pay as
capitalizable (within the meaning of
§ 1.263A–1(c)(3)) in the taxable year of
the employer in which the vacation pay is
paid to the employee.
(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
14.01 if the taxpayer is not capitalizing
these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.01 is “28.”
(3) Contact information. For further information regarding a change under this
section, contact Maryellen Furr at (202)
317-5600 (not a toll-free call).
.02 Grace period contributions.
(1) Description of change. This change
applies to a taxpayer that wants to cease
deducting contributions made during the
§ 404(a)(6) grace period to a qualified
cash or deferred arrangement within the
meaning of § 401(k) or to a defined contribution plan as matching contributions
with the meaning of § 401(m) when the
contributions are attributable to compensation earned by plan participants after the
end of a taxable year as required by Rev.

Bulletin No. 2016 –21

Rul. 2002– 46, 2002–2 C.B. 117, as modified by Rev. Rul. 2002–73, 2002–2 C.B.
805.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.02 is “29.”
(3) Contact information. For further information regarding a change under this
section, contact David Ziegler at (202)
317-8629 or Carlton Watkins at (202)
317-8631 (not toll-free calls).
SECTION 15. METHODS OF
ACCOUNTING (§ 446)
.01 Change in overall method from the
cash method to an accrual method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to change its
overall method of accounting from the
cash receipts and disbursements method
(cash method) (as defined in section
15.01(2)(a) of this revenue procedure) to
an accrual method (as defined in section
15.01(2)(b) of this revenue procedure). A
change under this section 15.01 applies to
(1) a taxpayer required to make this
change by § 448, any other section of the
Code or regulations, or in other guidance
published in the Internal Revenue Bulletin
(IRB), as well as (2) a taxpayer that wants
to make this change but is not required to
do so by § 448, any other section of the
Code or regulations, or in other guidance
published in the IRB. A taxpayer changing to an overall accrual method because
it is prohibited from using the overall cash
method under § 448 may use this section
15.01 regardless of whether the year of
change is the first taxable year that the
taxpayer is required by § 448 to change
from the cash method (“the first § 448
year”), or is a taxable year other than the
taxpayer’s first § 448 year.
Additionally, a taxpayer qualifies to
change its overall method of accounting
from the cash method to an accrual
method using this section 15.01 even if
the taxpayer is also making one or more of
the following changes in method of accounting for the same year of change:
(i) adopting the recurring item exception (as defined in section 15.01(2)(c) of
this revenue procedure) for one or more

939

types of recurring items (see § 1.461–
5(d));
(ii) adopting or changing to a permissible inventory method of accounting and
is either adopting this inventory method or
qualifies to change to this inventory
method using the automatic change procedures of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, and a section of this revenue
procedure, or the change can be made
automatically under any section of the
Code or regulations, or other guidance
published in the IRB (see Rev. Rul. 90 –
38, 1990 –1 C.B. 57 (regarding when a
taxpayer may adopt a method of accounting));
(iii) adopting or changing to a permissible § 263A method of accounting and is
either adopting this § 263A method or
qualifies to change to this § 263A method
using the automatic change procedures of
Rev. Proc. 2015–13 and a section of this
revenue procedure, or the change can be
made automatically under any section of
the Code or regulations, or other guidance
published in the IRB (see Rev. Rul. 90 –38
(regarding when a taxpayer may adopt a
method of accounting)); or
(iv) adopting or changing to any other
special method of accounting (as defined
in section 15.01(2)(d) of this revenue procedure) and is either adopting this special
method or qualifies to change to this special method using the automatic change
procedures of Rev. Proc. 2015–13 and a
section of this revenue procedure, or the
change can be made automatically under
any section of the Code or regulations, or
other guidance published in the IRB (see
Rev. Rul. 90 –38 (regarding when a taxpayer may adopt a method of accounting));
Also, a taxpayer qualifies to use this
section 15.01 when that taxpayer, in the
taxable year immediately preceding the
year of change, has used a permissible
inventory method for that year, and, if that
taxpayer was subject to § 263A for that
year, has also used a permissible § 263A
method for that year, and the method(s)
continue to be used for the year of change.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that is making a change
from a hybrid method of accounting (as
defined in section 15.01(2)(e) of this revenue procedure);

May 23, 2016

(ii) a taxpayer that is changing its
method of accounting for one or more
items of income or expense, but not its
overall method of accounting. See section
15.09 of this revenue procedure for a description of accounting method changes
from the cash method to an accrual
method for specific items that are to be
made using the automatic change procedures of Rev. Proc. 2015–13 and that section 15.09;
(iii) a taxpayer that is required by the
Code, regulations, or other guidance published in the IRB to use a special method
(for example, an inventory method, a
§ 263A method, or a long-term contract
method) in the year of change and fails to
adopt or change to that method;
(iv) a taxpayer that has included in its
§ 481(a) adjustment any amount of deferred compensation that is described under § 457A(d)(3) that is attributable to
services performed before January 1,
2009;
(v) a taxpayer that is engaged in two or
more trades or businesses, unless that taxpayer makes this change for each trade or
business so that the identical accrual
method is used for each trade or business
beginning with the year of change;
(vi) a taxpayer that is required by § 447
to change to an accrual method when the
year of change is the first taxable year that
taxpayer is required by § 447 to change to
that method;
(vii) a cooperative organization described in §§ 501(c)(12), 521, or 1381; or
(viii) an individual taxpayer, except for
activities conducted as a sole proprietorship.
(2) Definitions.
(a) Cash method of accounting is the
method identified by § 446(c)(1) and
§§ 1.446 –1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1). For purposes of this section 15.01, the cash method also includes
the overall cash method with inventoriable items treated as either inventory or as
non-incidental materials and supplies under § 1.162–3 as permitted by Rev. Proc.
2001–10, 2001–1 C.B. 272, as modified
by Rev. Proc. 2011–14, 2011– 4 I.R.B.
330, or Rev. Proc. 2002–28, 2002–1 C.B.
815, as modified by Rev. Proc. 2011–14.
(b) Accrual method of accounting is a
method identified by § 446(c)(2) and

May 23, 2016

§§ 1.446 –1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(c) Recurring item exception is the
method described in § 461(h)(3) and
§ 1.461–5.
(d) Special method of accounting
within the meaning of this section 15.01 is
a method of accounting, other than the
cash method, expressly permitted or required by the Code, regulations, or in
other guidance published in the IRB that
deviates from the tax accrual accounting
rules of §§ 446, 451 and 461 and the
regulations thereunder. For example, the
installment method of accounting under
§ 453, the mark-to-market method under
§ 475, a long-term contract method such
as the percentage of completion method
under § 460, and the deferral method of
Rev. Proc. 2004 –34, 2004 –1 C.B. 991, as
clarified and modified by Rev. Proc.
2011–18, 2011–5 I.R.B. 443, and Rev.
Proc. 2013–29, 2013–33 I.R.B. 141, and
as modified by Rev. Proc. 2011–14, are
special methods of accounting. In contrast, application of the all-events test under a specific set of facts is not a special
method of accounting. See, for example,
Rev. Rul. 69 –314, 1969 –1 C.B. 139 (concerning the treatment of retainages).
(e) 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. For purposes of this section
15.01, a hybrid method of accounting includes, for example, a taxpayer that uses
an accrual method with respect to purchases and sales of inventories and uses
the cash method in computing all other
items of income and expense.
(3) Manner of making change.
(a) Section 481(a) adjustment. A taxpayer changing its method of accounting
under this section 15.01 must compute a
§ 481(a) adjustment. This adjustment
must reflect the account receivables, account payables, inventory, and any other
item determined to be necessary in order
to prevent items from being duplicated or
omitted. However, the adjustment does
not include any item of income accrued
but not received that was worthless or
partially worthless (within the meaning of

940

§ 166(a)) on the last day of the year immediately prior to the year of change.
(b) Prior change eligibility rule inapplicable. Any prior change to the overall
cash method that the taxpayer implemented using the provisions of Rev. Proc.
2001–10, as modified by Rev. Proc. 2011–
14, or Rev. Proc. 2002–28, as modified by
Rev. Proc. 2011–14, is disregarded for
purposes of section 5.01(1)(e) of Rev.
Proc. 2015–13.
(c) Adoption of recurring item exception. The taxpayer must attach to its Form
3115 a statement describing the types of
liabilities for which the recurring item exception will be used.
(d) Concurrent automatic change to a
special method.
(i) Generally only one Form 3115 required. Except as provided in section
15.01(3)(d)(ii) of this revenue procedure,
a taxpayer that is changing from the overall cash method to an overall accrual
method under this section 15.01 and
changing to a special method, as permitted
under section 15.01(1)(a)(ii), (iii), or (iv),
must timely file a single Form 3115 for
both changes and must enter the designated automatic accounting method
change numbers for both changes on the
appropriate line of that Form 3115. For
example, a taxpayer making both a change
from the overall cash method to an overall
accrual method under this section 15.01
and an automatic change to the deferral
method for advance payments under Rev.
Proc. 2004 –34 (see section 16.07 of this
revenue procedure) must timely file a single Form 3115 for both changes and enter
the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(ii) Two Forms 3115 required when a
concurrent change is being implemented
under section 31.01 of this revenue procedure for short-term obligations. When a
taxpayer subject to § 1281 is changing its
method of accounting for interest income
on short-term obligations as part of the
change to an overall accrual method under
this section 15.01, that taxpayer must request the change for the interest income
under section 31.01 of this revenue procedure. The taxpayer must timely file in-

Bulletin No. 2016 –21

dividual Forms 3115 for each change requested. This section 15.01 will govern
the change to an overall accrual method.
(e) Concurrent change in accounting
method not permitted to be implemented
using the automatic change procedures of
Rev. Proc. 2015–13 and a section of this
revenue procedure, any section of the
Code or regulations, or other guidance
published in the IRB. A taxpayer that does
not qualify to change from the overall
cash method to an overall accrual method
under this section 15.01 because that taxpayer is concurrently changing to a
method of accounting that may not be
implemented using the automatic change
procedures of Rev. Proc. 2015–13 and a
section of this revenue procedure, any section of the Code or regulations, or other
guidance published in the IRB, must
timely request both changes using the
non-automatic change procedures in Rev.
Proc. 2015–13. See Rev. Proc. 2016 –1,
2016 –1 I.R.B. 1 (or successor), for more
information on whether one Form 3115 is
required to implement the changes, and
for information on the appropriate user
fee.
(4) Change made in the first § 448
year.
(a) In general. If the year of change is
the first § 448 year for a taxpayer and that
taxpayer qualifies to make the change
from the cash method under the provisions of §§ 1.448 –1(g) and (h) as well as
this section 15.01, that taxpayer may
choose to make the change using this section 15.01. However, that taxpayer must
still comply with the requirements and
provisions of §§ 1.448 –1(g) and (h) in
addition to the requirements and provisions of this section 15.01. For example, if
the taxpayer is a hospital, defined in
§ 1.448 –1(g)(2)(ii)(B), and that taxpayer
chooses to make its change from the cash
method for the first § 448 year using this
section 15.01, the applicable § 481(a) adjustment period is provided by § 1.448 –
1(g)(2)(ii). If a taxpayer chooses not to
implement its change from the cash
method using this section 15.01, that taxpayer must make the change under the
provisions of §§ 1.448 –1(g) and (h).
(b) Prior change eligibility rule inapplicable. For a taxpayer making a change
from the cash method in the first § 448
year, any prior change to the overall cash

Bulletin No. 2016 –21

method is disregarded for purposes of section 5.01(1)(e) of Rev. Proc. 2015–13.
(5) Designated automatic accounting
method change number.
(a) Change made in the first § 448
year. The designated automatic accounting method change number for a change
from the cash method in the first § 448
year is “123.” Entering designated automatic accounting method change number
“123” on the appropriate line on the Form
3115 fulfills the requirement of § 1.448 –
1(h)(2)(i) to type or print “Automatic
Change to Accrual Method – Section 448”
at the top of page 1 of the Form 3115.
(b) All other changes from the cash
method to an overall accrual method. The
designated automatic accounting method
change number for all other changes from
the cash method under this section 15.01
is “122.”
(6) Contact information. For further information regarding a change under this
section, contact Cheryl Oseekey, at (202)
317-7007 (not a toll-free call).
.02 Multi-year insurance policies for
multi-year service warranty contracts.
(1) Description of change.
(a) Applicability. This change applies
to a manufacturer, wholesaler, or retailer
of motor vehicles or other durable consumer goods that wants to change its
method of accounting for insurance costs
paid or incurred to insure its risks under
multi-year service warranty contracts to
the method described in section 15.02(2)
of this revenue procedure. Multi-year service warranty contracts to which this
change applies include only those separately priced contracts sold by a manufacturer, wholesaler, or retailer also selling
the motor vehicles or other durable consumer goods underlying the contracts (to
the ultimate customer or to an intermediary). The classification of goods as “durable consumer goods” for purposes of this
change depends on the common usage of
the goods, rather than the purchaser’s actual intended use of the goods.
(b) Inapplicability. This change does
not apply to a taxpayer that covers its risks
under its multi-year service warranty contracts through arrangements not constituting insurance.
(2) Description of method. If a taxpayer purchases a multi-year service war-

941

ranty insurance policy (in connection with
its sale of multi-year service warranty
contracts to customers) by paying a lumpsum premium in advance, the taxpayer
must capitalize the amount paid or incurred and may only obtain deductions for
that amount by prorating (or amortizing) it
over the life of the insurance policy
(whether the cash method or an accrual
method of accounting is used to account
for service warranty transactions).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.02 is “31.”
(4) Contact information. For further information regarding a change under this
section, contact Timothy Azarchs, at
(202) 317-5100 (not a toll-free call).
.03 Taxpayers changing to overall cash
method.
(1) Description of change. This change
applies to either:
(a) a “qualifying taxpayer” that qualifies to make the change to the overall cash
receipts and disbursements (cash) method
under Rev. Proc. 2001–10, 2001–1 C.B.
272, (other than a taxpayer described in
§ 448(a)(3) or a bank described in section
14.12(2)(a) of this revenue procedure)
with “average annual gross receipts” (as
defined in section 5.01 of Rev. Proc.
2001–10) of $1,000,000 or less that wants
to change to the overall cash method of
accounting as provided in Rev. Proc.
2001–10, as modified by Announcement
2004 –16, 2004 –1 C.B. 668 (regarding
placement of § 481(a) adjustment on the
Form 3115), and Rev. Proc. 2011–14,
2011– 4 I.R.B. 330 (removing § 6.02(1)(a)
of Rev. Proc. 2001–10); or
(b) a “qualifying small business taxpayer” that qualifies to make a change to
the overall cash receipts and disbursements (cash) method under Rev. Proc.
2002–28, 2002–1 C.B. 815, (other than a
taxpayer prohibited from using the cash
method under § 448 or a bank described in
section 15.12(2)(a) of this revenue procedure) with “average annual gross receipts”
(as defined in section 5.02 of Rev. Proc.
2002–28) of $10,000,000 or less that
wants to change the overall method of
accounting for an “eligible trade or business” (as defined in section 4.01 of Rev.

May 23, 2016

Proc. 2002–28) to the overall cash method
of accounting as provided in Rev. Proc.
2002–28, as modified by Announcement
2004 –16 (regarding placement of
§ 481(a) adjustment on the Form 3115),
and Rev. Proc. 2011–14 (removing
§ 7.02(1)(a) of Rev. Proc. 2002–28).
(2) Manner of making change. See either Rev. Proc. 2001–10 or Rev. Proc.
2002–28 for additional guidance on the
computation of the § 481(a) adjustment
and the completion of the Form 3115.
(3) Concurrent automatic change to
treat inventoriable items as nonincidental
materials and supplies under Rev. Proc.
2001–10 or Rev. Proc. 2002–28. A taxpayer making both a change to the overall
cash method under this section 15.03 and
a change to treat inventoriable items as
materials and supplies that are not incidental pursuant to § 1.162–3 under section
22.03 of this revenue procedure for the
same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
for information on making concurrent
changes.
(4) Banks changing to overall cash/
hybrid method. This change does not apply to a bank described in section
15.12(2)(a) of this revenue procedure.
However, such a bank may be eligible to
change to the overall cash/hybrid method
under section 15.12 of this revenue procedure if it meets the requirements of that
section.
(5) Farming businesses changing to
overall cash method. A farming business
may be eligible to make this change under
section 15.03(1)(a) of this revenue procedure. However, a farming business is not
eligible to make this change under section
15.03(1)(b) of this revenue procedure. A
farming business that is not eligible under
this section 15.03 may still be eligible to
change to the overall cash method under
section 15.13 of this revenue procedure if
it meets the requirements of that section.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
15.03(1)(a) of this revenue procedure is

May 23, 2016

“32.” The designated automatic accounting method change number for a change
under section 15.03(1)(b) of this revenue
procedure is “33.”
(7) Contact information. For further information regarding a change under this
section, contact Megan Kirmil at (202)
317-7007 (not a toll-free call).
.04 Nonaccrual-experience method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that wants to make one or
more of the changes in method of accounting to, from, or within a nonaccrualexperience (NAE) method of accounting
that are described in sections 3.01(1)
through (5) of Rev. Proc. 2006 –56,
2006 –2 C.B. 1169, as modified by Rev.
Proc. 2011–14, 2011– 4 I.R.B. 330, and as
modified and amplified by Rev. Proc.
2011– 46, 2011– 42 I.R.B. 518.
(b) Inapplicability. This change does
not apply to a taxpayer within the scope of
section 3.01(6) through 3.01(8) of Rev.
Proc. 2006 –56, as modified and amplified
by Rev. Proc. 2011– 46.
(2) Manner of making the change.
(a) Changes made with a § 481(a) adjustment. A change in method of accounting described in section 3.01(1), (2), (3),
or (5) of Rev. Proc. 2006 –56, as modified
and amplified by Rev. Proc. 2011– 46, is
made with a § 481(a) adjustment.
(b) Changes made on a cut-off basis.
(i) In general. A change described in
section 3.01(4) of Rev. Proc. 2006 –56 is
made on a cut-off basis and the new applicable period applies only to the taxpayer’s NAE calculation of its uncollectible
amount for the year of change and for
subsequent years. Moreover, a change described in sections 5.02 and 5.03 of Rev.
Proc. 2011– 46 is made on a cut-off basis
and the proposed method applies only to
accounts receivable earned on or after the
first day of the year of change. Accordingly, a § 481(a) adjustment is neither
permitted nor required for a change described in section 3.01(4) of Rev. Proc.
2006 –56 or in section 5.02 or 5.03 of Rev.
Proc. 2011– 46.
(ii) Special filing rules for changes
made under section 5.02 and 5.03 of Rev.
Proc. 2011– 46, as modified by this revenue procedure.

942

(A) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to a change in
method of accounting made under section
5.02 or 5.03 of Rev. Proc. 2011– 46, as
modified by this revenue procedure.
(B) Filing rules. In accordance with
§ 1.446 –1(e)(3)(ii), the requirement of
§ 1.446 –1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Notwithstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015–13, the
statement in lieu of a Form 3115 that is
permitted under section 5.02 or 5.03 of
Rev. Proc. 2011– 46 and this section 15.04
is considered a Form 3115 for purposes of
the automatic consent procedures of Rev.
Proc. 2015–13. However, the requirement
to file the Duplicate copy, under section
6.03(1)(a) of Rev. Proc. 2015–13, is
waived. See section 5.02 or 5.03 of Rev.
Proc. 2011– 46, as applicable, for what
information is required to be provided on
the statement.
(3) Concurrent change to overall accrual method and a NAE method of accounting. A taxpayer making both an automatic change to, from, or within a NAE
method of accounting under this section
15.04 and an automatic change to an overall accrual method under section 15.01 of
this revenue procedure (whether or not it
is the taxpayer’s first § 448 year), must file
a single Form 3115 for both changes. The
taxpayer must complete all applicable sections of Form 3115, including sections
that apply to the change to an overall
accrual method and to the change to a
NAE method, and must enter the automatic accounting method change numbers
for both changes on Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015–13 for
information on making concurrent
changes.
A taxpayer making both an automatic
change to, from, or within a NAE method
of accounting under this section 15.04 and
a required change to an overall accrual
method under § 448 (the taxpayer’s first
§ 448 year), and is either not eligible to
make the change to an overall accrual
method under section 15.01 of this revenue procedure or chooses to make the
change to an overall accrual method using
the procedures of § 1.448 –1(h)(2), must

Bulletin No. 2016 –21

make both changes (change to, from, or
within a NAE method and change to an
overall accrual method) on a single Form
3115. The taxpayer must follow the automatic change procedures of Rev. Proc.
2015–13 and this section 15.04 for the
NAE change, and the procedures of
§ 1.448 –1(h)(2) for the change to an overall accrual method (except that entering
the designated automatic accounting
method change number “34” on the Form
3115 fulfills the requirement of § 1.448 –
1(h)(2) to type or print “Automatic
Change to Accrual – Section 448” at the
top of page 1 of the Form 3115). The
taxpayer must complete all applicable sections of Form 3115, including sections
that apply to the change to an overall
accrual method and to the change to the
NAE method and must enter the designated automatic accounting method
change numbers for both changes on
Form 3115.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to, from, or within a
NAE method of accounting under this
section 15.04 is “35.”
(5) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).
.05 Interest accruals on short-term
consumer loans—Rule of 78’s method.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting from the Rule of
78’s method to the constant yield method
for stated interest (including stated interest that is original issue discount) on
short-term consumer loans described in
Rev. Proc. 83– 40, 1983–1 C.B. 774,
which was obsoleted by Rev. Proc. 97–37,
1997–2 C.B. 455.
(2) Background.
(a) A short-term consumer loan is described in Rev. Proc. 83– 40, provided:
(i) the loan is a self-amortizing loan
that requires level payments, at regular
intervals at least annually, over a period
not in excess of five years (with no balloon payment at the end of the loan term);
and
(ii) the loan agreement between the
borrower and the lender provides that in-

Bulletin No. 2016 –21

terest is earned, or upon the prepayment of
the loan interest is treated as earned, in
accordance with the Rule of 78’s method.
(b) In general, the Rule of 78’s method
allocates interest over the term of a loan
based, in part, on the sum of the periods’
digits for the term of the loan. See Rev.
Rul. 83– 84, 1983–1 C.B. 97, for a description of the Rule of 78’s method.
(c) In general, the constant yield
method allocates interest and original issue discount over the term of a loan based
on a constant yield. See § 1.1272–1(b) for
a description of the constant yield method.
The Rule of 78’s method generally frontloads interest as compared to the constant
yield method.
(d) Rev. Proc. 83– 40 was obsoleted
because, under §§ 1.446 –2 and 1.1272–1
(which were effective for debt instruments
issued on or after April 4, 1994), taxpayers generally must account for stated interest and original issue discount on a debt
instrument (loan) by using a constant
yield method. As a result, the Rule of 78’s
method is no longer an acceptable method
of accounting for federal income tax purposes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.05 is “71.”
(4) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
.06 Film producer’s treatment of certain
creative property costs.
(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for creative
property costs to the safe harbor method
provided by section 5 of Rev. Proc. 2004 –
36, 2004 –1 C.B. 1063. This safe harbor
method of accounting applies to a taxpayer engaged in the trade of business of
film production and to creative property
costs (as defined in section 2.01 of Rev.
Proc. 2004 –36) properly written off by
the taxpayer under The American Institute
of Certified Public Accountants Statement
of Position (SOP) 00 –2, “Accounting for
Producers or Distributors of Film.”
(2) Designated automatic accounting
method change number. The designated

943

automatic accounting method change
number for a change under this section
15.06 is “85.”
(3) Contact information. For further information regarding a change under this
section, contact Bernard Harvey at (202)
317-7005 (not a toll-free call).
.07 Deduction of incentive payments to
health care providers.
(1) Description of change. This change
applies to a taxpayer that wants to change
to the method of accounting for provider
incentive payments under which those
payments are included in discounted unpaid losses without regard to § 404, as
provided in Rev. Proc. 2004 – 41, 2004 –2
C.B. 90. A payment by a taxpayer to a
health care provider is a “provider incentive payment,” and thus eligible for this
treatment, if (a) the taxpayer is taxable as
an insurance company under Part II of
subchapter L; (b) the payment is made
pursuant to a written agreement the purpose of which is to encourage participating health care providers to provide quality health care to the taxpayer’s
subscribers in a cost-efficient manner; (c)
the taxpayer’s liability for the payment is
dependent on the attainment of one or
more preestablished goals during a performance period consisting of not more than
12 consecutive months; (d) the terms of
the arrangement pursuant to which the
payment is made are established unilaterally by the taxpayer, and are not negotiated with the health care providers; (e) the
taxpayer normally makes payments to
health care providers under the arrangement within 12 months after the close of
the performance period; (f) deferring the
receipt of income by the health care provider or otherwise providing a tax benefit
to the provider is not a principal purpose
of the arrangement; (g) the taxpayer records a liability for the payment on its
annual statement filed for state regulatory
purposes, and includes this liability in the
determination of discounted unpaid losses
under § 846; and (h) the health care provider is not an employee, and is not providing health care as an agent, of the taxpayer. See Rev. Proc. 2004 – 41.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change

May 23, 2016

number for a change under this section
15.07 is “90.”
(2) Contact information. For further information regarding a change under this
section, contact Rebecca L. Baxter, at
(202) 317-6995 (not a toll-free call).
.08 Change by bank for uncollected
interest.
(1) Description of change. This change
applies to a “bank” as defined in § 1.166 –
2(d)(4)(i) that: (a) uses an overall accrual
method of accounting to determine its taxable income for federal income tax purposes; (b) is subject to supervision by
Federal authorities, or by state authorities
maintaining substantially equivalent standards; (c) has uncollected interest other
than interest described in § 1.446 –2(a)(2);
and (d) has six or more years of collection
experience. Under the safe harbor method
of accounting provided by section 4 of
Rev. Proc. 2007–33, 2007–1 C.B. 1289, a
bank determines for each taxable year the
amount of uncollected interest (other than
interest described in § 1.446 –2(a)(2)) for
which it is considered to have a reasonable expectancy of payment by multiplying: (a) the total accrued (determined under § 1.446 –2) but uncollected interest for
the year, by (b) the bank’s “recovery percentage” (determined under section 4.02
of Rev. Proc. 2007–33) for that year.
Solely for purposes of this safe harbor, the
bank is not considered to have a reasonable expectancy of payment for the excess, if any, of the accrued but uncollected
interest over the expected collection
amount determined using the bank’s recovery percentage. The bank includes in
gross income the portion of accrued but
uncollected interest for which it has a reasonable expectancy of payment. The bank
excludes from income the portion of accrued but uncollected interest for which it
has no reasonable expectancy of payment.
(2) Recovery percentage. Subject to the
limitations and conditions in Rev. Proc.
2007–33, sections 4.02(2), (3), and (4), a
bank determines its recovery percentage
for each taxable year by dividing: (a) total
payments that the bank received on loans
(including principal and interest) during
the 5 taxable years immediately preceding
the taxable year, by (b) total amounts that
were due and payable to the bank on loans
during the same 5 taxable years. The re-

May 23, 2016

covery percentage cannot exceed 100 percent and must be calculated to at least four
decimal places. The data used in the recovery percentage must take into account
acquisitions and dispositions. If a bank
acquires the major portion of a trade or
business of another person (predecessor)
or the major portion of a separate unit of a
trade or business of a predecessor, then in
applying Rev. Proc. 2007–33 for any taxable year ending on or after the acquisition, the data from preceding taxable years
of the predecessor attributable to the portion of the trade or business acquired, if
available, must be used in determining the
bank’s recovery percentage. If a bank disposes of a major portion of a trade or
business or the major portion of a separate
unit of a trade or business, and the bank
furnished the acquiring person the information necessary for the computations required by Rev. Proc. 2007–33, then in
applying the revenue procedure for any
taxable year ending on or after the disposition, the data from preceding taxable
years attributable to the disposed portion
of the trade or business may not be used in
determining the bank’s recovery percentage.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.08 is “108.”
(4) Contact information. For further information regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).
.09 Change from the cash method to an
accrual method for specific items.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that uses an overall accrual
method of accounting but has identified a
specific item or items of income or expense (or both) that are being accounted
for on the cash method of accounting.
This change does not apply to a taxpayer
that is changing its overall method of accounting from cash to accrual. Such a
taxpayer may be eligible to change to an
overall accrual method using section
15.01 of this revenue procedure.
(b) Inapplicability. This change does
not apply to:

944

(i) a taxpayer that will not have all
items of income and expense on an accrual method subsequent to the change
under this section 15.09;
(ii) a cooperative organization described in § 501(c)(12), 521, or 1381;
(iii) an individual taxpayer, except for
activities conducted as a sole proprietorship;
(iv) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes this change so that the identical
accrual method is used for each such trade
or business beginning with the year of
change;
(v) a change in method of accounting
for any payment liability described in
§ 1.461– 4(g);
(vi) a change in the method of accounting for interest that is not taken into account under § 1.446 –2;
(vii) a taxpayer that has included in its
§ 481(a) adjustment any amount of deferred compensation that is described under § 457A(d)(3) that is attributable to
services performed before January 1,
2009; and
(viii) any change that is specifically
provided in another section of this revenue procedure.
(2) Definitions.
(a) “Cash method of accounting” is the
method identified by § 446(c)(1) and
§§ 1.446 –1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(b) “Accrual method of accounting” is
the method identified by § 446(c)(2) and
§§ 1.446 –1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(3) Additional requirements. To
change a method of accounting under this
section 15.09, a taxpayer must attach to its
completed Form 3115 a full and complete
description of each specific item for which
the change in method of accounting is
being made and how the accrual method
of accounting applies to each item, and list
the § 481(a) adjustment, if any, for each
item associated with the change. The
change is fully and completely described
if each income and expense item is described with specificity and how the allevents test (and the economic performance requirement, if applicable) applies
to each item is described under the facts
and circumstances of the taxpayer’s trade
or business. For example, a taxpayer that

Bulletin No. 2016 –21

merely states that it is changing its accounting method for advertising expenses
from the cash method to an accrual
method, recites the regulations under
§ 1.461–1(a)(2), and enters the associated
§ 481(a) adjustment has failed to describe
fully and completely the specific item for
which the change in method of accounting
is being made. In contrast, a taxpayer that
states that it is changing its method of
accounting for print advertising expenses
from the cash method of accounting to an
accrual method of accounting, describes
all of the relevant facts related to the print
advertising expenses, and explains how
the all-events test applies to those facts
and when economic performance occurs
has fully and completely described the
item and the change. See section 6.03 of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
for additional filing requirements.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.09 is “124.”
(5) Contact information. For further information regarding a change under this
section, contact Douglas Kim at (202)
317-7003 (not a toll-free call).
.10 Multi-year service warranty
contracts.
(1) Description of change.
(a) Applicability. This change applies
to a manufacturer, wholesaler, or retailer
of motor vehicles or other durable consumer goods that uses an overall accrual
method of accounting, and wants to
change to the service warranty income
method described in section 5 of Rev.
Proc. 97–38, 1997–2 C.B. 479. Under the
service warranty income method, a qualifying taxpayer may, in certain specified
and limited circumstances, include a portion of an advance payment related to the
sale of a multi-year service warranty contract in gross income generally over the
life of the service warranty obligation.
(b) Inapplicability. This change does
not apply to a taxpayer not within the
scope of Rev. Proc. 97–38.
(2) Manner of making change and designated automatic accounting method
change number.
(a) This change is made on a cut-off
basis and applies only to qualified ad-

Bulletin No. 2016 –21

vance payments for multi-year service
warranty contracts on or after the beginning of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b) In accordance with § 1.446 –
1(e)(3)(ii), the requirement of § 1.446 –
1(e)(3)(i) to file a Form 3115 is waived
and pursuant to section 6.02(2) of Rev.
Proc. 2015–13, 2015–5 I.R.B. 419, a short
Form 3115 is authorized for this change.
The short Form must include the following information:
(i) the identification section of page 1
(above Part I);
(ii) the signature section at the bottom
of page 1;
(iii) Part I, line 1(a); and
(iv) the information required under
section 6.03 of Rev. Proc. 97–38, except
that the statement under section 6.03(2)
(that the taxpayer agrees to all of the terms
and conditions of the revenue procedure)
also should refer to Rev. Proc. 2015–13.
(3) Additional requirement. A taxpayer
changing to the service warranty income
method of accounting under this section
15.10 must satisfy the annual reporting
requirement set forth in section 6.04 of
Rev. Proc. 97–38.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.10 is “125.”
(5) Contact information. For further information regarding a change under this
section, contact Timothy Azarchs at (202)
317-5100 (not a toll-free call).
.11 Overall cash method for specified
transportation industry taxpayers.
(1) Description of change. This change
applies to a “specified transportation industry taxpayer” with “average annual
gross receipts” of more than $10,000,000
and not in excess of $50,000,000 that
wants to change to the overall cash receipts and disbursement (cash) method.
(2) Definitions. For purposes of this
section 15.11 the following definitions apply:
(a) Specified transportation industry
taxpayer. A specified transportation industry taxpayer is a taxpayer that satisfies
the following criteria for the year of
change:

945

(i) The taxpayer reasonably identifies
its “business” (as defined in section
15.11(2)(b) below) as being described in
one of the following NAICS subsector
codes (first three digits of the six-digit
NAICS codes):
(A) Air Transportation, Rail Transportation, Water Transportation, Truck
Transportation, Transit and Ground Passenger Transportation, or Scenic and
Sightseeing Transportation, within the
meaning of NAICS subsector codes 481–
485 and 487; or
(B) Support Activities for Transportation within the meaning of NAICS subsector code 488.
(ii) The taxpayer is not prohibited from
using the overall cash method under
§ 448.
(b) Business. A taxpayer may use any
reasonable method of applying the relevant facts and circumstances to determine
its business. A business may consist of
several activities, which may or may not
be related. For example, a taxpayer engaged in transportation activities may provide various services such as transporting
air cargo and then subsequently trucking
the cargo throughout a metropolitan area
to warehouses and wholesale/retail stores.
However, each activity within a taxpayer’s business must individually satisfy the
description of a NAICS subsector code in
section 15.11(2)(a)(i)(A) or (B) of this
revenue procedure. For example, a sightseeing bus operator that sells box lunches
in connection with its tours is not a “specified transportation industry taxpayer” because one of the two activities of its business (food sales) does not satisfy the
description of a NAICS subsector code in
section 15.11(2)(a)(i)(A) or (B) of this
revenue procedure. While the sightseeing
transportation activity satisfies the description of the NAICS subsector code in
section 15.11(2)(a)(i)(A) of this revenue
procedure, the food sales activity does not
satisfy the description of any NAICS subsector code in section 15.11(2)(a)(i)(A) or
(B) of this revenue procedure, and thus,
the taxpayer’s business fails to meet the
criteria of section 15.11(2)(a)(i). Similarly, a train operator who operates a dining car where meals are served is not a
“specified transportation industry taxpayer” because one of the two activities of
its business (food service) does not satisfy

May 23, 2016

the description of a NAICS subsector
code in section 15.11(2)(a)(i)(A) or (B) of
this revenue procedure. While the rail
transportation activity satisfies the description of a NAICS subsector code in
section 15.11(2)(a)(i)(A) of this revenue
procedure, the food service activity does
not satisfy the description of any NAICS
subsector code in section 15.11(2)(a)(i)(A)
or (B) of this revenue procedure, and thus,
the taxpayer’s business fails to meet the
criteria of section 15.11(2)(a)(i).
(c) Average annual gross receipts. A
taxpayer has average annual gross receipts
of more than $10,000,000 and not in excess of $50,000,000 if, for each prior taxable year ending on or after December 31,
2006, the taxpayer’s average annual gross
receipts for the three prior taxable-year
period ending with the applicable prior
taxable year are more than $10,000,000
and do not exceed $50,000,000. If a taxpayer has not been in existence for three
prior taxable years, the taxpayer must determine its average annual gross receipts
for the number of years (including short
taxable years) that the taxpayer has been
in existence. See § 448(c)(3)(A).
(d) Gross receipts. Gross receipts is
defined consistent with § 1.448 –
1T(f)(2)(iv). Thus, gross receipts for a
taxable year equal all receipts that must be
recognized under the method of accounting actually used by the taxpayer for that
taxable year for federal income tax purposes. See also § 448(c)(3)(C).
(e) Aggregation of gross receipts. For
purposes of computing gross receipts under section 15.11(2)(d) of this revenue
procedure, all taxpayers treated as a single
employer under § 52(a) or (b) or § 414(m)
or (o) (or that would be treated as a single
employer under these sections if the taxpayers had employees) will be treated as a
single taxpayer. However, when transactions occur between taxpayers that are
treated as a single taxpayer by the previous sentence, gross receipts arising from
these transactions will not be treated as
gross receipts for purposes of the average
annual gross receipts limitation. See
§ 448(c)(2) and § 1.448 –1T(f)(2)(ii).
(f) Treatment of short taxable year. In
the case of a short taxable year, a taxpayer’s gross receipts must be annualized by
multiplying the gross receipts for the short
taxable year by 12 and then dividing the

May 23, 2016

result by the number of months in the
short taxable year. See § 448(c)(3)(B) and
§ 1.448 –1T(f)(2)(iii).
(g) Treatment of predecessors. Any
reference to a taxpayer in this section
15.11 includes a reference to any predecessor
of
that
taxpayer.
See
§ 448(c)(3)(D).
(h) Cash method. The “cash method” is
the method identified by § 446(c)(1) and
§§ 1.446 –1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.11 is “126.”
(4) Example. Taxpayer X is an LLC
and taxed for federal income tax purposes
as a partnership. Taxpayer X does not
have any C corporations as partners and
Taxpayer X is not a tax shelter within the
meaning of § 448(d)(3). Taxpayer X’s
business consists of short-haul trucking
among various cities within State Y, which
satisfies the description of the NAICS
subsector code 484. Taxpayer X determines that its 3-year average annual gross
receipts for each prior taxable year ending
on or after December 31, 2006, have been
more than $10,000,000 and not in excess
of $50,000,000. Taxpayer X qualifies to
change to the overall cash method using
this section 15.11.
(5) Contact information. For further information regarding a change under this
section, contact Megan Kirmil at (202)
317-7007 (not a toll-free call).
.12 Change to overall cash/hybrid
method for certain banks.
(1) Description of change.
(a) Applicability. This change applies
to a bank described in section 15.12(2)(a)
of this revenue procedure that wants to
change to an overall cash/hybrid method
described in section 15.12(2)(b) of this
revenue procedure.
(b) Inapplicability. A bank’s change to
an overall cash/hybrid method under this
section 15.12 does not include any change
in the accounting treatment of an item for
which the bank uses a special method (as
described in section 15.12(2)(b) of this
revenue procedure) before the change, or
is required to use a special method, or will
use a special method after the change. A

946

bank may not change the accounting treatment of such an item under this section
15.12. Any change in the accounting treatment of such an item must be made under
an applicable section of this revenue procedure, under the non-automatic change
procedures of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, or under another guidance published in the Internal Revenue
Bulletin, as appropriate.
(2) Definitions. The following definitions apply for purposes of this section
15.12.
(a) Bank. A bank is described in this
section 15.12(2)(a) if the bank:
(i) is a bank as defined in § 581;
(ii) is an S corporation as defined in
§ 1361(a)(1), or a qualified subchapter S
subsidiary as defined in § 1361(b)(3)(B);
and
(iii) has average annual gross receipts
(computed as described in section
15.12(5) of this revenue procedure) not in
excess of $50,000,000.
(b) Overall cash/hybrid method. An
overall cash/hybrid method is the use of a
combination of accounting methods under
which some items of income or expense
are reported on the cash receipts and disbursements method (cash method) and
other items of income or expense are reported on methods permitted or required
for the accounting treatment of special
items (special methods).
(i) Cash method. The cash method is
the method identified by § 446(c)(1) and
§§ 1.446 –1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(ii) Special methods. A few of the special methods typically used by banks include those provided for the accounting
treatment of the following items: securities held by a dealer in securities as defined in § 475(c)(1) (the mark-to-market
method of § 475); securities held by a
dealer in securities as defined in § 1.471–5
(inventories maintained under § 471 and
§ 1.446 –1(c)(2)(i)); hedging transactions
(§ 1.446 – 4); contracts to which § 1256
applies (§ 1256); original issue discount
on debt instruments (§§ 163(e) and 1271–
1275); interest income (including acquisition discount and original issue discount)
on short-term obligations (§§ 1281–
1283); and stripped debt instruments
(§ 1286). For example, a bank that regularly purchases or originates mortgages in

Bulletin No. 2016 –21

the ordinary course of its business and
engages in more than negligible sales of
those mortgages generally is a dealer in
securities under § 475(c)(1) and
§ 1.475(c)–1(c) and thus must use the
mark-to-market method of § 475 for mortgages and any other securities (as defined
in § 475(c)(2)) held by the bank.
(3) Additional condition of change. To
change to an overall cash/hybrid method
under this section 15.12, a bank must
comply with the following additional condition. In addition to complying with the
terms and conditions set forth in section 7
of Rev. Proc. 2015–13, the bank must
keep its books and records for the year of
change and for subsequent taxable years
on an overall cash/hybrid method allowed
by this section 15.12. This condition is
considered satisfied if the bank reconciles
the results obtained under the method
used in keeping its books and records and
those obtained under the method used for
federal income tax purposes pursuant to
this section 15.12 and the bank maintains
sufficient records to support such reconciliation. See also § 1.446 –1(a)(4).
(4) Additional filing requirement. To
change to an overall cash/hybrid method
under this section 15.12, a bank must include with its completed Form 3115 a
description of each specific item of the
bank’s income or expense that is affected
by the change under this section 15.12
and, for each such item, identify the following: the method of accounting under
which the bank reports that item for federal income tax purposes immediately before the change; and the amount of the
§ 481(a) adjustment associated with
changing that item to the cash method
under this section 15.12.
(5) Computation of average annual
gross receipts. For purposes of section
15.12(2)(a)(iii) of this revenue procedure,
a bank’s average annual gross receipts are
computed as described in this section
15.12(5).
(a) Average annual gross receipts. A
bank has average annual gross receipts not
in excess of $50,000,000 if, for each prior
taxable year ending on or after December
31, 2006, the bank’s average annual gross
receipts for the three prior taxable-year
period ending with the applicable prior
taxable year do not exceed $50,000,000. If
a bank has not been in existence for three

Bulletin No. 2016 –21

prior taxable years, the bank must determine its average annual gross receipts for
the number of years (including short taxable years) that the bank has been in existence. See § 448(c)(3)(A).
(b) Gross receipts. Gross receipts is
defined consistent with § 1.448 –
1T(f)(2)(iv). Thus, gross receipts for a
taxable year equal all receipts that must be
recognized under the method of accounting actually used by the bank for that
taxable year for federal income tax purposes. See also § 448(c)(3)(C).
(c) Aggregation of gross receipts. For
purposes of computing gross receipts under section 15.12(5)(b) of this revenue
procedure, all taxpayers treated as a single
employer under § 52(a) or (b) or § 414(m)
or (o) (or that would be treated as a single
employer under these sections if the taxpayers had employees) will be treated as a
single taxpayer (that is, a single bank).
However, when transactions occur between taxpayers that are treated as a single
taxpayer by the previous sentence, gross
receipts arising from these transactions
will not be treated as gross receipts for
purposes of the average annual gross receipts limitation. See § 448(c)(2) and
§ 1.448 –1T(f)(2)(ii).
(d) Treatment of short taxable year. In
the case of a short taxable year, a bank’s
gross receipts must be annualized by multiplying the gross receipts for the short
taxable year by 12 and then dividing the
result by the number of months in the
short taxable year. See § 448(c)(3)(B) and
§ 1.448 –1T(f)(2)(iii).
(e) Treatment of predecessors. Any
reference to a bank or taxpayer in section
15.12(5) of this revenue procedure includes a reference to any predecessor of
that bank or taxpayer. See § 448(c)(3)(D).
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.12 is “127.”
(7) Contact information. For further information regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).
.13 Change to overall cash method for
farmers.
(1) Description of change.

947

(a) Applicability. This change applies
to a taxpayer engaged in the trade or business of farming that wants to change to
the overall cash receipts and disbursement
(cash) method. If a taxpayer is engaged in
more than one trade or business, this
change applies only to the taxpayer’s
trade or business of farming.
(b) Inapplicability. This change does
not apply to a taxpayer that is required to
use an accrual method pursuant to § 447
or prohibited from using the cash method
by § 448.
(2) Definitions.
(a) Cash method of accounting is the
method defined by § 446(c)(1) and
§§ 1.446 –1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1). See also §§ 1.61– 4 and
1.162–12 for specific rules relating to
farmers.
(b) The trade or business of farming is
a farming business as defined by
§ 263A(e)(4) and the regulations thereunder.
(3) Manner of making change. Generally, a taxpayer changing its method of
accounting under this section 15.13 must
compute a § 481(a) adjustment. However,
if the taxpayer is changing from the crop
method, that portion of the change is made
using a cut-off basis under which expenses reported on the crop method and
not deducted prior to the year of change
are deducted in the year the related crop is
sold.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.13 is “128.”
(5) Contact information. For further information regarding a change under this
section, contact Maxine Woo-Garcia at
(202) 317-7011 or Christina Glendening
at (202) 317-7003 (not a toll-free call).
.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 regu-

May 23, 2016

lated 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 15.14(1)(a)(i)
of this revenue procedure) that do not
constitute contributions to the capital of
the taxpayer within the meaning of § 118
and the regulations thereunder, from excluding the payments or the fair market
value of the property from gross income
as nontaxable contributions to capital under § 118 to including the payments or the
fair market value of the property in gross
income under § 61.
(2) Additional requirement. A taxpayer
that is making a change described in section 15.14(1)(a)(i) or (1)(b) must complete
Schedule E of Form 3115 for the depreciable property to which the change relates (as well as all other relevant portions
of the Form 3115).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.14 is “129.”
(4) Contact information. For further information regarding a change under this
section, contact David H. McDonnell at
(202) 317-4137 (not a toll-free call).
.15 Debt issuance costs.
(1) Description of change. This change
applies to a taxpayer that wants to change

May 23, 2016

its method of accounting for capitalized
debt issuance costs to comply with
§ 1.446 –5, which provides rules for allocating the costs over the term of the debt.
This change also applies to a taxpayer that
wants to change its method of accounting
for capitalized debt issuance costs from
one permissible method to another permissible method under the last sentence in
§ 1.446 –5(b)(2) if the total original issue
discount determined for purposes of
§ 1.446 –5 is de minimis.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.15 is “148.”
(3) Contact information. For further information regarding a change under this
section, contact Charles W. Culmer at
(202) 317-6945 (not a toll-free number).
SECTION 16. TAXABLE YEAR OF
INCLUSION (§ 451)
.01 Accrual of interest on nonperforming
loans.
(1) Description of change.
(a) This change applies to a taxpayer
using an overall accrual method of accounting that is a bank as defined in § 581
(or whose primary business is making or
managing loans) and wants to change its
method of accounting to comply with
§ 451 and § 1.451–1(a) for qualified stated
interest (as defined in § 1.1273–1(c)) on
nonperforming loans.
(b) Section 1.451–1(a) requires income
to be accrued when all the events have
occurred that fix the right to receive the
income and the amount thereof can be
determined with reasonable accuracy. A
taxpayer may not stop accruing qualified
stated interest on a nonperforming loan
for federal income tax purposes merely
because payments on the loan are overdue
by a certain length of time, such as 90
days, even if a federal, state, or other
regulatory authority having jurisdiction
over the taxpayer permits or requires that
the overdue interest not be accrued for
regulatory purposes.
(c) Under § 451 and § 1.451–1(a), a
taxpayer must continue accruing qualified
stated interest on any nonperforming loan
until either (i) the loan is worthless under
§ 166 and charged off as a bad debt, or (ii)

948

the interest is determined to be uncollectible. In order for interest to be determined
uncollectible, the taxpayer must substantiate, taking into account all the facts and
circumstances, that it has no reasonable
expectation of payment of the interest.
This substantiation requirement is applied
on a loan by loan basis.
(d) A taxpayer that changes its method
of accounting under this section 16.01
must do so for all of its loans.
(2) Section 481(a) adjustment. In general, the § 481(a) adjustment for a method
change under this section 16.01 represents
the amount of qualified stated interest on
the taxpayer’s nonperforming loans outstanding as of the beginning of the year of
change that should have been accrued under § 451 and § 1.451–1(a) and was not
accrued. Interest for which the taxpayer,
as of the beginning of the year of change,
has no reasonable expectation of payment
is not taken into account in determining
the amount of the § 481(a) adjustment.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.01 is “36.”
(4) Contact information. For further information regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).
.02 Advance rentals.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for advance rentals (other than advance rentals subject to
§ 467 and the regulations thereunder) to
include such advance rentals in gross income in the taxable year received. See
§ 1.61– 8(b).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.02 is “37.”
(3) Contact information. For further information regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 (not a toll-free call).

Bulletin No. 2016 –21

.03 State or local income or franchise
tax refunds.
(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that receives a
state or local income or franchise tax refund and wants to accrue the refund in the
taxable year the taxpayer receives payment or notice that the claim has been
approved, whichever is earlier, as provided in Rev. Rul. 2003–3, 2003–1 C.B.
252.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.03 is “38.”
(3) Contact information. For further information regarding a change under this
section, contact Sandra Cheston at (202)
317-7011 (not a toll-free call).
.04 Capital Cost Reduction Payments.
(1) Description of change. This change
applies to a taxpayer that purchases motor
vehicles subject to leases and assumes the
associated leases from the vehicles’ dealers and wants to use the safe harbor
method of accounting for capital cost reduction (CCR) payments specified in Rev.
Proc. 2002–36, 2002–1 C.B. 993.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.04 is “39.”
(3) Contact information. For further information regarding a change under this
section, contact Bill Ruane at (202) 3174718 (not a toll-free call).
.05 Credit card annual fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
annual fees as described in Rev. Rul.
2004 –52, 2004 –1 C.B. 973, either to a
method that satisfies the all events test in
accordance with Rev. Rul. 2004 –52 or to
the Ratable Inclusion Method for Credit
Card Annual Fees that is described in section 4 of Rev. Proc. 2004 –32, 2004 –1
C.B. 988. Rev. Rul. 2004 –52 holds that
credit card annual fees are not interest for
federal income tax purposes and that such

Bulletin No. 2016 –21

fees are includible in income by the card
issuer when the all events test under § 451
is satisfied. Rev. Proc. 2004 –32 provides
additional guidance for taxpayers seeking
to change their methods of accounting for
such fees, including guidance with respect
to the Ratable Inclusion Method for Credit
Card Annual Fees. However, a taxpayer
may make either change under this revenue procedure only if the taxpayer uses an
overall accrual method of accounting for
federal income tax purposes and issues
credit cards to, and receives annual fees
from, cardholders under agreements that
allow each cardholder to use a credit card
to access a revolving line of credit to
make purchases of goods and services
and, if so authorized, to obtain cash advances.
(2) Manner of making change. In completing its Form 3115 to make this change,
a taxpayer must identify the specific
method to which the taxpayer is changing.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.05 to a method that satisfies the all
events test in accordance with Rev. Rul.
2004 –52 is “80.” The designated automatic accounting method change number
for a change under this section 16.05 to
the Ratable Inclusion Method for Credit
Card Annual Fees is “81.”
(4) Contact information. For further information regarding a change under this
section, contact Kate Sleeth at (202) 3177053 (not a toll-free call).
.06 Credit card late fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
late fees to a method that treats these fees
as interest income that creates or increases
the amount of original issue discount
(OID) on the pool of credit card loans to
which the fees relate. This change is available only to a taxpayer that issues credit
cards allowing cardholders to access a revolving line of credit established by the
taxpayer and that, for federal income tax
purposes, does not treat the credit card
purchase transactions of its cardholders as
creating either debt that is given in consideration for the sale or exchange of
property (within the meaning of § 1274)

949

or debt that is deferred payment for property (within the meaning of § 483). See
Rev. Proc. 2004 –33, 2004 –1 C.B. 989,
for additional guidance relating to this
change.
(2) Additional requirements. A taxpayer making this change must be able to
demonstrate both of the following:
(a) the amount of any credit card late
fee charged to each cardholder by the taxpayer is separately stated on the cardholder’s account when that fee is imposed; and
(b) under the applicable credit card
agreement governing each cardholder’s
use of the credit card, no amount identified as a credit card late fee is charged for
property or for specific services performed by the taxpayer for the benefit of
the cardholder.
(3) Audit protection. Any audit protection provided in connection with this
change is not a determination by the Commissioner that the taxpayer is properly
accounting for any OID income on that
pool of credit card loans. Thus, for example, the IRS is not precluded from pursuing the issue of whether a taxpayer is
properly accounting for its OID income
(including any OID income attributable to
credit card late fees) on its pool of credit
card
loans
in
accordance
with
§ 1272(a)(6).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.06 is “82.”
(5) Contact information. For further information regarding a change under this
section, contact Kate Sleeth at (202) 3177053 (not a toll-free call).
.07 Advance payments.
(1) Description of change.
(a) Applicability. This change applies
to:
(i) 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, as
modified and clarified by Rev. Proc.
2011–18, 2011–5 I.R.B. 443, and Rev.
Proc. 2013–29, 2013–33 I.R.B. 141, and
as modified by Rev. Proc. 2011–14,
2011– 4 I.R.B. 330, and wants to change
to either the full inclusion or deferral
method, as described in Rev. Proc. 2004 –

May 23, 2016

34, other than a taxpayer changing to a
method described in section 15.11 of this
revenue procedure. See also Announcement 2004 – 48, 2004 –1 C.B. 998.
(ii) a taxpayer using an overall accrual
method of accounting that receives advance payments, as defined in § 1.451–
5(a)(1), and wants to change to the
method of including advance payments in
income in the taxable year of receipt. See
§ 1.451–5(b)(1).
(b) Inapplicability. This change does
not apply to a taxpayer that wants to use
the Deferral Method for payments described in section 5.02(4)(a) of Rev. Proc.
2004 –34 (other than allocable payments
described in section 5.02(4)(c) of Rev.
Proc. 2004 –34) or for payments for which
a method under section 5.02(3)(b)(i) or
(iii) of Rev. Proc. 2004 –34 applies. The
taxpayer must request any such change in
method of accounting using the nonautomatic change procedures in Rev.
Proc. 2015–13, 2015–5 I.R.B. 419. See
section 8.03 of Rev. Proc. 2004 –34.
(2) Concurrent automatic change to an
overall accrual method. A taxpayer making both a change to its method of accounting for advance payments under this
section 16.07 and a change to an overall
accrual method under section 15.01 of this
revenue procedure 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. See section
6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
16.07(1)(a)(i) of this revenue procedure to
use the full-inclusion method is “83.” The
designated automatic accounting method
change number for a change under section
16.07(1)(a)(i) of this revenue procedure to
use the deferral method is “84.” The designated automatic accounting method
change number for a change under section
16.07(1)(a)(ii) of this revenue procedure
is “216.”
(4) Contact information. For further information regarding a change under this
section, contact Peter Ford at (202) 3177011 (not a toll-free call).

May 23, 2016

.08 Credit card cash advance fees.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
cash advance fees to a method that treats
these fees as creating or increasing original issue discount (OID) on a pool of
credit card loans that includes the cash
advances that give rise to the fees. This
change is available only to a taxpayer that
issues credit cards allowing cardholders to
access a revolving line of credit established by the taxpayer both to make credit
card purchase transactions and to obtain
cash advances and that, for federal income
tax purposes, does not treat the credit card
purchase transactions of its cardholders as
creating debt that is given in consideration
for the sale or exchange of property. See
Rev. Proc. 2005– 47, 2005–2 C.B. 269, for
additional guidance relating to this
change.
(2) Other requirements. A taxpayer
making this change must be able to demonstrate both of the following:
(a) the amount of any credit card cash
advance fee charged to a cardholder by
the taxpayer is separately stated on the
cardholder’s account when that fee is imposed; and
(b) under the credit card agreement
with the cardholder, no amount identified
as a credit card cash advance fee is
charged for property or for specific services performed by the taxpayer for the
benefit of the cardholder.
(3) Audit protection. Any audit protection applicable to this change under section 8 of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, is not a determination by the
Commissioner that the taxpayer is properly accounting for any OID income on
that pool of credit card loans. Thus, for
example, the IRS is not precluded from
pursuing the issue of whether, under
§ 1272(a)(6), a taxpayer is correctly accounting for its OID income (including
any OID income attributable to credit card
cash advance fees) on its pool of credit
card loans.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 16.08
is “94.”

950

(5) Contact information. For further information regarding a change under this
section, contact Kate Sleeth at (202) 3177053 (not a toll-free call).
.09 Retainages.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for treating retainages to a method consistent with
the holding in Rev. Rul. 69 –314, 1969 –1
C.B. 139. A taxpayer changing its method
of accounting for retainages under this
section 16.09 must treat all retainages,
that is both receivables and payables, in
the same manner.
(b) Inapplicability. This change does
not apply to retainages (receivables and
payables) for long-term contracts that
must be accounted for under the
percentage-of-completion method (PCM)
under § 460. Nor does this change apply
to long-term contracts otherwise accounted for under the PCM or long-term
contracts accounted for under exempt
percentage-of-completion method or the
completed contract method. For the treatment of retainages under such methods,
see Treas. Reg. §§ 1.460 – 4(b)(4)(i)(A)
and 1.460 – 4(d)(3).
(2) Manner of making change.
(a) Except as provided in section
16.09(2)(b) of this revenue procedure, a
taxpayer changing its method of accounting under this section 16.09 must take into
account a § 481(a) adjustment.
(b) For retainages received and paid in
connection with long term contracts that
are exempt construction contracts (as defined in § 1.460 –3(b)(1)) accounted for
using the taxpayer’s overall accrual
method of accounting, this change is made
on a cut-off basis and applies only to
long-term contracts entered into on or after the beginning of the year of change.
See § 1.460 –1(c)(2) for a description of
when a contract is treated as “entered
into.” Accordingly, a § 481(a) adjustment
is neither permitted nor required.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.09 for retainages not received under
long-term contracts is “130.” The desig-

Bulletin No. 2016 –21

nated automatic method change number
for a change under this section 16.09 for
retainages received under long-term contracts is “217.” A taxpayer making a
change under this section 16.09 that has
both types of retainages must file a single
Form 3115 and enter both change numbers on the appropriate line on Form 3115.
(4) Contact information. For further information regarding a change under this
section, contact Peter Cohn at (202) 3177011 (not a toll-free call).
.10 Advance payments – change in
applicable financial statements (AFS).
(1) Description of change.
(a) Applicability.
(i) This change applies to a taxpayer
that: (A) receives advance payments, as
defined in Rev. Proc. 2004 –34, 2004 –1
C.B. 991, as modified and clarified by
Rev. Proc. 2011–18, 2011–5 I.R.B. 443,
and Rev. Proc. 2013–29, 2013–33 I.R.B.
141, and as modified by Rev. Proc. 2011–
14, 2011– 4 I.R.B. 330, (B) uses the deferral method described in section
5.02(3)(a) of Rev. Proc. 2004 –34 for including those advance payments in gross
income in accordance with its applicable
financial statement (AFS), (C) changes the
manner in which it recognizes advance
payments in revenues in its AFS, and (D)
wants to change its method of accounting
to use its proposed method of recognizing
advance payments in revenues in its AFS
for determining the extent to which advance payments are included in gross income under Rev. Proc. 2004 –34.
(ii) A taxpayer’s restatement of its AFS
for financial accounting presentation does
not affect the propriety of the taxpayer’s
method of accounting for advance payments in the prior taxable year(s). Thus, if
the taxpayer uses the deferral method described in section 5.02(3)(a) of Rev. Proc.
2004 –34 for including advance payments
in gross income in accordance with its
AFS (even if the AFS for that taxable year
is later restated), the taxpayer satisfies the
requirement of section 16.10(1)(a)(i)(B)
of this revenue procedure and may change
its method of accounting under this section if it is otherwise eligible.
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer that uses a present
method of accounting for advance pay-

Bulletin No. 2016 –21

ments that is not the deferral method described in section 5.02(3)(a) of Rev. Proc.
2004 –34. For example, this change does
not apply to a taxpayer that uses the full
inclusion method under section 5.01 of
Rev. Proc. 2004 –34;
(ii) a taxpayer that wants to change its
method for allocating payments under
section 5.02(4) of Rev. Proc. 2004 –34.
(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 advance payments received on or after the beginning
of the year of change. Any advance payments received prior to the year of change
are accounted for under the taxpayer’s
former method of accounting (that is, according to its former AFS). Accordingly,
a § 481(a) adjustment is neither permitted
nor required.
(b) In accordance with § 1.446 –
1(e)(3)(ii), the requirement of § 1.446 –
1(e)(3)(i) to file a Form 3115 is waived
and a statement in lieu of a Form 3115 is
authorized for this change. Notwithstanding the definition of Form 3115 in section
3.07 of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, the statement in lieu of a Form
3115 that is permitted under this section
16.10 is considered a Form 3115 for purposes of the automatic consent procedures
of Rev. Proc. 2015–13. However, the requirement to file the Duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015–
13, is waived. The statement attached to
the taxpayer’s return for the year of
change must include the following information:
(i) the designated automatic accounting
change number for this change, which is
“153;”
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual) for each applicant as would be provided had a Form
3115 been required;
(iii) the year of change (both the beginning and ending dates);
(iv) for each applicant, identify the
type of applicable financial statement (as
defined in section 4.06 of Rev. Proc.
2004 –34) used by the taxpayer;
(v) a detailed and complete description
of each type of item affected by the
change in revenue recognition and the line

951

number (or schedule) where the affected
item is reflected on the federal tax return
for the year of change; and
(vi) a detailed description of 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) both before and after the change in the revenue
recognition policy for the applicable financial statement.
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) Rev. Proc. 2015–13 does not
apply to this change.
(4) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015–13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015–13.
(5) Special rule.
(a) Background. Under § 446(e), a taxpayer that changes its book method of
accounting must secure the Commissioner’s consent before applying its new book
method of accounting for tax purposes.
See also § 1.446 –1(e)(2)(i). Accordingly,
a taxpayer that previously elected to defer
advance payments under Rev. Proc.
2004 –34 is required to obtain consent under § 446(e) if the taxpayer subsequently
changes its book method for the deferred
advance payments and wants to use its
new AFS in determining the extent to
which advance payments are included in
gross income under Rev. Proc. 2004 –34.
The IRS recognizes that some taxpayers
took the position that consent under
§ 446(e) was not required in these circumstances and changed their method of accounting without properly obtaining consent. The safe harbor described below in
section 16.10(5)(b) of this revenue procedure is provided to reduce controversy in
this area.
(b) Safe harbor. If before January 10,
2011, a taxpayer: (i) received advance
payments, as defined in Rev. Proc. 2004 –
34; (ii) used the deferral method described
in section 5.02(3)(a) of Rev. Proc.
2004 –34 for including those advance payments in gross income in accordance with
its AFS; (iii) changed the manner in which
advance payments are recognized in revenues in its AFS; and (iv) used its new
AFS method with respect to a timely filed
original federal income tax return in de-

May 23, 2016

termining the amount of advance payments included in gross income under the
deferral method of Rev. Proc. 2004 –34
without securing the consent of the Commissioner to that change in accordance
with § 446(e) and § 1.446 –1(e)(2)(i), the
IRS will not assert that the taxpayer’s
present method of accounting for advance
payments is not a proper deferral method
described in section 5.02(3)(a) of Rev.
Proc. 2004 –34 solely on the ground that
the taxpayer failed to obtain the consent of
the Commissioner for that change.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.10 is “153.”
(7) Contact information. For further information regarding a change under this
section, contact Ronald Goldstein at (202)
317-7003 (not a toll-free number).
SECTION 17. OBLIGATIONS ISSUED
AT DISCOUNT (§ 454)
.01 Series E, EE, or I U.S. savings
bonds.
(1) Description of change. This change
applies to a taxpayer that uses the overall
cash receipts and disbursements (cash)
method of accounting and that wants to
change its method of accounting for interest income on Series E, EE, or I U.S.
savings bonds. However, this change only
applies to a taxpayer that previously made
an election under § 454 to report as interest income the increase in redemption
price on a bond occurring in a taxable
year, and that now wants to report this
income in the taxable year in which the
bond is redeemed, disposed of, or finally
matures, whichever is earliest.
(2) Manner of making change and designated automatic accounting method
change number.
(a) This change is made on a cut-off
basis and is effective for any increase in
redemption price occurring after the beginning of the year of change for all Series
E, EE, and I U.S. savings bonds held by
the taxpayer on or after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b) In accordance with § 1.446 –
1(e)(3)(ii), the requirement of § 1.446 –

May 23, 2016

1(e)(3)(i) to file a Form 3115 is waived
and a statement in lieu of a Form 3115 is
authorized for this change. Notwithstanding the definition of Form 3115 in section
3.07 of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, the statement in lieu of a Form
3115 that is permitted under this section
17.01 is considered a Form 3115 for purposes of the automatic consent procedures
of Rev. Proc. 2015–13. However, the requirement to file the Duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015–
13, is waived. The statement must include
the following information:
(i) the designated automatic accounting
method change number for this change,
which is “131”;
(ii) the taxpayer’s name and employer
identification number or social security
number, as applicable;
(iii) the year of change (both the beginning and ending dates);
(iv) the Series E, EE, or I U.S. savings
bonds for which this change in accounting
method is requested;
(v) a statement that the taxpayer will
report all interest on any U.S. savings
bonds acquired during or after the year of
change when the interest is realized upon
disposition, redemption, or final maturity,
whichever is earliest; and
(vi) a statement that the taxpayer will
report all interest on the U.S. savings
bonds acquired before the year of change
when the interest is realized upon disposition, redemption, or final maturity,
whichever is earliest, with the exception
of any interest income previously reported
in prior taxable years.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
17.01 is “131.”
(4) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
SECTION 18. PREPAID
SUBSCRIPTION INCOME (§ 455)

paid subscription income to the method
described in § 455 and the regulations
thereunder, including an eligible taxpayer
that wants to make the “within 12
months” election under § 1.455–2.
(2) Manner of making change and designated automatic accounting method
change number.
(a) This change is made on a cut-off
basis and applies only to prepaid subscription income received on or after the beginning of the year of change. The taxpayer must continue to account for
prepaid subscription income received
prior to the year of change under the taxpayer’s present method of accounting. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(b) In accordance with § 1.446 –
1(e)(3)(ii), the requirement in § 1.455– 6
to file a statement requesting consent is
satisfied by filing a short Form 3115 for a
change under this section 18.01. The short
Form 3115 must include the following
information:
(i) the identification section of page 1
(above Part I);
(ii) the signature section at the bottom
of page 1;
(iii) Part I, line 1(a);
(iv) the information described in
§ 1.455– 6(a), as required by § 1.455–
6(b); and
(v) if the taxpayer wants to make a
“within 12 months” election under
§ 1.455– 6(c), the information described in
section § 1.455– 6(c)(2).
(c) The consent granted in section 9 of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
satisfies the consent required under
§ 455(c)(3) and § 1.455– 6(b).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
18.01 is “132.”
(4) Contact information. For further information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

.01 Prepaid subscription income.

SECTION 19. TAXABLE YEAR
INCURRED (§ 461)

(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that wants to
change its method of accounting for pre-

In general. Applicable provisions of
the Code, regulations and other guidance
published in the Internal Revenue Bulletin
may prescribe the manner in which a tax-

952

Bulletin No. 2016 –21

payer takes into account a liability that has
been incurred. For example, for a taxpayer
with inventories and subject to § 263A,
the taxpayer must include direct and indirect costs in inventory costs, which may
be recovered through cost of goods sold.
See § 1.263A–1(e)(2)(i)(B). A taxpayer
may not rely on any provision in this
section 19 to take a current year deduction
if another applicable provision requires
the taxpayer to take the liability into account in a year other than the year incurred.
.01 Timing of incurring liabilities for
employee compensation.
(1) Self-insured employee medical benefits.
(a) Description of change.
(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for selfinsured 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:
(A) If the taxpayer has a liability to pay
an employee for medical expenses incurred by the employee, the taxpayer will
treat the liability as incurred in the taxable
year in which the employee files the claim
with the employer. See United States v.
General Dynamics Corp., 481 U.S. 239
(1987), 1987–2 C.B. 134.
(B) If the taxpayer has a liability to pay
a 3rd party for medical services provided
to its employees, the taxpayer will treat
the liability as incurred in the taxable year
in which the services are provided.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.01(1) if the taxpayer is not capitalizing
these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change

Bulletin No. 2016 –21

to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(1)(a)(ii) of this revenue procedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, for information on making concurrent changes.
(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(1) is “42.”
(2) Bonuses.
(a) Description of change.
(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to treat
bonuses as incurred in the taxable year in
which all events have occurred that establish the fact of the liability to pay a bonus
and the amount of the liability can be
determined with reasonable accuracy (see
§ 1.446 –1(c)(1)(ii)). Specifically, a taxpayer may change its method of accounting under this section 19.01(2) to one of
the following methods:
(A) If all the events that establish the
fact of the liability to pay a bonus have
occurred by the end of the taxable year in
which the related services are provided,
and the bonus is received by the employee
no later than the 15th day of the 3rd calendar month after the end of the taxable year
in which the related services are provided,
the taxpayer will treat the bonus liability
as incurred in that taxable year. See Rev.
Rul. 55– 446, 1955–2 C.B. 531, as modified by Rev. Rul. 61–127, 1961–2 C.B.
36.
(B) If all the events that establish the
fact of the liability to pay a bonus occur in
the taxable year subsequent to the taxable
year in which the related services are provided, the taxpayer will treat the bonus

953

liability as incurred in such subsequent
taxable year.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.01(2) if the taxpayer is not capitalizing
these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(2)(a)(ii) of this revenue procedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(2) is “133.”
(3) Vacation pay, sick pay, and severance pay.
(a) Description of change.
(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to treat
vacation pay, sick pay, and severance pay
as incurred in the taxable year in which all
events have occurred that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay and the
amount of the liability can be determined
with reasonable accuracy (see § 1.446 –
1(c)(1)(ii)). Specifically, a taxpayer may
change its method of accounting under
this section 19.01(3) to one of the following methods:
(A) If all the events that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay have occurred
by the end of the taxable year in which the

May 23, 2016

related services are provided, the vacation
pay, sick pay, and severance pay vests in
the taxable year the related services are
provided, and the vacation pay, sick pay,
and severance pay is received by the employee no later than the 15th day of the 3rd
calendar month after the end of the taxable year in which the related services are
provided, the taxpayer will treat the vacation pay, sick pay, and severance pay liability as incurred in the taxable year in
which the related services are provided.
(B) If all the events that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay occur in the
taxable year subsequent to the taxable
year in which the related services are provided, the taxpayer will treat the vacation
pay, sick pay, and severance pay liability
as incurred in such subsequent taxable
year.
(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.01(3) if the taxpayer is not capitalizing
these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(3)(a)(ii) of this revenue procedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(3) is “134.”
(4) Contact information. For further information regarding a change under this

May 23, 2016

section, contact Sandra Cheston at (202)
317-7011 (not a toll-free call).
.02 Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state
franchise taxes.
(1) Background. A taxpayer using an
overall accrual method of accounting generally incurs a liability in the taxable year
that all the events have occurred that establish the fact of the liability, the amount
of the liability can be determined with
reasonable accuracy, and economic performance has occurred with respect to the
liability. See § 1.446 –1(c)(1)(ii). Under
§ 1.461– 4(g)(6), if the liability of the taxpayer is to pay a tax, economic performance occurs as the tax is paid to the
government authority that imposed the
tax.
(2) Description of change.
(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to:
(i) treat liabilities (for which the all
events test of § 461(h)(4) is otherwise
met) for real property taxes, personal
property taxes, state income taxes, or state
franchise taxes as incurred in the taxable
year in which the taxes are paid, under
§ 461 and § 1.461– 4(g)(6);
(ii) account for real property taxes, personal property taxes, state income taxes,
or state franchise taxes under the recurring
item exception method under § 461(h)(3)
and § 1.461–5(b)(1); or
(iii) revoke an election under § 461(c)
(ratable accrual election).
(b) Inapplicability. This change does
not apply to:
(i) a taxpayer’s liability for a tax subject to the limitation on acceleration of
accrual of taxes under § 461(d); or
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method
of accounting under this section 19.02 if
the taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in conjunction with a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable).

954

(3) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.02(2)(b)(ii) of this revenue procedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, for information on making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.02 is “43.”
(5) Contact information. For further information regarding a change under this
section, contact Kari Fisher at (202) 3175100 (not a toll-free call).
.03 Timing of incurring liabilities under
a workers’ compensation act, tort,
breach of contract, or violation of law.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for 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 revenue procedure (if the
taxpayer is otherwise eligible).

Bulletin No. 2016 –21

(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.03 if the taxpayer is not capitalizing
these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Concurrent automatic change. A
taxpayer making both this change and
change to either a method provided in
section 19.01(1) of this revenue procedure
for self-insured employee medical expenses or a UNICAP method described in
section 19.03(1)(b) of this revenue procedure under section 12.01, 12.02, 12.08, or
12.12 of this revenue procedure (as applicable) for the same year of change should
file a single Form 3115, in which case the
taxpayer must enter the designated automatic accounting method change numbers
for each change on the appropriate line on
that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
for information on making concurrent
changes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.03 is “44.”
(4) Contact information. For further information regarding a change under this
section, contact Kari Fisher at (202) 3175100 (not a toll-free call).
.04 Timing of incurring certain
liabilities for payroll taxes.
(1) Description of change.
(a) Applicability. This change applies
to:
(i) an employer using an overall accrual method of accounting that wants to
change its method of accounting for:
(A) FICA and FUTA taxes to a method
consistent with the holding in Rev. Rul.
96 –51, 1996 –2 C.B. 36. Rev. Rul. 96 –51
permits an accrual method employer to
take into account in Year 1, under the all
events test of § 461, its otherwise deductible FICA and FUTA taxes imposed with
respect to year-end wages properly ac-

Bulletin No. 2016 –21

crued in Year 1, but paid in Year 2, if the
requirements of the recurring item exception are met; and
(B) state unemployment taxes and, in
the event the taxpayer is an employer
within the meaning of the Railroad Retirement Tax Act (RRTA) (see § 3231(a)),
RRTA taxes to a method under which the
taxpayer may take into account in Year 1
its otherwise deductible state unemployment taxes and railroad retirement taxes
(if applicable) imposed with respect to
year-end wages properly accrued in Year
1, but paid in Year 2, if the requirements
of the recurring item exception are met
(including the requirement that, as of the
end of the taxable year, all events have
occurred that establish the fact of the liability and the amount of the liability can
be determined with reasonable accuracy,
see § 1.461–5(b));
(ii) an accrual method employer that
utilizes a method of accounting for FICA
and FUTA taxes that is consistent with the
holding in Rev. Rul. 96 –51 and wants to
change its method of accounting for state
unemployment taxes and, in the event the
employer is an employer within the meaning of RRTA (see § 3231(a)), RRTA taxes
to a method under which the taxpayer may
take into account in Year 1 its otherwise
deductible state unemployment taxes and
railroad retirement taxes (if applicable)
imposed with respect to year-end wages
properly accrued in Year 1, but paid in
Year 2, if the requirements of the recurring item exception are met (including the
requirement that, as of the end of the
taxable year, all events have occurred that
establish the fact of the liability and the
amount of the liability can be determined
with reasonable accuracy, see § 1.461–
5(b)); or
(iii) a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for FICA
and FUTA taxes to the safe harbor method
provided in Rev. Proc. 2008 –25, 2008 –1
C.B. 686. Rev. Proc. 2008 –25 provides
that for purposes of the recurring item
exception, a taxpayer will be treated as
satisfying the requirement in § 1.461–
5(b)(1)(i) for its payroll tax liability in the
same taxable year in which all events have
occurred that establish the fact of the related compensation liability and the
amount of the related compensation liabil-

955

ity can be determined with reasonable accuracy.
(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations thereunder to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section19.04 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).
(2) Recurring item exception. A taxpayer that previously has not changed to
or adopted the recurring item exception
for FICA taxes, FUTA taxes, state unemployment taxes, and RRTA taxes (if applicable) must change to the recurring
item exception method for FICA taxes,
FUTA taxes, state unemployment taxes,
and RRTA taxes (if applicable) as specified in § 461(h)(3) as part of this change.
(3) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section19.04(1)(b) of this revenue procedure under section 12.01, 12.02, 12.08, or
12.12 of this revenue procedure (as applicable) for the same year of change should
file a single Form 3115 for both changes,
in which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
19.04(1)(a)(i) or (ii) of this revenue procedure is “45.” The designated automatic
accounting method change number for a
change under section 19.04(1)(a)(iii) of
this revenue procedure is “113.”
(5) Contact information. For further information regarding a change under this
section, contact Mon Lam at (202) 3175100 (not a toll-free call).
.05 Cooperative advertising.
(1) Description of change. This change
applies to a taxpayer using an overall ac-

May 23, 2016

crual method of accounting that wants to
change its method of accounting for cooperative advertising costs to a method
consistent with the holding in Rev. Rul.
98 –39, 1998 –2 C.B. 198. Rev. Rul.
98 –39 generally provides that, under the
all events test of § 461, an accrual method
manufacturer’s liability to pay a retailer
for cooperative advertising services is incurred in the year in which the services
are performed, provided the manufacturer
is able to reasonably estimate this liability,
and even though the retailer does not submit the required claim form until the following year.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.05 is “46.”
(3) Contact information. For further information regarding a change under this
section, contact Mon Lam at (202) 3175100 (not a toll-free call).
.06 Timing of incurring certain
liabilities for services or insurance.
(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that is currently treating the mere execution of a
contract for services or insurance as establishing the fact of the liability under § 461
and wants to change from that method of
accounting for liabilities for services or
insurance to comply with Rev. Rul.
2007–3, 2007–1 C.B. 350, that is, all the
events needed to establish the fact of the
liability occur when (a) the event fixing
the liability, whether that be the required
performance or other event occurs or (b)
payment is due, whichever happens earliest.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.06 is “106.”
(3) Contact information. For further information regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free call).
.07 Rebates and allowances.
(1) Description of change.

May 23, 2016

(a) Applicability. This change applies
to taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for treating its liability for rebates and allowances
to the recurring item exception method
under § 461(h)(3) and § 1.461–5.
(b) Inapplicability. This change does
not apply to a taxpayer’s liability to pay a
refund.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.07 is “135.”
(3) Contact information. For further information regarding a change under this
section, contact Mon Lam at (202) 3175100 (not a toll-free call).

(ii) the signature section at the bottom
of page 1;
(iii) Part I, line 1(a); and
(iv) the information described in
§ 1.461–1(c)(3)(ii)(a) through (f).
(c) The consent granted under section 9
of Rev. Proc. 2015–13, 2015–5 I.R.B.
419, satisfies the consent required under
§ 461(c)(2)(B) and § 1.461–1(c)(3)(ii).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.08 is “149.”
(4) Contact information. For further information regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 (not a toll-free call).
.09 California Franchise Taxes.

.08 Ratable accrual of real property
taxes.
(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that wants to
change its method of accounting for 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). Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(b) In accordance with § 1.446 –
1(e)(3)(ii), the requirement in § 1.461–
1(c)(3)(ii) for requesting consent is satisfied by filing a short Form 3115 for this
change. The taxpayer’s short Form 3115
must include all of the following information:
(i) the identification section of page 1
(above Part I);

956

(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that wants to
change its method of accounting for California franchise taxes to a method consistent with the holding in Rev. Rul.
2003–90, 2003–2 C.B. 353. Rev. Rul.
2003–90 provides that for taxable years
beginning on or after January 1, 2000, a
taxpayer that uses an accrual method of
accounting incurs a liability for California
franchise tax for federal income tax purposes in the taxable year following the
taxable year in which the California franchise tax is incurred under the Cal. Rev. &
Tax Code, as amended.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.09 is “154.”
(3) Contact information. For further information regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003.
.10 Gift cards issued as a refund for
returned goods.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that sells goods at
retail and that wants to change its method
of accounting for gift cards (as defined by
section 4.02 of Rev. Proc. 2011–17,
2011–5 I.R.B. 441) issued as a refund for

Bulletin No. 2016 –21

returned goods to treat the transaction as
(1) the payment of a cash refund in the
amount of the gift card, and (2) the sale of
a gift card in the amount of the gift card.
(b) Treatment of proceeds of the
deemed sale. A taxpayer must treat the
proceeds of the deemed sale of a gift card
in accordance with the method of accounting it otherwise employs for sales of gift
cards.
(2) Concurrent automatic change. A
taxpayer making both this change and an
automatic change to the deferral method
for advance payments under Rev. Proc.
2004 –34 (see section 16.07 of this revenue procedure) for the same taxable 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. See section
6.03(1)(b) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, for information on making
concurrent changes.
(3) Concurrent non-automatic change.
A taxpayer making both this change and
change to a permissible method of accounting under § 1.451–5 for the same
taxable year of change on a single Form
3115 must request this change in method
of accounting using the non-automatic
procedures in Rev. Proc. 2015–13 (or any
successor).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.10 is “156.”
(5) Contact information. For further information regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free call).

tracts for the provision of services from
insurance and warranty contracts.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.11 is “161.”
(3) Contact information. For further information regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free call).
.12 Economic performance safe harbor
for ratable service contracts.
(1) Description of change. This change
applies to an accrual method taxpayer that
wants to change its treatment of Ratable
Service Contracts to conform to the safe
harbor method provided by Rev. Proc.
2015–39, 2015–33 I.R.B. 195.
(2) Certain eligibility rules temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to a
taxpayer that wants to make a change under this section 19.12 for the taxpayer’s
first, second, or third taxable year ending
on or after July 30, 2015.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of accounting under this section 19.12 is
“220.”
(4) Contact information. For further information regarding a change under this
section, contact David Christensen or Peter Ford at (202) 317-7011 (not a toll-free
call).
. 20. RENT (§ 467)

.11 Timing of incurring liabilities under
the recurring item exception to the
economic performance rules.

.01 Change from an improper method of
inclusion of rental income or expense to
inclusion in accordance with the rent
allocation.

(1) Description of change. This change
applies to a taxpayer using an overall accrual method of accounting that wants to
conform to any of the holdings in Rev.
Rul. 2012–1, 2012–2 I.R.B. 255, which
clarifies the treatment of certain liabilities
under the recurring item exception to the
economic performance requirement under
§ 461(h)(3) by addressing the application
of the “not material” and “better matching” requirements, and distinguishes con-

(1) Description of change.
(a) Applicability. This change applies
to a taxpayer that:
(i) is a party to § 467 rental agreements
(within the meaning of § 1.467–1(c)(1) for
rental agreements entered into after May
18, 1999, and § 467(d) for all other agreements); and
(ii) except as provided in section
20.01(1)(b)(ii) of this revenue procedure,
wants to change its method of accounting

Bulletin No. 2016 –21

957

for its fixed rent (as defined in § 1.467–
1(d)(2)) to the rent allocation method provided in § 1.467–1(d)(2)(iii).
(b) Inapplicability. This change does
not apply to:
(i) rental agreements for which taxpayers are required to use the constant rental
accrual method described in § 1.467–
(3)(a) or the proportional rental accrual
method described in § 1.467–(2)(a) for
their fixed rent; and
(ii) rental agreements that provide a
specific allocation of fixed rent as described in § 1.467–1(c)(2)(ii)(A)(2).
(2) Additional requirements. The taxpayer must attach to its Form 3115 a copy
of one of its § 467 rental agreements to be
covered by this automatic change (or at
least the pages of the agreement relating
to the manner in which rent is allocated).
(3) Audit protection limited. Any audit
protection under section 8 of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, 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).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.01 is “136.”
(5) Contact information. For further information regarding a change under this
section, contact William Ruane at (202)
317-4718 (not a toll-free call).
SECTION 21. INVENTORIES (§ 471)
.01 Cash discounts.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cash discounts (that is, discounts granted for
timely payment) when they approximate a
fair interest rate, from a method of consistently including the price of the goods
before discount in the cost of the goods
and including in gross income any discounts taken (the “gross invoice
method”), to a method of reducing the
cost of the goods by the cash discounts
and deducting as an expense any discounts not taken (the “net invoice
method”), or vice versa. See Rev. Rul.
73– 65, 1973–1 C.B. 216.

May 23, 2016

(2) Computation of § 481(a) adjustment for changes to net invoice method. In
the case of a taxpayer changing from the
gross invoice method to the net invoice
method, a negative § 481(a) adjustment is
required to prevent duplications arising
from the fact that the gross invoice
method reported income upon timely payment for some or all of the goods that
remain in inventory, and a positive
§ 481(a) adjustment is required to prevent
omissions arising from the fact that the
gross invoice method included the invoice
price, unadjusted 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 is computed by deducting the “Applicable Discount” at the
beginning of the year of change from the
“Available Discount” at the beginning of
the year of change. The Available Discount is equal to the difference between
the accounts payable balance 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 $1,000
under the gross invoice method and $980 under the
net invoice method. Taxpayer’s inventory value was
$3,000 under the gross invoice method and $2,955
under the net invoice method. The Available Discount is $20 ($1,000 – $980) and the Applicable
Discount is $45 ($3,000 – $2,955). Thus, Taxpayer’s
net § 481(a) adjustment is a negative $25 ($20 –
$45).

(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 § 481(a) 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
§ 481(a) 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

May 23, 2016

“Applicable Discount” at the beginning of
the year of change. The Available Discount is equal to the difference between
the accounts payable balance 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).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.01 is “48.”
(5) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 3177007 (not a toll-free call).

review whether the proposed method
clearly reflects the taxpayer’s income under § 446(b), notwithstanding any provision of Rev. Proc. 2015–13, 2015–5
I.R.B. 419 (or successor). If the director or
the national office determines that the proposed method of accounting does not
clearly reflect the taxpayer’s income, the
taxpayer will be treated as having made a
change in method of accounting without
obtaining the consent of the Commissioner as required by § 446(e). See sections 2.01(3) and 2.03 of Rev. Proc. 2015–
13.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.02 is “49.”
(4) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 3177007 (not a toll-free call).
.03 Small taxpayer exception from
requirement to account for inventories
under § 471.

.02 Estimating inventory “shrinkage”.
(1) Description of change. This change
applies to a taxpayer that wants to change
to a method of accounting for estimating
inventory shrinkage in computing ending
inventory, using:
(a) the “retail safe harbor method” described in section 4 of Rev. Proc. 98 –29,
1998 –1 C.B. 857, as modified by this
revenue procedure; or
(b) a method other than the retail safe
harbor method, provided (i) the taxpayer’s
present method of accounting does not
estimate inventory shrinkage, and (ii) the
taxpayer’s proposed method of accounting (that estimates inventory shrinkage)
clearly reflects income under § 446(b).
(2) Additional requirements. If the taxpayer wants to change to a method of
accounting for inventory shrinkage other
than the retail safe harbor method, the
taxpayer must attach to its Form 3115 a
statement setting forth a detailed description of all aspects of the proposed method
of estimating inventory shrinkage (including, for last-in, first-out (LIFO) taxpayers,
the method of determining inventory
shrinkage for, or allocating inventory
shrinkage to, each LIFO pool). The director or national office subsequently may

958

(1) Description of change. This change
applies to either a taxpayer (other than a
taxpayer described § 448(a)(3)) with “average annual gross receipts” (as defined in
section 5.01 of Rev. Proc. 2001–10, as
modified by Announcement 2004 –16 (regarding placement of § 481(a) adjustment
on the Form 3115), and Rev. Proc.
2011–14 (removing § 6.02(1)(a) of Rev.
Proc. 2001–10)) of $1,000,000 or less or a
qualifying taxpayer (other than a taxpayer
described in § 448) with “average annual
gross receipts” (as defined in section 5.02
of Rev. Proc. 2002–28, as modified by
Announcement
2004 –16
(regarding
placement of § 481(a) adjustment on the
Form 3115), and Rev. Proc. 2011–14 (removing § 7.02(1)(a) of Rev. Proc. 2002–
28)) of $10,000,000 or less that wants to
change from a method of accounting for
inventoriable items (including, if applicable, from the method of capitalizing costs
under § 263A) to the method described in
Rev. Proc. 2001–10 and Rev. Proc. 2002–
28, for treating inventoriable items in the
same manner as materials and supplies
that are not incidental under § 1.162–3.
(2) Manner of making change. See
Rev. Proc. 2001–10 or Rev. Proc.
2002–28 (as applicable) for additional

Bulletin No. 2016 –21

guidance on the computation of the
§ 481(a) adjustment and the completion of
the Form 3115.
(3) Concurrent automatic change to
the overall cash method under Rev. Proc.
2001–10 or Rev. Proc. 2002–28. A taxpayer making both this change and a
change to the overall cash method under
Rev. Proc. 2001–10 or Rev. Proc.
2002–28 (see section15.03 of this revenue
procedure) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.03 for the small taxpayer ($1,000,000)
inventory exception contained in Rev.
Proc. 2001–10 is “50.” The designated
automatic accounting method change
number for a change under this section
21.03
for
the
small
taxpayer
($10,000,000) inventory exception contained in Rev. Proc. 2002–28 is “51.”
(5) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).
.04 Qualifying volume-related trade
discounts.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to treat qualifying volume-related trade discounts as a
reduction in the cost of merchandise purchased at the time the discount is recognized in accordance with § 1.471–3(b). A
“qualifying volume-related trade discount” means a discount satisfying the
following criteria:
(a) the taxpayer receives or earns the
discount based solely upon the purchase
of a particular volume of the merchandise
to which the discount relates;
(b) the taxpayer is neither obligated nor
expected to perform or provide any services in exchange for the discount; and

Bulletin No. 2016 –21

(c) the discount is not a reimbursement
of any expenditure incurred or to be incurred by the taxpayer.
(2) Section 481(a) adjustment. The net
§ 481(a) adjustment attributable to the
change is computed in a manner similar to
the computation of a net § 481(a) adjustment in the case of a change to the net
invoice method of accounting for cash
discounts. See section 21.01(2) of this revenue procedure.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.04 is “53.”
(4) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 3177007 (not a toll-free call).
.05 Impermissible methods of
identification and valuation.
(1) Description of change. This change
applies to a taxpayer:
(a) changing from an impermissible
method of accounting under § 471, including a LIFO taxpayer restoring a write
down of inventory below cost or discontinuing maintaining an inventory reserve;
(b) changing from a method that is not
in accordance with § 1.471–2(c) for determining the value of “subnormal” goods;
or
. (c) changing from a gross profit
method or from a method of determining
market that is not in accordance with
§ 1.471– 4. For this purpose:
(i) Gross profit method. A gross profit
method is a method in which the taxpayer
estimates the cost of goods sold by reducing its gross sales by a percentage “markup” from cost. The estimated cost of
goods sold is subtracted from the sum of
the beginning inventory and purchases
and the result is used as the ending inventory.
(ii) Method of determining market. An
example of a method of determining market that is not in accordance with
§ 1.471– 4 is where a taxpayer, under ordinary circumstances, determines the market value of purchased merchandise using
judgment factors, and not using the prevailing current bid price on the inventory
date for the particular merchandise in the

959

volume in which it is usually purchased
by the taxpayer.
(2) Applicability. For purposes of this
change, a taxpayer must be changing to an
inventory method (identification or valuation, or both) specifically permitted by the
Code, the regulations, or other guidance
published in the Internal Revenue Bulletin, or a decision of the United States
Supreme Court for the inventory goods,
and the taxpayer is neither prohibited
from using that method nor required to
use a different inventory method for those
inventory goods. This change does not
apply to a change described in another
section of this revenue procedure or in
other guidance published in the Internal
Revenue Bulletin.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.05 is “54.”
(4) Contact information. For further information regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).
.06 Core Alternative Valuation Method.
(1) Description of change.
(a) Applicability. This change applies
to a remanufacturer and rebuilder of motor vehicle parts and a reseller of remanufactured and rebuilt motor vehicle parts
that use the cost or market, whichever is
lower, (LCM) inventory valuation method
to value their inventory of cores held for
remanufacturing or sale and wants to use
the Core Alternative Valuation (CAV)
method specified in Rev. Proc. 2003–20,
2003–1 C.B. 445.
(b) Inapplicability. This change does
not apply to a taxpayer that values its
inventory of cores at cost (including a
taxpayer using the LIFO inventory
method) unless the taxpayer concurrently
changes (under section 6.02 of Rev. Proc.
2003–20) from cost to the LCM method
for its cores (including labor and overhead
related to the cores in raw materials,
work-in-process, and finished goods).
(2) Concurrent automatic change. A
taxpayer making both this change and (i) a
change from the cost method to the LCM
method under section 21.11 of this revenue procedure, or (ii) a change from the
LIFO inventory method to a permitted

May 23, 2016

method for identification under (and as
determined and defined in) section
22.01(1)(b) of this revenue procedure for
the same year of change, should file a
single Form 3115 for both changes, provided the taxpayer enters the designated
automatic accounting method change
numbers for both changes on the appropriate line on that Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, for information on making
concurrent changes.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.06 is “55.”
(4) Contact information. For further information regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).
.07 Replacement cost for automobile
dealers’ parts inventory.
(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of selling vehicle parts at
retail, that is authorized under an agreement with one or more vehicle manufacturers or distributors to sell new automobiles or new light, medium, or heavy-duty
trucks, and that wants to use the replacement cost method described in section 4
of Rev. Proc. 2002–17, 2002–1 C.B. 676,
as modified by Rev. Proc. 2006 –14,
2006 –1 C.B. 350, for its vehicle parts
inventory. See Rev. Proc. 2002–17 for
further information regarding this change.
(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories on or after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.07 is “63.”
(4) Contact information. For further information regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

May 23, 2016

.08 Replacement cost for heavy
equipment dealers’ parts inventory.
(1) Description of change. This change
applies to a heavy equipment dealer that is
engaged in the trade or business of selling
heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy equipment, and that wants to use the replacement cost method described in section 4
of Rev. Proc. 2006 –14, 2006 –1 C.B. 350,
for its heavy equipment parts inventory.
(2) Manner of making the 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. Accordingly, a § 481(a) adjustment is neither permitted nor required.
(3) Concurrent automatic change. A
taxpayer making both this change and another automatic change in method of accounting under § 263A (see section 12 of
this revenue procedure) for the same year
of change may file a single Form 3115 for
both changes, provided the taxpayer enters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115,
and complies with the ordering rules of
§ 1.263A–7(b)(2).
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.08 is “96.”
(5) Contact information. For further information regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).
.09 Rotable spare parts.
(1) Description of change. This change
applies to a taxpayer that is using the safe
harbor method of accounting to treat its
rotable spare parts as depreciable assets in
accordance with Rev. Proc. 2007– 48,
2007–2 C.B. 110, as modified by this revenue procedure, and wants to change its
method of accounting to treat its rotable
spare parts as inventoriable items. This
change also applies to a taxpayer who is
treating its rotable spare parts as depreciable assets in a manner similar to the safe
harbor method described in Rev. Proc.
2007– 48, and wants to change its method

960

of accounting to treat its rotable spare
parts as inventoriable items. A taxpayer
changing its method of accounting for rotable spare parts under this section 21.09,
must use a proper inventory method to
identify and value its rotable spare parts.
(2) Eligibility rule inapplicable. The
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
does not apply to a taxpayer that is required to make the change in method of
accounting pursuant to section 5.06 of
Rev. Proc. 2007– 48.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.09 is “110.”
(4) Contact information. For further information regarding a change under this
section, contact Jason Kristall at (202)
317-7003 (not a toll-free call).
.10 Advance Trade Discount Method.
(1) Description of change. This change
applies to a taxpayer that wants to use the
Advance Trade Discount Method described in Rev. Proc. 2007–53, 2007–2
C.B. 233.
(2) Applicability. This change in
method of accounting applies to a taxpayer using an overall accrual method of
accounting that is required to use an inventory method of accounting, that maintains inventories as provided in § 471 and
the regulations thereunder, and that receives advance trade discounts as defined
in section 4.03 of Rev. Proc. 2007–53.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.10 is “111.”
(4) Contact information. For further information regarding a change under this
section, contact Steven Gee, at (202) 3177007 (not a toll-free call).
.11 Permissible methods of identification
and valuation.
(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 inven-

Bulletin No. 2016 –21

tories. For example, a taxpayer using firstin, first-out (FIFO) as its inventoryidentification 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 real property or
improvements to the real property at LCM
because real property 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
this revenue procedure or in other guidance published in the Internal Revenue
Bulletin, or to any changes within the
last-in, first-out (LIFO) inventory method.
For example, this change does not apply
to a taxpayer that wants to change to a
rolling-average method (but see section
21.14 of this revenue procedure).
(b) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method (identification or valuation, or both) specifically
permitted for inventories by the Code, the
regulations, or other guidance published
in the Internal Revenue Bulletin, or a decision of the United States Supreme
Court. However, an otherwise permissible
inventory method is not permissible under
this section 21.11 for a specific taxpayer if
that taxpayer is prohibited from using that
method or if that taxpayer is required to
use a different method.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.11 is “137.”
(3) Contact information. For further information regarding a change under this
section, contact Steven Gee at (202) 3177007 (not a toll-free call).
.12 Change in the official used vehicle
guide utilized in valuing used vehicles.
(1) Description of change. Used vehicles taken in trade as part payment on the

Bulletin No. 2016 –21

sale of vehicles by a dealer may be valued
for inventory purposes at valuations comparable to those listed in an official used
vehicle guide as the average wholesale
prices for comparable vehicles. See Rev.
Rul. 67–107, 1967–1 C.B. 115. This
change applies to:
(a) a taxpayer that wants to change
from not using an official used vehicle
guide to using an official used vehicle
guide for valuing used vehicles; or
(b) a taxpayer that wants to change to a
different official used vehicle guide for
valuing used vehicles.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.12 is “138.”
(3) Contact information. For further information regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).
.13 Invoiced advertising association
costs for new vehicle retail dealerships.
(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of retail sales of new
automobiles or new light-duty trucks
(“dealership”) that wants to discontinue
capitalizing certain advertising costs as
acquisition costs under § 1.471–3(b). The
change applies to advertising costs that
meet the following criteria: (a) the dealership must pay this advertising fee when
acquiring vehicles from the manufacturer;
(b) the advertising costs are separately
coded and included in the manufacturer’s
invoice cost of the new vehicle; (c) the
advertising cost is a flat fee per vehicle or
a fixed percentage of the invoice price;
and (d) the fees collected by the manufacturer are paid to local advertising associations that promote and advertise the manufacturer’s products in the dealership’s
market area. Under the proposed method,
the dealership will exclude advertising
costs that meet the above criteria from the
cost of new vehicles and deduct the advertising costs under § 162 as the advertising services are provided to the dealership. See § 1.461– 4(d)(2)(i).
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change

961

number for a change under this section
21.13 is “139.”
(3) Contact information. For further information regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).
.14 Rolling-average method of
accounting for inventories.
(1) Description of change. This change
applies to a taxpayer that uses a rollingaverage method to value inventories for
financial accounting purposes and wants
to use the same rolling-average method to
value inventories for federal income tax
purposes in accordance with Rev. Proc.
2008 – 43, 2008 –30 C.B. 186, as modified
by Rev. Proc. 2008 –52, 2008 –2 C.B. 587
(see section 13).
(2) Manner of making change. This
change is made on a cut-off basis and is
applied only to the computation of ending
inventories after the beginning of the year
of change. However, if the taxpayer’s
books and records contain sufficient information to compute a § 481(a) adjustment,
the taxpayer may choose to implement the
change with a § 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev.
Proc. 2015–13, 2015–5 I.R.B. 419.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.14 is “114.”
(4) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.15 Sales-Based Vendor Chargebacks.
(1) Description of change. This
change, as described in Rev. Proc. 2014 –
33, 2014 –22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of accounting to treat sales-based vendor
chargebacks as a reduction in cost of
goods sold in accordance with § 1.471–
3(e)(1).
(2) Certain eligibility rule temporarily
inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, does not apply to this
change for a taxpayer’s first and second
taxable years ending on or after January
13, 2014.

May 23, 2016

(3) Concurrent automatic changes. A
taxpayer making both this change and the
change described in section 12.11 of this
revenue procedure for the same taxable
year of change may file a single Form
3115 for both changes, provided the taxpayer enters the designated automatic
change numbers for both changes on the
appropriate line on the Form 3115, and
complies with the ordering rules of
§ 1.263A–7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015–13, 2015–5 I.R.B.
419, for information on making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of accounting under this section 21.15 is
“203.”
(5) Contact information. For further information regarding a change under this
section, contact Sean Dwyer at (202) 3177005 (not a toll-free call).
.16 Certain changes to the cost
complement of the retail inventory
method.
(1) Description of change. This
change, as described in Rev. Proc. 2014 –
48, 2014 –36 I.R.B. 527, applies to a taxpayer using the retail inventory method
that wants to make one of the following
changes:
(a) From adjusting to not adjusting the
numerator of the cost complement by the
amount of an allowance, discount, or price
rebate that is required under § 1.471–3(e)
to reduce only cost of goods sold;
(b) From adjusting to not adjusting the
denominator of the cost complement for
temporary markups and markdowns;
(c) In the case of a retail LCM taxpayer, to computing the cost complement
using a method described in § 1.471–
8(b)(3), including changes from a method
described in § 1.471– 8(b)(3) to another
method described in § 1.471– 8(b)(3); or
(d) In the case of a retail cost taxpayer,
from not adjusting to adjusting the denominator of the cost complement for permanent markups and markdowns.
(2) Effective date and certain eligibility
rule temporarily inapplicable. This section 21.16 is effective for taxable years
beginning after December 31, 2014. The
eligibility rule in section 5.01(1)(f) of

May 23, 2016

Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
does not apply for a taxpayer’s first or
second taxable years beginning after December 31, 2014.
(3) Multiple changes. A taxpayer making multiple changes under this section
21.16 for the same year of change should
file a single Form 3115.
(4) Manner of making change. A taxpayer making a change under this section
21.16 for its first or second taxable year
beginning after December 31, 2014, may
use either a § 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev.
Proc. 2015–13 or implement the change
on a cut-off basis. If the taxpayer uses a
cut-off basis, the change applies only to
the computation of ending inventories after the beginning of the year of change,
and a § 481(a) adjustment is neither permitted nor required if a change is made on
a cut-off basis.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of accounting under this section 21.16 is
“204.”
(6) Contact information. For further information regarding a change under this
section, contact Natasha M. Mulleneaux
at (202) 317-7007 (not a toll-free call).
.17 Certain changes within the retail
inventory method.
(1) Description of change. This change
applies to a taxpayer using the retail inventory method that wants to change from
including to not including temporary
markups and markdowns in determining
the retail selling prices of goods on hand
at the end of the taxable year.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of accounting under this section 21.17 is
“225.”
(3) Contact information. For further information regarding a change under this
section, contact Natasha M. Mulleneaux
at (202) 317-7007 (not a toll-free call).

962

SECTION 22. LAST-IN, FIRST-OUT
(LIFO) INVENTORIES (§ 472)
.01 Change from the LIFO inventory
method.
(1) Description of change.
(a) In general. This change applies to a
taxpayer that wants to:
(i) change from the LIFO inventory
method for all its LIFO inventory or for
the entire content of one or more dollarvalue pools; and
(ii) change to a permitted method or
methods as determined in section
22.01(1)(b) of this revenue procedure.
(b) Method to be used.
(i) Determining the permitted method
to be used. A taxpayer may change to one
or more non-LIFO inventory methods for
the LIFO inventories that are the subject
of this accounting method change, but
only if the selected non-LIFO method is a
permitted method for the inventory goods
to which it will be applied. For example, a
heavy equipment dealer may change to
the specific identification method for new
heavy equipment inventories and the replacement cost method, as described in
Rev. Proc. 2006 –14, 2006 –1 C.B. 350,
for heavy equipment parts inventories.
(ii) Permitted method defined. For purposes of this section 22.01, an inventory
method (identification or valuation, or
both) is a permitted method if it is specifically permitted for the inventory goods
by the Code, the regulations, or other
guidance published in the Internal Revenue Bulletin, or a decision of the United
States Supreme Court and if the taxpayer
is neither prohibited from using that
method nor required to use a different
inventory method for those inventory
goods.
(iii) Determining permitted method.
Whether an inventory method is a permitted method is determined without regard
to the types and amounts of costs capitalized under the taxpayer’s method of computing inventory cost. See § 263A and the
regulations thereunder, which govern the
types and amounts of costs required to be
included in inventory cost for taxpayers
subject to those provisions.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply for the first

Bulletin No. 2016 –21

taxable year that the taxpayer does not or
will not comply with the requirements of
§ 472(e)(2) because the taxpayer has applied or will apply International Financial
Reporting Standards in its financial statements or because the taxpayer has been
acquired by an entity that has not or will
not use the LIFO method in its financial
statements.
(3) Limitation on LIFO election. The
taxpayer may not re-elect the LIFO inventory method for a period of at least five
taxable years beginning with the year of
change unless, based on a showing of
unusual and compelling circumstances,
consent is specifically granted by the
Commissioner to change the method of
accounting at an earlier time. A taxpayer
that wants to re-elect the LIFO inventory
method within a period of five taxable
years (beginning with the year of change)
must file a Form 3115 in accordance with
the non-automatic change procedures in
Rev. Proc. 2015–13. A taxpayer that
wants to re-elect the LIFO inventory
method after a period of five taxable years
(beginning with the year of change) does
not file a Form 3115 using the nonautomatic change procedures in Rev.
Proc. 2015–13, but, rather, must file a
Form 970, Application To Use LIFO Inventory Method, in accordance with
§ 1.472–3.
(4) Effect of subchapter S election by
corporation. See section 7.03(4)(b) and
(c) of Rev. Proc. 2015–13.
(5) Additional requirements. The taxpayer must complete the following statements and attach them to its Form 3115. If
the taxpayer will use different methods for
different inventory goods to which the
change applies, the taxpayer must complete the statements for each of those different types of inventory goods.
(a) “The proposed method of identifying [Insert description of inventory goods]
is the [Insert method, as appropriate; that
is, specific identification; FIFO; retail;
etc.] method.”
(b) “The proposed method of valuing
[Insert description of inventory goods] is
[Insert method, as appropriate; that is,
cost; LCM; etc.].”
(6) Pool split and partial termination.
If a taxpayer must remove goods from a
LIFO inventory pool because those goods
are not within the scope of that pool (for

Bulletin No. 2016 –21

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 revenue procedure and
then may change from the LIFO method
pursuant to this section 22.01. See section
22.10(2) of this revenue procedure. The
taxpayer must file a separate Form 3115
for each such change.
(7) Section 481(a) adjustment required.
(a) General rule. A taxpayer changing
from a LIFO inventory method must compute a § 481(a) adjustment for the year of
change. See section 7.02 of Rev. Proc.
2015–13.
(b) Special rule for changes that would
otherwise be implemented on a cut-off basis. If a taxpayer is changing from the
LIFO inventory method to a method of
accounting that is implemented on a cutoff basis under another section of this
revenue procedure (see, for example, sections 21.07, 21.08, and 21.14 of this revenue procedure), the taxpayer’s § 481(a)
adjustment is “the LIFO recapture
amount” as defined in § 312(n)(4)(B) and
(C). A taxpayer computing the § 481(a)
adjustment under this special rule must
then compute its ending inventory value
for the year of change using the proposed
method (that is, treat the deemed change
from the first-in, first-out (FIFO) method
to the proposed method on a cut-off basis).
(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.01 is “56.”
(9) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.02 Determining current-year cost under
the LIFO inventory method.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to change its method of
determining current-year cost to:
(i) the actual cost of the goods most
recently purchased or produced (mostrecent-acquisitions method);

963

(ii) the actual cost of the goods purchased or produced during the taxable
year in the order of acquisition (earliestacquisitions method);
(iii) the average unit cost equal to the
aggregate actual cost of all the goods purchased or produced throughout the taxable
year divided by the total number of units
so purchased or produced. See § 1.472–
8(e)(2)(ii);
(iv) the specific identification method;
or
(v) a rolling-average method if the taxpayer uses that rolling-average method in
accordance with Rev. Proc. 2008 – 43,
2008 –30 I.R.B. 186, as modified by Rev.
Proc. 2008 –52, 2008 –36 I.R.B. 587 (see
section 13).
(b) Inapplicability. This change does
not apply to a taxpayer using the lower of
cost or market method to determine
current-year cost. A taxpayer using the
lower of cost or market method that valued inventory below cost may not change
to a proper cost valuation under this section 22.02.
(2) Manner of making change. This
change is made using a cut-off basis and
applies only to the computations of
current-year cost after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3) Concurrent change to a rollingaverage method. A taxpayer making both
a change to a rolling-average method of
determining current-year cost for its LIFO
inventory under this section 22.02 and a
change to a rolling-average method of accounting for non-LIFO inventories under
Rev. Proc. 2008 – 43 (see section 21.14 of
this revenue procedure) should file a single Form 3115 for both changes, in which
case the taxpayer must enter the designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.02 is “57.”
(5) Contact information. For further information regarding a change under this

May 23, 2016

section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.03 Alternative LIFO inventory method
for retail automobile dealers.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer engaged in the trade or business of retail sales of new automobiles or
new light-duty trucks (“automobile
dealer”) that wants to change to the “Alternative LIFO method” described in section 4 of Rev. Proc. 97–36, 1997–2 C.B.
450, as modified by Rev. Proc. 2008 –23,
2008 –1 C.B. 664, for its LIFO inventories
of new automobiles and new light-duty
trucks. Light-duty trucks are trucks with a
gross vehicle weight of 14,000 pounds or
less, which also are referred to as class 1,
2, or 3 trucks.
(b) Inapplicability. This change does
not apply to an automobile dealer that
uses the inventory price index computation (IPIC) method for goods other than
new automobiles, new light-duty trucks,
parts and accessories, used automobiles,
and used trucks.
(2) Manner of making change.
(a) Cut-off basis. This change is made
using a cut-off basis and applies only to
the computation of ending inventories after the beginning of the year of change.
See section 5.03(6) of Rev. Proc. 97–36
for more information regarding a cut-off
basis. Accordingly, a § 481(a) adjustment
is neither permitted nor required.
(b) Concurrent change from IPIC
method. An automobile dealer using the
IPIC method that also has parts and accessories, used automobiles, or used lightduty trucks (other goods) inventory may
incorporate a change, using a cut-off basis, from IPIC to another acceptable LIFO
method for those other goods into this
change. When changing from IPIC to a
dollar-value LIFO method for its other
goods, the automobile dealer must establish separate inventory pools for new automobiles and new light-duty trucks, unless the automobile dealer also
concurrently changes to the Vehicle-Pool
Method (see section 22.08 of this revenue
procedure). Further, the automobile dealer
must establish a separate inventory pool
for the parts and accessories. See section
6.03(1)(b) of Rev. Proc. 2015–13, 2015–5

May 23, 2016

I.R.B. 419, for information on making
concurrent changes.
(c) Additional requirements. An automobile dealer also must comply with the
following:
(i) the conditions in section 5.03 of
Rev. Proc. 97–36; and
(ii) for an automobile dealer changing
from the IPIC method under this section
22.03, the automobile dealer also must
attach to its Form 3115 a schedule setting
forth the classes of goods for which the
automobile dealer has elected to use the
LIFO method and the accounting method
changes being made under this section
22.03 for each class of goods.
(3) Concurrent change to the VehiclePool Method. A taxpayer making both a
change to the Alternative LIFO Method
under this section 22.03 and a change to
the Vehicle-Pool Method under Rev.
Proc. 2008 –23 (see section 22.08 of this
revenue procedure) should file a single
Form 3115 for both changes, in which
case the taxpayer must enter the designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13
for information on making concurrent
changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.03 is “58.”
(5) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.04 Used vehicle alternative LIFO
method.
(1) Description of change. This change
applies to a taxpayer that sells used automobiles and used light-duty trucks (“used
vehicle dealers”) that wants to change to
the “Used Vehicle Alternative LIFO
Method” as described in Rev. Proc. 2001–
23, 2001–1 C.B. 784, as modified by Announcement 2004 –16, 2004 –1 C.B. 668,
and Rev. Proc. 2008 –23, 2008 –1 C.B.
664.
(2) Additional requirements. A taxpayer making this change must comply
with the additional conditions set forth in
section 5.04 of Rev. Proc. 2001–23.

964

(3) Manner of making change.
(a) Cut-off basis. This change is made
on a cut-off basis, which requires that the
value of the taxpayer’s used automobile
and used light-duty truck inventory at the
beginning of the year of change must be
the same as the value of that inventory at
the end of the preceding taxable year, plus
cost restorations, if any, required by section 5.04(5) of Rev. Proc. 2001–23. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(b) Bargain purchase. If the taxpayer
has previously improperly accounted for a
bulk bargain purchase, the taxpayer must,
as part of this change, first change its
method of accounting to comply with
Hamilton Industries, Inc. v. Commissioner, 97 T.C. 120 (1991), and compute a
§ 481(a) adjustment for that part of the
change. See Announcement 91–173,
1991– 47 I.R.B. 29. Upon examination, if
a taxpayer has properly changed under
this section 22.04 except for complying
with this section 22.04(3)(b), an examining agent may not deny the taxpayer the
change. However, the taxpayer does not
receive audit protection under section 8.01
of Rev. Proc. 2015–13, 2015–5 I.R.B.
419, with respect to the improper method
of accounting for the bargain purchase.
See section 8.02(2) of Rev. Proc. 2015–
13. Accordingly, the examining agent
may make any necessary adjustments in
any year for which the period of limitations on assessment and collection of tax
is open to effect compliance with Hamilton Industries, Inc.
(c) New base year. In effecting a
change to the Used Vehicle Alternative
LIFO Method under this revenue procedure, the taxpayer must retain any LIFO
inventory cost increments previously determined and the value of those increments. Instead of using the earliest taxable
year for which the taxpayer adopted LIFO
as the base year, the taxpayer must use the
year of change as the new base year in
determining the value of all existing LIFO
cost increments for the year of change and
later taxable years. (The cumulative index
at the beginning of the year of change is
1.00). The taxpayer must restate the baseyear cost of all LIFO cost increments at
the beginning of the year of change in
terms of new base-year costs, using the
year of change as the new base year, and

Bulletin No. 2016 –21

must recompute the indexes for previously determined inventory increments
accordingly. The new base-year cost of a
pool is equal to the total current-year cost
of all the vehicles in the pool.
(d) Form 3115. A completed Form
3115 includes the completion of Part I of
Schedule C.
(4) Concurrent change from IPIC
method. A used vehicle dealer using the
IPIC method that also has parts and accessories, new automobiles, or new lightduty trucks (other goods) inventory may
incorporate a change, using a cut-off basis, from IPIC to another acceptable LIFO
method for those other goods into this
change. When changing from IPIC to a
dollar-value LIFO method for its other
goods, the used vehicle dealer must establish separate inventory pools for new automobiles and new light-duty trucks, unless the used vehicle dealer also
concurrently changes to the Vehicle-Pool
Method (see section 22.08 of this revenue
procedure). Further, the used vehicle
dealer must establish a separate inventory
pool for the parts and accessories. See
section 6.03(1)(b) of Rev. Proc. 2015–13
for information on making concurrent
changes.
(5) Concurrent change to the VehiclePool Method. A taxpayer making both a
change to the Used Vehicle Alternative
LIFO Method under this section 22.04 and
a change to the Vehicle-Pool Method under Rev. Proc. 2008 –23 (see section 22.08
of this revenue procedure) should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13
for information on making concurrent
changes.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.04 is “59.”
(7) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).

Bulletin No. 2016 –21

.05 Determining the cost of used
vehicles purchased or taken as a tradein.
(1) Description of change.
(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to:
(i) determine the cost of used vehicles
acquired by trade-in using the average
wholesale price listed by an official used
vehicle guide on the date of the trade-in.
See Rev. Rul. 67–107, 1967–1 C.B. 115.
The taxpayer must consistently use the
official used vehicle guide selected unless
the taxpayer receives permission to use a
different guide;
(ii) use a different official used vehicle
guide for determining the cost of used
vehicles acquired by trade-in;
(iii) determine the cost of used vehicles
purchased for cash using the actual purchase price of the vehicle; or
(iv) reconstruct the beginning-of-theyear cost of used vehicles purchased for
cash using values computed by national
auto auction companies based on vehicles
purchased for cash. The national auto auction company selected must be consistently used.
(b) Inapplicability. This change does
not apply to a taxpayer that adopted or
changed to the Used Vehicle Alternative
LIFO Method (see section 22.04 of this
revenue procedure).
(2) Manner of making change. This
change is made on a cut-off basis and
applies only to used vehicles acquired on
or after the beginning of the year of
change. Accordingly, a § 481(a) adjustment is neither permitted nor required.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.05 is “60.”
(4) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.06 Change to the inventory price index
computation (IPIC) method.
(1) Description of change. This change
applies to a taxpayer that wants to change:
(a) from a non-IPIC LIFO inventory
method to the IPIC method in accordance

965

with all relevant provisions of § 1.472–
8(e)(3); or
(b) from the IPIC method as described
in T.D. 7814, 1982–1 C.B. 84, (March 15,
1982) (the old IPIC method) to the IPIC
method as described in § 1.472– 8(e)(3)
(see T.D. 8976, 2002–1 C.B. 421, (January 8, 2002)) (the new IPIC method),
which includes the following required
changes (if applicable):
(i) from using 80% of the inventory
price index (IPI) to using 100% of the IPI
to determine the base-year cost and dollarvalue of a LIFO pool(s);
(ii) from using a weighted arithmetic
mean to using a weighted harmonic mean
to compute an IPI for a dollar-value
pool(s); and
(iii) from using a components-of-cost
method to define inventory items to using
a total-product-cost method to define inventory items.
(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. Accordingly, a § 481(a) adjustment is neither permitted nor required.
(3) Bargain purchase. If the taxpayer
has previously improperly accounted for a
bulk bargain purchase, the taxpayer must,
as part of this change, first change its
method of accounting to comply with
Hamilton Industries, Inc. v. Commissioner, 97 T.C. 120 (1991), and compute a
§ 481(a) adjustment for that part of the
change. See Announcement 91–173,
1991– 47 I.R.B. 29. Upon examination, if
a taxpayer has properly changed under
this section 22.06 except for complying
with section 22.06(3) of this revenue procedure, an examining agent may not deny
the taxpayer the change. However, the
taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, with respect to the
improper method of accounting for the
bargain purchase. See section 8.02(2) of
Rev. Proc. 2015–13. Accordingly, the examining agent may make any necessary
adjustments in any year for which the
period of limitations on assessment and
collection of tax is open to effect compliance with Hamilton Industries, Inc.
(4) Concurrent automatic changes.
(a) A taxpayer making this change and
to change its method of determining

May 23, 2016

current-year cost under section 22.02 of
this revenue procedure for the same year
of change may file a single Form 3115 for
both changes, provided the taxpayer enters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(b) A taxpayer making this change and
to change its method of pooling to IPICmethod pools described in § 1.472–
8(b)(4) or § 1.472– 8(c)(2) under section
22.07 of this revenue procedure for the
same year of change may file a single
Form 3115, provided the taxpayer enters
the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015–13 for information on making concurrent changes.
(c) A taxpayer making this change and
to change its method of pooling under
section 22.10 of this revenue procedure
for the same year of change may file a
single Form 3115, provided the taxpayer
enters the designated automatic accounting method change numbers for both
changes on the appropriate line on that
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015–13 for information on making
concurrent changes.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.06 is “61.”
(6) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.07 Changes within the inventory price
index computation (IPIC) method.
(1) Description of change. This change
applies to a taxpayer using the IPIC
method described in § 1.472– 8(e)(3) as
revised by T.D. 8976, 2002–1 C.B. 421,
(new IPIC method) that wants to make
one or more of the following changes:
(a) change from the double-extension
IPIC method to the link-chain IPIC
method, or vice versa. See § 1.472–
8(e)(3)(iii)(E) for principles concerning
the computation of the inventory price

May 23, 2016

index under the double-extension IPIC
method and the link-chain IPIC method;
(b) change to or from the 10 percent
method. See § 1.472– 8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to Bureau of Labor Statistics (BLS) categories under the IPIC
method;
(c) change to IPIC-method pools described in § 1.472– 8(b)(4) or § 1.472–
8(c)(2), including a change to begin or
discontinue applying one or both of the 5
percent pooling rules;
(d) change to combine or separate
pools as a result of the application of a 5
percent pooling rule described in § 1.472–
8(b)(4) or § 1.472– 8(c)(2);
(e) change its selection of BLS table
from Table 3 (Consumer Price Index for
All Urban Consumers (CPI-U): U.S. city
average, detailed expenditure categories)
of the monthly CPI Detailed Report to
Table 9 (Producer price indexes (PPI) and
percent changes for commodity and service groupings and individual items, not
seasonally adjusted) of the monthly PPI
Detailed Report (formerly, Table 6), or
vice versa. See § 1.472– 8(e)(3)(iii)(B)(2)
for principles concerning the selection of
a BLS table under the IPIC method;
(f) change the assignment of one or
more inventory items to BLS categories
under either Table 3 (CPI-U): U.S. City
average, detailed expenditure categories)
of the monthly CPI Detailed Report or
Table 9 (PPI and percent changes for
commodity and service groupings and individual items, not seasonally adjusted) of
the monthly PPI Detailed Report (formerly, Table 6). 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;
(g) change the representative month
when necessitated because of a change in
taxable year or a change in method of
determining current-year cost made pursuant to section 22.02 of this revenue procedure. See § 1.472– 8(e)(3)(iii)(B) for
principles concerning the determination of

966

a representative month under the IPIC
method. A change in method of determining current-year cost and a change of the
representative month may be made using
a single Form 3115, provided the taxpayer
enters the designated automatic accounting method change numbers for both
changes on the appropriate line on that
Form 3115;
(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; and
(i) change from using a representative
appropriate month to using an appropriate
month. See § 1.472– 8(e)(3)(iii)(B)(3) for
principles concerning the selection of an
appropriate month.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to the changes
described in sections 22.07(1)(d), (f) in the
case of a taxpayer using the 10 percent method
described in § 1.472–8(e)(3)(iii)(C)(2), and
(g) of this revenue procedure.
(3) Manner of making change.
(a) Cut-off basis. These changes are
made on a cut-off basis and apply only to
the computation of ending inventories after the beginning of the year of change.
Accordingly, a § 481(a) adjustment is neither permitted nor required.
(b) New base year. A taxpayer that
changes pursuant to sections 22.07(1)(a),
(b), and (e) of this revenue procedure must
establish a new base year in the year of
change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.07 is “62.”
(5) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.08 Changes to the Vehicle-Pool
Method.
(1) Description of change. This change
applies to a retail dealer or wholesale distributor (“reseller”) of cars and light-duty
trucks that wants to change to the

Bulletin No. 2016 –21

“Vehicle-Pool Method” as described in
Rev. Proc. 2008 –23, 2008 –1 C.B. 664.
(2) Manner of making change.
(a) Cut-off basis. 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. Accordingly, a § 481(a) adjustment is neither
permitted nor required. A reseller that
changes its method of pooling under Rev.
Proc. 2008 –23 and this section 22.08
must comply with § 1.472– 8(g).
(b) New base year. Instead of using the
earliest taxable year for which the reseller
adopted the LIFO method for any items in
a pool, the reseller must use the year of
change as the base year when determining
the LIFO value of that pool for the year of
change and subsequent taxable years (that
is, the cumulative index at the beginning
of the year of change is 1.00). The reseller
must restate the base-year cost of all layers of increment in a pool at the beginning
of the year of change in terms of new
base-year cost. For an example of establishing a new base year, see § 1.472–
8(e)(3)(iv)(B)(1)(ii).
(3) Concurrent change to the Alternative LIFO Method or the Used Vehicle
Alternative LIFO Method. A reseller making both a change to the Vehicle-Pool
Method under this section 22.08 and a
change to the Alternative LIFO Method
under Rev. Proc. 97–36 (see section 22.03
of this revenue procedure) or the Used
Vehicle Alternative LIFO Method under
Rev. Proc. 2001–23 (see section 22.04 of
this revenue procedure) should file a single Form 3115 for both changes, in which
case the taxpayer must enter the designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, for information on
making concurrent changes.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.08 is “112.”
(5) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).

Bulletin No. 2016 –21

.09 Changes within the used vehicle
alternative LIFO method.
(1) Description of change. This change
applies to a taxpayer using the “Used Vehicle Alternative LIFO Method” as described in Rev. Proc. 2001–23, 2001–1
C.B. 784, as modified by Announcement
2004 –16, 2004 –1 C.B. 668, and Rev.
Proc. 2008 –23, 2008 –1 C.B. 664, that
wants to change the particular “official
used vehicle guide” utilized by the taxpayer in connection with the Used Vehicle
Alternative LIFO Method or any change
in the precise manner of its utilization (for
example, a change in the specific guide
category that a taxpayer uses to represent
vehicles of average condition for purposes
of section 4.02(5)(a) of Rev. Proc. 2001–
23).
(2) Manner of making change.
(a) Cut-off basis. 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. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
(b) New base year. A taxpayer that
changes its method pursuant to this section 22.09 must establish a new base year
in the year of change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.09 is “140.”
(4) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
.10 Changes to dollar-value pools of
manufacturers.
(1) Description of change. This change
applies to a manufacturer that:
(a) purchases goods for resale (resale
goods) and, thus, must reassign resale
goods from the pool(s) it maintains for the
goods it manufactures to one or more resale pools;
(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
(c) wants to reassign items in NBU
pools described in § 1.472– 8(b)(1) into

967

the same number or a greater number of
NBU pools.
(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. Accordingly, a § 481(a) adjustment is neither permitted nor required. A
taxpayer that changes its method of pooling pursuant to this section 22.10 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 this section 22.10, 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
revenue procedure, which must be implemented with a § 481(a) adjustment.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.10 is “141.”
(4) Contact information. For further information regarding a change under this
section, contact Leo Nolan at (202) 3177007 (not a toll-free call).
SECTION 23. MARK-TO-MARKET
ACCOUNTING METHOD (§ 475)
.01 Commodities dealers, securities
traders, and commodities traders
electing to use the mark-to-market
method of accounting under § 475(e) or
(f).
(1) Description of change. This change
applies to certain taxpayers that have
elected to use the mark-to-market method
of accounting under § 475(e) or (f). Under
§ 475(e) and (f) and Rev. Proc. 99 –17,
1999 –1 C.B. 503, if a taxpayer makes an
election under § 475(e) or (f), then beginning with the first taxable year for which
the election is effective (election year),
mark to market is the only permissible
method of accounting for securities or
commodities subject to the election. Thus,
if the electing taxpayer’s method of accounting for its taxable year immediately
preceding the election year is inconsistent
with § 475, the taxpayer is required to
change its method of accounting to comply with the election. A taxpayer that

May 23, 2016

makes a § 475(e) or (f) election but fails to
change its method of accounting to comply with that election is using an impermissible method. See section 4 of Rev.
Proc. 99 –17.
(2) Applicability. This change applies
to a taxpayer if all of the following conditions are satisfied:
(a) the taxpayer is a commodities dealer,
securities trader, or commodities trader
that has made a valid election under
§ 475(e) or (f) (see section 5.03(1) of Rev.
Proc. 99 –17) and that is required to
change its method of accounting to comply with the election;
(b) the method of accounting to which the
taxpayer changes is in accordance with its
election under § 475(e) or (f); and
(c) the year of change is the election year.
(3) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(4) Election under Rev. Proc. 99 –17.
In accordance with section 5.03(1) of Rev.
Proc. 99 –17, to make a § 475(e) or (f)
election, a taxpayer must file a statement
satisfying the requirements in section 5.04
of Rev. Proc. 99 –17. The taxpayer must
file the statement not later than the due
date (without regard to any extension) of
the original federal income tax return for
the taxable year immediately preceding
the election year and must attach the statement either to that return or, if applicable,
to a request for an extension of time to file
that return. For example, if a calendar year
individual taxpayer wants to make a
§ 475(e) or (f) election for 2014 (the election year), the taxpayer must file the statement on or before April 15, 2014, with the
taxpayer’s timely filed (without regard to
any extension) federal income tax return
for 2013 or the taxpayer’s timely filed
request for an extension of time to file the
2013 federal income tax return. On the
Form 3115 filed for the year of change, a
taxpayer should indicate that the taxpayer
has filed the statement in compliance with
section 5.03(1) of Rev. Proc. 99 –17.
(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.01 is “64.”
(6) Contact information. For further information regarding a change under this

May 23, 2016

section, contact Eric E. Boody at (202)
317-6945 (not a toll-free call).
.02 Taxpayers requesting to change their
method of accounting from the mark-tomarket method of accounting described
in § 475 to a realization method.
(1) Description of change. This change
applies to any taxpayer requesting permission to change its method of accounting
for securities or commodities as defined in
§ 475 from the mark-to-market method of
accounting described in § 475 to a realization method of accounting. For example, this section 23.02 applies when a taxpayer is required to change its method of
accounting to a realization method after
revoking an election under § 475(e),
(f)(1), or (f)(2).
(2) Exclusive procedure. The procedure set forth in this section 23.02 is the
exclusive procedure for changing a taxpayer’s method of accounting from the
mark-to-market method described in
§ 475 to a realization method. Thus, filing
the Notification Statement described in
section 23.02(6) of this revenue procedure
is the exclusive manner of revoking a
§ 475(e), (f)(1), or (f)(2) election. Moreover, any taxpayer requesting permission
to change to a realization method must
follow the procedures described in this
section 23.02 and other applicable provisions of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, to request consent to change
its method of accounting for securities
described in § 475(c)(2) (Section 475 Securities), commodities described in
§ 475(e)(2) (Section 475 Commodities),
or both.
(3) Applicability. This change applies
to a taxpayer if all of the following conditions in paragraphs (a) through (c) below are satisfied:
(a) the taxpayer is using, properly or
improperly, the mark-to-market method
of accounting described in § 475;
(b) the taxpayer is requesting permission to change to a realization method of
accounting and report gains or losses from
the disposition of Section 475 Securities,
Section 475 Commodities, or both, under
§ 1001; and
(c) the taxpayer meets the requirements
of this section 23.02, including the requirement that it timely file the Notifica-

968

tion Statement described in section
23.02(6) of this revenue procedure.
(4) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change.
(5) Manner of making change. This
change is made using a cut-off basis and
applies only to Section 475 Securities,
Section 475 Commodities, or both, that
are accounted for using the mark-tomarket method of accounting described in
§ 475 and for which a change in method is
requested under this section 23.02. Accordingly, a § 481(a) adjustment is neither
permitted nor required.
Under the cut-off basis, a taxpayer
must make a final mark of all Section 475
Securities, Section 475 Commodities, or
both, that are being marked to market and
that are the subject of the accounting
method change being requested, on the
last business day of the year preceding the
year of change. As a result of the final
mark, gain or loss attributable to those
securities and commodities is also recognized on the last business day of the year
preceding the year of change. In the case
of any Section 475 Security or Section
475 Commodity that a taxpayer holds on
the first day of the year of change, the
taxpayer must make proper adjustment in
the amount of any subsequently realized
gain or loss to take into account adjustments for the gain or loss recognized prior
to the first day of the year of change
pursuant to the use of the mark-to-market
method of accounting described in § 475
in order to prevent amounts from being
duplicated or omitted. Any change in
value on or after the first day of the year of
change will be taken into account using a
realization method of accounting unless
section 23.02(7) of this revenue procedure
permits the taxpayer to resume a mark-tomarket method and the taxpayer resumes
a mark-to-market method.
(6) Notification Statement required. In
addition to filing the Form 3115 required
under section 6.03(1) of Rev. Proc. 2015–
13, to change to a realization method of
accounting under this section 23.02, a taxpayer must also file a Notification Statement that satisfies the requirements in section 23.02(6) of this revenue procedure.
The Notification Statement must be filed

Bulletin No. 2016 –21

not later than the due date (without regard
to any extension) of the original federal
income tax return for the taxable year
immediately preceding the year of change
and must be attached either to that return
or, if applicable, to a request for an extension of time to file that return.
(a) Notification Statement contents.
The Notification Statement must contain
(1) the name of the taxpayer that will
change its method of accounting (that is,
the applicant), and, if applicable, the filer
(for example, its parent corporation); (2) a
statement that the taxpayer is requesting
to change its method of accounting from
the mark-to-market method of accounting
described in § 475 to a realization method;
(3) the year of change (both the beginning
and ending dates); and (4) the types of
instruments subject to the method change,
that is, Section 475 Securities, Section
475 Commodities, or both. If a taxpayer
has made an election under § 475(e),
(f)(1), or (f)(2), the taxpayer must also
include a statement revoking the taxpayer’s section 475 election or elections for
the Section 475 Securities, Section 475
Commodities, or both, for which a change
in accounting method is sought.
(b) Effect of filing Notification Statement. Once the taxpayer files a Notification Statement for the year of change, a
realization method of accounting is the
only permissible method of accounting for
Section 475 Securities, Section 475 Commodities, or both, described in the Notification Statement for the entire year of
change and all subsequent years (unless
section 23.02(7)(a) of this revenue procedure applies). A taxpayer that files the
Notification Statement described in this
section 23.02 but fails to change its
method of accounting using the procedures described in Rev. Proc. 2015–13
and this section 23.02 is using an impermissible method.
(c) Limited § 301.9100 relief. Section
301.9100 relief for failure to comply with
the requirements of this section 23.02(6)
will be granted only in unusual and compelling circumstances.
(7) Additional requirements.
(a) Resuming the mark-to-market
method of accounting. A taxpayer may not
use the automatic change procedures in
Rev. Proc. 2015–13 and section 23.01 of
this revenue procedure to resume using

Bulletin No. 2016 –21

the mark-to-market method of accounting
described in § 475 for the Section 475
Securities, Section 475 Commodities, or
both, that are the subject of the method
change being requested using this section
23.02 during any of the five taxable years
beginning with the year of change. To
resume using the mark-to-market method
of accounting described in § 475 during
this 5-year period, a taxpayer must: (i)
request the change using the nonautomatic change procedures in Rev.
Proc. 2015–13, (ii) request the change by
the date an election for the year of change
would be due under section 5.03 of Rev.
Proc. 99 –17, 1999 –1 C.B. 503, and (iii)
include a statement that satisfies all applicable requirements of section 5.04 of Rev.
Proc. 99 –17.
(b) Copy of Notification Statement. A
taxpayer must attach a copy of the Notification Statement required in section
23.02(6) of this revenue procedure to its
Form 3115 filed under this section 23.02.
(c) No audit protection for valuation. A
taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015–13
for the method of valuation used by the
taxpayer to determine the fair market
value of the taxpayer’s Section 475 Securities, Section 475 Commodities, or both,
for a taxable year prior to the year of
change, or for a failure to comply with the
requirements in Rev. Proc. 99 –17 to properly elect the mark-to-market method. See
section 8.02(2) of Rev. Proc. 2015–13.
(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.02 is “218”.
(9) Contact information. For further information regarding a change under this
section, contact Eric E. Boody at (202)
317-6945 (not a toll-free call).
SECTION 24. BANK RESERVES FOR
BAD DEBTS (§ 585)
.01 Changing from the § 585 reserve
method to the § 166 specific charge-off
method.
(1) Description of change.
(a) Applicability. This change applies
to a bank (as defined in § 581, including a
bank for which a qualified subchapter S
subsidiary (Qsub) election is filed) that

969

wants to change its method of accounting
for bad debts from the § 585 reserve
method to the § 166 specific charge-off
method.
(b) Inapplicability. This change does
not apply to a large bank as defined in
§ 585(c)(2).
(2) Certain eligibility rule inapplicable. A bank that changed from the § 593
reserve method under § 593(g) to the
§ 585 reserve method is not prohibited
under section 5.01(1)(f) of Rev. Proc.
2015–13, 2015–5 I.R.B. 419, from changing its method of accounting for bad debts
under this section 24.01 solely because of
the § 593(g) change. A bank for which a
Qsub election is filed will not be prohibited under section 5.01(1)(f) of Rev. Proc.
2015–13 from changing its method of accounting for bad debts under this section
24.01 solely because of the deemed liquidation of the bank arising from a Qsub
election.
(3) Section 481(a) adjustment. Generally, the amount of the § 481(a) adjustment for a change in method of accounting under this section 24.01 is the amount
of the bank’s reserve for bad debts as of
the close of the taxable year immediately
before the year of change. However, the
amount of the § 481(a) adjustment does
not include the amount of a bank’s pre1988 reserves (as described in
§ 593(g)(2)(A)(ii), without taking into account § 593(g)(2)(B)) if the bank changed
in a prior year from the § 593 reserve
method to the § 585 reserve method and
§ 593(g) applied to that change. The
deemed liquidation of a bank occurring
solely because its parent makes a Qsub
election does not accelerate the § 481(a)
adjustment. In accordance with section
7.03(4)(a) of Rev. Proc. 2015–13, a bank
that ceases to be a bank under § 581 must
accelerate its § 481(a) adjustment.
(4) Change from § 585 required when
electing S corporation status.
(a) General rule. A bank electing S
corporation status (or a bank for which a
Qsub election is filed) cannot use the
§ 585 reserve method. The filing by a
bank of a Form 2553, Election by a Small
Business Corporation, or the filing by a
bank’s parent of Form 8869, Qualified
Subchapter S Subsidiary Election, with
respect to the bank will constitute an
agreement by the bank to change its

May 23, 2016

method of accounting for bad debts from
the § 585 reserve method to the § 166
specific charge-off method effective as of
the taxable year for which the S corporation election or Qsub election is effective
(year of change) in accordance with all of
the automatic change procedures of Rev.
Proc. 2015–13 and this section 24.01. The
resulting § 481(a) adjustment is recognized built-in gain under § 1374, unless
the bank elects under § 1361(g) and section 24.01(4)(b) of this revenue procedure
to take the § 481(a) adjustment into account in determining taxable income for
the taxable year immediately preceding
the year of change. See § 1.1374 – 4(d).
(b) Election to include § 481(a) adjustment in taxable year immediately preceding the year of change.
(i) Election requirements. A bank that
changes its method of accounting for bad
debts under this section 24.01, from the
§ 585 reserve method to the § 166 specific
charge-off method for the first taxable
year for which the bank’s S corporation
election is effective (year of change) may
elect under § 1361(g) to take into account
the amount of the resulting § 481(a) adjustment in determining taxable income
for the taxable year immediately preceding the year of change. To make this election, a bank must (1) file an original and
copy of Form 3115 under section 6.03(1)
of Rev. Proc. 2015–13 (and any other
copy required under section 6.03) for the
year of change, (2) file an additional copy
of the Form 3115 with its original (or
amended) federal income tax return for
the taxable year immediately preceding
the year of change filed no later than the
date the original Form 3115 is properly
filed under section 6.03(1) of Rev. Proc.
2015–13 (and any other copy required under section 6.03) and (3) include the
amount of the § 481(a) adjustment in
gross income for the taxable year immediately preceding the year of change. The
bank must attach a statement to the original and both copies of Form 3115 stating
that the bank elects under § 1361(g) to
take the § 481(a) adjustment into account
in determining taxable income for the taxable year immediately preceding the year
of change.
(ii) Special rule for Qsub banks. In the
case of a Qsub bank, the S corporation
parent must file an original and copy of

May 23, 2016

Form 3115 under section 6.03(1) of Rev.
Proc. 2015–13 for the year of change. The
Qsub bank must file an additional copy of
the Form 3115 with its original (or
amended) federal income tax return for
the taxable year immediately preceding
the year of change filed no later than the
date the original Form 3115 is properly
filed under section 6.03(1) of Rev. Proc.
2015–13, and include the amount of the
§ 481(a) adjustment in gross income for
the taxable year immediately preceding
the year of change. In the case of a Qsub
bank, the Form 3115 should indicate that
the “filer” is the S corporation parent and
the “applicant” is the Qsub bank.
(iii) The following example illustrates
the principles of section 24.01(4)(b) of
this revenue procedure.
Example. X, a calendar year taxpayer, is a calendar year bank as defined in § 581 and is not a large
bank as defined in § 585(c)(2). For taxable years
before 2015, X accounted for its bad debts under the
§ 585 reserve method. By March 15, 2015, X properly filed a Form 2553 electing to be an S corporation effective January 1, 2015. Pursuant to section
24.01(4)(a) of this revenue procedure, the filing of
the Form 2553 constituted an agreement by X to
change from the § 585 reserve method to the § 166
specific charge-off method for 2015 in accordance
with all of the automatic change procedures of Rev.
Proc. 2015–13, and the applicable provisions of this
section 24.01. Thus, for example, X must file a Form
3115 for this 2015 change in duplicate, in accordance with section 6.03(1) of Rev. Proc. 2015–13,
by attaching the original Form 3115 to X’s timely
filed (including any extension) original federal income tax return for 2015 and filing a copy of the
Form 3115 with the Covington, KY, office. The
amount of X’s § 481(a) adjustment for the change is
the amount of X’s bad debt reserve as of the close of
December 31, 2014. X wishes to elect under
§ 1361(g) to include the § 481(a) adjustment in
income in the taxable year ending December 31,
2014, the taxable year immediately preceding the
year of change. To make this election, X must (1) file
an original and copy of Form 3115 for the 2015
change under section 6.03(1) of Rev. Proc. 2015–13,
(2) file an additional copy of that Form 3115 with its
original (or amended) federal income tax return for
2014 filed no later than the date the original Form
3115 is properly filed under section 6.03(1) of Rev.
Proc. 2015–13, and (3) include the amount of its
§ 481(a) adjustment in gross income in its return for
2014. X must attach a statement to the original and
both copies of Form 3115 stating that X elects under
§ 1361(g) to take the § 481(a) adjustment into account in determining taxable income for 2014, the
taxable year immediately preceding the year of
change.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change

970

number for a change under this section
24.01 is “66.”
(6) Contact information. For further information regarding a change under this
section, contact K. Scott Brown at (202)
317-6945, Laura Fields at (202) 317-6850
or Adrienne Mikolashek at (202) 3176850 (not a toll-free call).
SECTION 25. INSURANCE
COMPANIES (§§ 816, 832, 833)
.01 Safe harbor method of accounting
for premium acquisition expenses.
(1) Description of change. Rev. Proc.
2002– 46, 2002–2 C.B. 105, sets forth a
safe harbor method of accounting for premium acquisition expenses of certain nonlife insurance companies. Under this
method, an insurance company is permitted to treat as premium acquisition expenses incurred for the taxable year an
amount equal to the sum of (a) the amount
of premium acquisition expenses paid
during the taxable year; (b) the difference
between the unpaid premium acquisition
expenses shown on the company’s annual
statement for the taxable year and the unpaid premium acquisition expenses shown
on the company annual statement for the
preceding taxable year; and (c) the difference between the amount of the insurance
company’s pro forma premium acquisition expenses at the end of the taxable
year and the company’s pro forma premium acquisition expenses at the end of
the preceding taxable year. The amount
taken into account as a net increase in the
pro forma premium acquisition expenses,
however, cannot exceed the insurance
company’s unearned premium reserve
offset amount for that year. A special rule
applies to premium acquisition expenses
with respect to certain contracts with installment premiums. See Rev. Proc. 2002–
46.
(2) Applicability. The automatic
change in this section 25.01 applies to any
insurance company that is subject to tax
under § 831(a) and determines its premiums earned for insurance contracts during
the taxable year under § 832(b)(4) in accordance with the provisions of
§ 1.832– 4. The automatic change does not
apply to an existing Blue Cross or Blue
Shield organization or any other organization to which § 833 applies.

Bulletin No. 2016 –21

(3) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.01 is “67.”
(5) Contact information. For further information regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free call).
.02 Certain changes in method of
accounting for organizations to which
§ 833 applies
(1) Description of change. This change
applies to an existing Blue Cross or Blue
Shield organization within the meaning of
§ 833(c)(2), or an organization described
in § 833(c)(3), that is required to change
its method of accounting for unearned
premiums by reason of failing to meet the
Medical Loss Ratio (MLR) requirements
of § 833(c)(5), or by reason of meeting the
MLR requirements of § 833(c)(5) after
failing to meet those requirements in a
prior year. See Notice 2011– 4, 2011–2
I.R.B. 282.
(2) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change.
(3) Accelerated § 481(a) adjustment
period in certain situations. In addition to
the circumstances set forth in section
7.03(4) of Rev. Proc. 2015–13, the § 481
adjustment period provided in section
7.03 of Rev. Proc. 2015–13 will be accelerated in the event a taxpayer with a remaining balance of a § 481(a) adjustment
that arose by reason of a change in method
of accounting described in this section
25.02 is required to effect another change
in method of accounting described in this
section 25.02. Thus, for example, a taxpayer that fails to satisfy the requirements
of § 833(c)(5) and as a result has a positive § 481(a) adjustment, is required to
accelerate the remaining balance, if any,
of that adjustment in a subsequent taxable
year in which the taxpayer meets the requirements of § 833(c)(5).

Bulletin No. 2016 –21

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.02 is “155.”
(5) Contact information. For further information regarding this section, contact
Rebecca L. Baxter at (202) 317-6995 (not
a toll-free call).
.03 Change in qualification as
life/nonlife insurance company under
§ 816(a).
(1) Description of change. This change
applies to a taxpayer that changes its qualification under § 816(a) to move from a
life insurance company taxable under part
I of subchapter L to a non-life insurance
company taxable under part II of subchapter L, or vice versa. Whether an insurance
company is taxed under § 801 as a life
insurance company is determined using
the statutory requirements of § 816(a).
This section requires that a company’s life
insurance reserves (as defined in
§ 816(b)), plus unearned premiums and
unpaid losses on noncancellable life, accident, and health insurance contracts not
included in life insurance reserves, be
compared to its total reserves (as defined
in § 816(c)). The comparison mandated by
§ 816(a) is referred to as the qualification
fraction. An insurance company is a life
insurance company if the sum of the life
insurance reserves and unearned premiums and unpaid losses (whether or not
ascertained) on noncancellable life, accident, or health policies not included in life
insurance reserves comprise more than
50% of total reserves.
(2) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, do not apply to this
change.
(3) No audit protection or ruling on
qualification as a life insurance company.
The taxpayer does not receive either: (a)
any audit protection under section 8.01 of
Rev. Proc. 2015–13 or (b) ruling reliance
under section 10 of Rev. Proc. 2015–13 in
connection with the consent granted under
section 9 of Rev. Proc. 2015–13 for a
change under this section 25.03 regarding
whether the taxpayer qualifies as a life
insurance company. The director will as-

971

certain whether the taxpayer qualifies as a
life insurance company.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.03 is “219.”
(5) Contact information. For further information regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free call).
SECTION 26. DISCOUNTED UNPAID
LOSSES (§ 846)
.01 Composite method for discounting
unpaid losses.
(1) Description of change. Section 846
defines “discounted unpaid losses” for
purposes of computing the insurance company taxable income of certain insurance
companies. Notice 88 –100, 1988 –2 C.B.
439, section V, sets forth a composite
method for computing unpaid losses with
respect to accident years not separately
stated on the NAIC annual statement.
Rev. Proc. 2002–74, 2002–2 C.B. 980,
section 3.01, clarifies that the composite
method of Notice 88 –100, section V, is
permitted, but not required; section 3.02
sets forth an alternative method for those
taxpayers that do not use the composite
method of section 3.01. An insurance
company using a method provided in section 3.01 or 3.02 of Rev. Proc. 2002–74 to
compute discounted unpaid losses, must
use the same method to compute discounted estimated salvage recoverable.
An insurance company that currently uses
a permissible method of accounting for
discounted unpaid losses may change its
method of accounting to or from the composite method of Notice 88 –100, section
V, without the consent of the Commissioner. This change applies to insurance
companies that are required to discount
unpaid losses under § 846. See Rev. Proc.
2002–74.
(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
26.01 is “68.”
(3) Contact information. For further information regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free call).

May 23, 2016

SECTION 27. REAL ESTATE
MORTGAGE INVESTMENT
CONDUIT (REMIC) (§§ 860A– 860G)
.01 REMIC inducement fees.
(1) Description of change. A taxpayer
that receives an inducement fee in connection with becoming the holder of a noneconomic residual interest in a REMIC
must take that fee into account over the
remaining expected life of the applicable
REMIC in accordance with § 1.446 – 6.
This change applies to a taxpayer that
seeks to change from any method of accounting for such inducement fees to one
of the safe harbor methods provided under
§ 1.446 – 6(e)(1)–(2). See Rev. Proc.
2004 –30, 2004 –1 C.B. 950, for additional
guidance relating to this change.
(2) Manner of making change. A taxpayer making this change must identify
the specific safe harbor method under
§ 1.446 – 6(e) to which the taxpayer is
changing.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
27.01 is “79.”
(4) Contact information. For further information regarding a change under this
section, contact John W. Rogers, III at
(202) 317-6895 (not a toll-free call).
SECTION 28. FUNCTIONAL
CURRENCY (§ 985)
.01 Change in functional currency.
(1) Description of change. This change
applies to a taxpayer that wants to change
its functional currency or the functional
currency of a qualified business unit
(QBU) of the taxpayer. The preceding
sentence does not apply to a QBU of a
taxpayer described in § 1.985–1(b)(1)(iii).
(2) Manner of making change. A taxpayer making this change must make all
necessary adjustments required by such
change. See §§ 1.985–5, 1.985– 8(c). A
taxpayer must attach a statement to the
Form 3115 representing that it has made
the adjustments set forth in § 1.985–5 or
§ 1.985– 8(c). The statement must also
provide the amount of any unrealized exchange gain or loss required to be taken
into account pursuant to § 1.985–5 or
§ 1.985– 8(c) and the date on which a

May 23, 2016

taxpayer took such amount into account.
Finally, the statement must provide a detailed and complete description of any
other adjustments required pursuant to
§ 1.985–5 or § 1.985– 8(c).
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
28.01 is “70.”
(4) Contact information. For further information regarding a change under this
section, contact Peter Merkel at (202)
317-4919 (not a toll-free call).
SECTION 29. ORIGINAL ISSUE
DISCOUNT (§§ 1272, 1273)
.01 De minimis original issue discount
(OID).
(1) Description of change. This change
applies to a taxpayer that wants to change
to the principal-reduction method of accounting described in section 5 of Rev.
Proc. 97–39, 1997–2 C.B. 485. The
principal-reduction method of accounting
is an aggregate method of accounting for
de minimis OID (discount) on certain
loans originated by the taxpayer.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(3) Description. The principalreduction method of accounting is a permissible method for use by taxpayers to
account for discount on one or more categories of loans described in section 4.02
or 4.03 of Rev. Proc. 97–39. If the
principal-reduction method is used to account for any loans in a category of loans,
the method must be used for the entire
category of loans. The principal-reduction
method applies only to loans described in
section 3 of Rev. Proc. 97–39.
(4) Manner of making change.
(a) This change is made on a cut-off
basis and applies only to loans described
in section 3 of Rev. Proc. 97–39 that were
acquired on or after the beginning of the
year of change. Accordingly, a § 481(a)
adjustment is neither permitted nor required.
(b) The taxpayer must maintain books
and records sufficient to satisfy the director that old and new loans have been adequately segregated.

972

(5) Additional requirements. On a
statement attached to the Form 3115, the
taxpayer must:
(a) identify the categories of loans to
which the proposed method will apply;
and
(b) describe any “additional categories” permitted under section 4.03 of Rev.
Proc. 97–39.
(6) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015–13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015–13.
(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
29.01 is “72.”
(8) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
.02 Proportional method of accounting
for OID on a pool of credit card receivables.
(1) Description of change. This change
applies to a taxpayer that wants to change
to the proportional method of accounting
for OID on a pool of credit card receivables as described in Rev. Proc. 2013–26,
2013–22 I.R.B. 1160.
(2) Manner of making change. This
change is made on a cut-off basis. Accordingly, a § 481(a) adjustment is neither
required nor permitted. The unaccrued
OID for the pool as of the beginning of the
first period in the year of change is equal
to the unaccrued OID for the pool as of
the end of the preceding year under the
taxpayer’s previous method of accounting
for the pool.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
29.02 is “183.”
(4) Contact information. For further information regarding this section, please
contact Charles W. Culmer at (202) 3176945 (not a toll-free call).

Bulletin No. 2016 –21

SECTION 30. MARKET DISCOUNT
BONDS (§ 1278)
.01 Revocation of § 1278(b) election.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market discount bonds by revoking its § 1278(b)
election. Under § 1278(b), a taxpayer may
elect a method of accounting under which
market discount is currently included in
gross income for the taxable years to
which the discount is attributable. See
Rev. Proc. 92– 67, 1992–2 C.B. 429, for
the procedures to make a § 1278(b) election (including a deemed § 1278(b) election). The procedures for revoking a
§ 1278 election were formerly provided in
section 7 of Rev. Proc. 92– 67.
(2) Revocation of election. The revocation of a § 1278(b) election applies to all
market discount bonds that are held by the
taxpayer on the first day of the first taxable year for which the revocation is effective (year of change), and to all market
discount bonds that are subsequently acquired by the taxpayer. If a § 1278(b)
election is revoked, then for purposes of
§ 1278(a), accrued market discount with
respect to any bond previously subject to
the election means accrued market discount as defined in § 1276(b) less any
market discount included in income while
the bond was subject to the § 1278(b)
election.
(3) Manner of making change. This
change is made on a cut-off basis and
applies only to market discount accruing
on or after the beginning of the year of
change. Accordingly, a § 481(a) adjustment is neither permitted nor required.
Market discount accruing on a bond prior
to the year of change was currently included in income and market discount accruing on the bond on and after the first
day of the year of change is included in
income generally upon disposition of the
bond. See § 1276(a). Because a cut-off
basis is prescribed for this change, the
basis of any bond, adjusted for amounts
previously included in income during the
period of the election, is not affected by
the revocation.
(4) Additional requirements. On a
statement attached to the Form 3115, the
taxpayer must provide:

Bulletin No. 2016 –21

(a) the reason(s) for revoking the
§ 1278(b) election (or deemed § 1278(b)
election);
(b) a description of the method by
which, and the date on which, the taxpayer made the § 1278(b) election (or
deemed § 1278(b) election) that is being
revoked; and
(c) a statement that, after the revocation, the taxpayer will not make a constant
interest rate election for any bond that has
been subject to the § 1278(b) election (or
deemed § 1278(b) election) being revoked
and for which a constant interest rate election was not effective in the year of acquisition.
(5) Audit protection. A taxpayer may
receive audit protection, as provided in
section 8.01 of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, in connection with this
change. Any audit protection applicable to
this change under section 8.01 of Rev.
Proc. 2015–13 does not preclude the
Commissioner from examining the
method used by the taxpayer to determine
the amount of accrued market discount
under § 1276(b) for a taxable year prior to
the year of change.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
30.01 is “73.”
(7) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).

Cong., 2d Sess. 903 (1986), 1986 –3 (Vol.
3) C.B. 903.
(c) Section 1283(a)(1) generally defines a short-term obligation as any bond,
debenture, note, certificate, or other evidence of indebtedness that matures in one
year or less from its issue date.
(d) Under §§ 1281(a) and 1283(c), a
holder of a short-term obligation subject
to § 1281 must include in gross income an
amount equal to the sum of the daily portions of the acquisition discount or OID,
whichever is applicable, on the obligation
for each day during the taxable year that
the obligation is held by the holder. See
§ 1283(b), as modified by § 1283(c), to
determine the daily portions of acquisition
discount or OID. In addition, § 1281(a)
requires the holder to include in gross
income any stated interest that is payable
on the short-term obligation (other than
stated interest taken into account to determine the amount of the acquisition discount or OID) as it accrues.
(2) Section 481(a) adjustment period.
A taxpayer must take the entire § 481(a)
adjustment into account in computing taxable income for the year of change.
(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
31.01 is “74.”
(4) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).

SECTION 31. SHORT-TERM
OBLIGATIONS (§ 1281)

.02 Stated interest on short-term loans
of cash method banks.

.01 Interest income on short obligations.

(1) Description of change. This change
applies to a bank that uses the cash receipts and disbursements (cash) method of
accounting as its overall accounting
method and that wants to change its
method of accounting from accruing
stated interest on short-term loans made in
the ordinary course of business to using
the cash method for that interest. For example, see Security State Bank v. Commissioner, 214 F.3d 1254 (10th Cir. 2000),
aff’g 111 T.C. 210 (1998), acq., 2001–1
C.B. xix; and Security Bank Minnesota v.
Commissioner, 994 F.2d 432 (8th Cir.
1993), aff’g 98 T.C. 33 (1992), in which
the courts held that § 1281 does not apply
to short-term loans made by a cash

(1) Description of change.
(a) This change applies to a taxpayer
that wants to change its method of accounting to comply with § 1281 for interest income on short-term obligations.
(b) Under § 1281, a holder of certain
short-term obligations, including a bank
as defined in § 581, must include in gross
income any accrued interest income on
such obligations, regardless of the holder’s overall method of accounting. Section
1281 applies to all types of interest income, including acquisition discount,
original issue discount (OID), and stated
interest. See S. Rep. No. 99 –313, 99th

973

May 23, 2016

method bank in the ordinary course of its
business.
(2) Certain eligibility rule inapplicable. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015–13, 2015–5
I.R.B. 419, does not apply to this change.
(3) Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into account in computing taxable income for the
year of change.
(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
31.02 is “75.”
(5) Contact information. For further information regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).
EFFECTIVE DATE
.01 In general. Except as otherwise
provided under this EFFECTIVE DATE
section, this revenue procedure is effective for a Form 3115 filed on or after May
5, 2016, for a year of change ending on or
after September 30, 2015, that is filed
under the automatic change procedures of
Rev. Proc. 2015–13, 2015–5 I.R.B. 419,
as clarified and modified by Rev. Proc.
2015–33, 2015–24 I.R.B. 1067, and as
modified by Rev. Proc. 2016 –1, 2016 –1
I.R.B. 1.
.02 Transition rules. The following
transition rules apply:
(1) Limited time period to convert a
Form 3115 filed under the non-automatic
change procedures in Rev. Proc. 2015–
13. If before May 5, 2016, a taxpayer
properly filed a Form 3115 under the nonautomatic change procedures in Rev.
Proc. 2015–13 requesting the Commissioner’s consent for a change in method of
accounting described in this revenue procedure, and the Form 3115 is pending
with the national office on May 5, 2016,
the taxpayer may choose to make the
change in method of accounting under the
automatic change procedures in Rev.
Proc. 2015–13 if the taxpayer is otherwise
eligible to use this revenue procedure and
the automatic change procedures in Rev.
Proc. 2015–13. The taxpayer must notify
the national office contact person (if unknown, see section 9.08(6) of Rev. Proc.
2016 –1, 2016 –1 I.R.B. 1, 48 (or succes-

May 23, 2016

sor)) for the Form 3115 of the taxpayer’s
intent to make the change in method of
accounting under the automatic change
procedures in Rev. Proc. 2015–13 before
the later of (a) June 6, 2016, or (b) the
issuance of a letter ruling granting or denying consent for the change. The notification should indicate that the taxpayer
chooses to convert the Form 3115 to the
automatic change procedures in Rev.
Proc. 2015–13. If the taxpayer timely notifies the national office that it chooses to
convert the Form 3115 to the automatic
change procedures in Rev. Proc. 2015–13,
the national office will send a letter to the
taxpayer acknowledging its request and
will return the user fee submitted with the
Form 3115.
A taxpayer converting a Form 3115 to
the automatic change procedures in Rev.
Proc. 2015–13 for a change in method of
accounting described in this revenue procedure must resubmit a Form 3115 that
conforms to the automatic change procedures, with a copy of the national office
letter sent acknowledging the taxpayer’s
request attached, to the IRS in Covington,
KY by the earlier of (a) the 30th calendar
day after the date of the national office’s
letter acknowledging the taxpayer’s request, or (b) the date the taxpayer is required to file the Duplicate copy of the
Form
3115
under
SECTION
6.03(1)(a)(i)(B) of Rev. Proc. 2015–13.
See SECTION 6.03(3) of Rev. Proc.
2015–13 regarding additional required
copies of Form 3115.
For purposes of the eligibility rules in
SECTION 5 of Rev. Proc. 2015–13, the
Duplicate copy of the timely resubmitted
Form 3115 will be considered filed as of
the date the taxpayer originally filed the
converted Form 3115 under the nonautomatic change procedures in Rev.
Proc. 2015–13. This paragraph (1) does
not extend the date the taxpayer must file
the original (converted) Form 3115 under
SECTION 6.03(1)(a)(i)(A) of Rev. Proc.
2015–13.
A Form 3115 filed under the nonautomatic change procedures in Rev.
Proc. 2015–13 before May 5, 2016, for a
change in method of accounting described
in this revenue procedure, will be disregarded for purposes of the prior five year
change rules in SECTIONS 5.04 and 5.05
of Rev. Proc. 2015–13 if the taxpayer

974

converts the Form 3115 pursuant to this
paragraph (1).
(2) Forms 3115 for changes in methods
of accounting that can no longer be filed
under the automatic change procedures.
The following transition rules apply to the
changes in methods of accounting that can
no longer be filed under the automatic
change procedures in Rev. Proc. 2015–13.
Such changes are described in subsection
.01(1), (4), and (7) of the SIGNIFICANT
CHANGES section of this revenue procedure.
(a) For changes described in subsection
.01(1) and (4) of the SIGNIFICANT
CHANGES section of this revenue procedure:
(i) If before May 5, 2016, a taxpayer
properly filed the original, or the Duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc.
2015–13 for a change in method of accounting described in subsection .01(1) or
(4) of the SIGNIFICANT CHANGES
section of this revenue procedure, the taxpayer may make that change under the
automatic change procedures in Rev.
Proc. 2015–13 for the year of change.
(ii) If before May 5, 2016, a taxpayer
did not properly file the original, or the
Duplicate copy, of a Form 3115 under the
automatic change procedures in Rev.
Proc. 2015–13 for a change in method of
accounting described in subsection .01(1)
or (4) of the SIGNIFICANT CHANGES
section of this revenue procedure, the taxpayer must make that change under the
non-automatic change procedures in Rev.
Proc. 2015–13. Notwithstanding § 1.446 –
1(e)(3)(i), the taxpayer may file a Form
3115 to request the Commissioner’s consent to change the method of accounting
under the non-automatic change procedures in Rev. Proc. 2015–13 for the taxpayer’s last taxable year ending before
May 5, 2016, on or before the due date of
the federal income tax return for that taxable year. Solely for purposes of this paragraph (2)(a)(ii), the due date of the taxpayer’s federal income tax return includes
extensions, notwithstanding that the taxpayer may not have extended the due date.
(b) For the change described in subsection .01(7) of the SIGNIFICANT
CHANGES section of this revenue procedure:

Bulletin No. 2016 –21

(i) If before June 6, 2016, a taxpayer
properly filed the original, or the Duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc.
2015–13 for a change in method of accounting described in subsection .01(7) of
the SIGNIFICANT CHANGES section of
this revenue procedure, the taxpayer may
make that change under the automatic
change procedures in Rev. Proc. 2015–13
for the year of change.
(ii) If before June 6, 2016, a taxpayer
did not properly file the original, or the
Duplicate copy, of a Form 3115 under the
automatic change procedures in Rev.
Proc. 2015–13 for a change in method of
accounting described in subsection .01(7)
of the SIGNIFICANT CHANGES section
of this revenue procedure, the taxpayer
must make that change under the nonautomatic change procedures in Rev.
Proc. 2015–13. Notwithstanding § 1.446 –
1(e)(3)(i), the taxpayer may file a Form
3115 to request the Commissioner’s consent to change the method of accounting
under the non-automatic change procedures in Rev. Proc. 2015–13 for the taxpayer’s last taxable year ending before
June 6, 2016, on or before the due date of
the federal income tax return for that taxable year. Solely for purposes of this paragraph (2)(b)(ii), the due date of the taxpayer’s federal income tax return includes
extensions, notwithstanding that the taxpayer may not have extended the due date.
EFFECT ON OTHER DOCUMENTS
.01 This revenue procedure amplifies
and modifies Rev. Proc. 2015–14, 2015–5
I.R.B. 450, as modified by Rev. Proc.
2015–20, 2015–9 I.R.B. 694. Rev. Proc.
2015–14, as amplified and modified is superseded in part. The third sentence in the
subsection .01 under the EFFECT ON
OTHER DOCUMENTS section of Rev.
Proc. 2015–14 remains in effect. All other
sections of Rev. Proc. 2015–14 are superseded.
.02 Rev. Proc. 2011– 46, 2011– 42
I.R.B. 518, is modified as follows:
(1) Section 5.02(3)(a) is modified to
remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences
in its place:
(a) In accordance with § 1.446 –
1(e)(3)(ii), the requirement under

Bulletin No. 2016 –21

§ 1.446 –1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Notwithstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015–13,
2015–5 I.R.B. 419, the statement in lieu of
a Form 3115 that is permitted under this
paragraph 5.02(3)(a) is considered a Form
3115 for purposes of the automatic consent procedures in Rev. Proc. 2015–13.
However, the requirement to file the Duplicate copy, under section 6.03(1)(a) of
Rev. Proc. 2015–13, is waived.
(2) Section 5.03(2)(a) is modified to
remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences
in its place:
(a) In accordance with § 1.446 –
1(e)(3)(ii), the requirement under
§ 1.446 –1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Notwithstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015–13, the
statement in lieu of a Form 3115 that is
permitted under this paragraph 5.03(2)(a)
is considered a Form 3115 for purposes of
the automatic consent procedures in Rev.
Proc. 2015–13. However, the requirement
to file the Duplicate copy, under section
6.03(1)(a) of Rev. Proc. 2015–13, is
waived.
.03 Rev. Rul. 2004 – 62, 2004 –1 C.B.
1072, is modified to remove the second
sentence in the CHANGE IN METHOD
OF ACCOUNTING section and to substitute the following new two sentences in its
place:
A taxpayer that wants to change its
method of accounting to comply with this
revenue ruling must follow the automatic
change procedures in Rev. Proc. 2015–13,
2015–5 I.R.B. 419, (or successor) if the
taxpayer is eligible to request such consent under the automatic change procedures therein. The eligibility rules in section 5.01(1) of Rev. Proc. 2015–13 (or
successor) apply to a change in method of
accounting described in section 3.04 of
Rev. Proc. 2016 –29, 2016 –21 I.R.B. 880
(or successor).
.04 Rev. Rul. 2000 –7, 2000 –9 C.B.
712, is modified to remove the fourth sentence of the paragraph in the APPLICATION section and to substitute the following new fourth sentence:

975

A taxpayer that wants to change its
method of accounting to conform with the
holding in this revenue ruling must follow
the automatic change procedures in Rev.
Proc. 2015–13, 2015–5 I.R.B. 419, (or
successor) if the taxpayer is eligible to
request such consent under the automatic
change procedures therein, except that the
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015–13 (or successor) does
not apply to a change described in section
11.03 of Rev. Proc. 2016 –29, 2016 –21
I.R.B. 880 (or successor).
.05 Rev. Rul. 2000 – 4, 2000 –1 C.B.
331, is modified to remove the second
sentence of the paragraph in the APPLICATION section, and to substitute the
following two new sentences in that paragraph in its place:
A taxpayer that wants to change its
method of accounting to conform with the
holding in this revenue ruling must follow
the automatic change procedures in Rev.
Proc. 2015–13, 2015–5 I.R.B. 419, (or
successor) if the taxpayer is eligible to
request such consent under the automatic
change procedures therein. The eligibility
rules in section 5.01(1) of Rev. Proc.
2015–13 (or successor) apply to a change
in method of accounting under section
3.02 of Rev. Proc. 2016 –29, 2016 –21
I.R.B. 880 (or successor).
.06 Rev. Proc. 2007– 48, 2007–2 C.B.
110, is modified to remove section 5.06(1)
and to substitute it with the following sentence:
The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015–13, 2015–5 I.R.B.
419, (or successor) does not apply to a
change in method of accounting described
in section 5.06 of Rev. Proc. 2007– 48,
and made under section 21.09 of Rev.
Proc. 2016 –29, 2016 –21 I.R.B. 880 (or
successor).
PAPERWORK REDUCTION ACT
The collection of information contained in this revenue procedure has 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 15451551. 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.

May 23, 2016

The collections of information in this
revenue procedure are in sections 3, 5, 6,
7, 8, 9, 11, 12, 15, 16, 17, 18, 19, 20, 21,
22, 23, 24, 28, 29, and 30. This information is necessary and will be used to determine whether the taxpayer properly
changed to a permitted method of accounting. The collections of information
are required for the taxpayer to obtain
consent to change its method of accounting. The likely respondents are the following: individuals, farms, business or other
for-profit institutions, nonprofit institutions, and small businesses or organizations.
The estimated total annual reporting
and/or recordkeeping burden is 30,580
hours.
The estimated annual burden per respondent/recordkeeper varies from 1/6
hour to 8 ½ hours, depending on individual circumstances, with an estimated average of 1 ¼ hours. The estimated number
of respondents is 27,336. The estimated
annual frequency of responses is on occasion.
SIGNIFICANT CHANGES
.01 Significant changes to the List of
Automatic Changes in Rev. Proc.
2015–14 include:
(1) Section 6.01, relating to impermissible to permissible methods of depreciation or amortization, is amplified and
modified to provide that a taxpayer can
not make a change under this section for
any property for which the taxpayer has
claimed a federal income tax credit. This
change in method of accounting must be
made under the non-automatic change
procedures in Rev. Proc. 2015–13. Previously, section 6.01 did not apply to property for which the taxpayer claimed the
rehabilitation credit under § 47 and is reclassifying under § 168(e);
(2) Section 6.10, relating to late partial
disposition elections under § 168, and section 6.12, relating to partial dispositions of
tangible depreciable assets to which the
IRS’s adjustment pertains, are modified to
remove all references to Prop. Reg.
§ 1.168(i)– 8 because it is obsolete;
(3) Section 6.20, relating to the revocation of a partial disposition election under the remodel-refresh safe harbor described in Rev. Proc. 2015–56, 2015– 49
I.R.B. 827, is modified to provide that

May 23, 2016

such revocation must be made, and the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015–13 do not apply,
for any taxable year beginning after December 31, 2013, and ending before December 31, 2016. Previously, this revocation of the partial disposition election had
to be made, and these eligibility rules did
not apply for a change, under section 6.20
for the first or second taxable year beginning after December 31, 2013;
(4) Section 11.08, relating to changes
for tangible property, is modified to provide that this section does not apply to
amounts paid or incurred for repair and
maintenance costs that the taxpayer is
changing from capitalizing to deducting
and for which the taxpayer has claimed a
federal income tax credit or elected to
apply § 168(k)(4). This change in method
of accounting must be made under the
non-automatic change procedures in Rev.
Proc. 2015–13;
(5) Section 11.10, relating to the
remodel-refresh safe harbor described in
Rev. Proc. 2015–56, is modified to provide that the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015–13
do not apply for any taxable year beginning after December 31, 2013, and ending
before December 31, 2016. Previously,
these eligibility rules did not apply for a
change under section 11.10 for the first or
second taxable year beginning after December 31, 2013;
(6) Section 13.01, relating to changes
to comply with the requirements of § 267,
is modified to provide that the eligibility
rules in sections 5.01(1)(e) and (f) of Rev.
Proc. 2015–13 do not apply to changes to
comply with § 267(a)(3);
(7) Section 18.01 of Rev. Proc. 2015–
14, relating to changes for long-term contracts to the percentage-of-completion
method described in § 1.460 – 4(b), is removed from the revenue procedure in its
entirety. This change in method of accounting must be made under the nonautomatic change procedures in Rev.
Proc. 2015–13;
(8) Section 21.05, relating to impermissible methods of identification and
valuation of inventory, is amplified and
modified to provide that a taxpayer can
make a change under this section if the
taxpayer is changing from an impermissible method of accounting under § 471.

976

This change was previously limited to a
taxpayer changing from an impermissible
method of accounting described in
§§ 1.471–2(f)(1) through (5);
(9) The following sections are added to
the List of Automatic Changes in this revenue procedure to provide additional
changes in method of accounting to be
made under the automatic change procedures:
(a) Section 10.01, relating to changes for
start-up expenditures under § 195;
(b) Section 12.14, relating to changes for
interest capitalization under § 263A; and
(c) Section 21.17, relating to certain
changes within the retail inventory
method under § 471;
(10) The waiver of the eligibility rule
in section 5.01(1)(f) of Rev. Proc.
2015–13 is extended one year to any taxable year beginning before January 1,
2016, for the following sections:
(a) Section 6.13, relating to depreciation of leasehold improvements under
§ 1.167(a)– 4;
(b) Section 6.14, relating to a change
from a permissible to another permissible
method of accounting for depreciation of
MACRS property under §§ 1.168(i)–1,
1.168(i)–7, and 1.168(i)– 8;
(c) Section 6.15, relating to dispositions of a building or structural component under § 1.168(i)– 8;
(d) Section 6.16, relating to dispositions of tangible depreciable assets (other
than a building or its structural components) under § 1.168(i)– 8;
(e) Section 6.17, relating to dispositions of tangible depreciable assets in a
general asset account under § 1.168(i)–1;
and
(f) Section 11.08, relating to changes
for tangible property under the final tangible property regulations; and
(11) The following sections of Rev.
Proc. 2015–14 are obsolete and are removed from the revenue procedure in
their entirety:
(a) Section 6.08, relating to depreciation of cable TV fiber optics under the
safe harbor method of accounting provided in Rev. Proc. 2003– 63, 2003–2
C.B. 304;
(b) Section 6.27, relating to depreciation of leasehold improvements under
§ 1.167(a)– 4T;

Bulletin No. 2016 –21

(c) Section 6.28, relating to a change
from a permissible to another permissible
method of accounting for depreciation of
MACRS property under §§ 1.168(i)–1T,
1.168(i)–7T, and 1.168(i)– 8T, and Prop.
Reg. §§ 1.168(i)–1, 1.168(i)–7, and
1.168(i)– 8;
(d) Section 6.29, relating to dispositions of a building or structural component under § 1.168(i)– 8T and Prop. Reg.
§ 1.168(i)– 8;
(e) Section 6.30, relating to dispositions of tangible depreciable assets (other
than a building or its structural components) under § 1.168(i)– 8T and Prop.
Reg. § 1.168(i)– 8;
(f) Section 6.31, relating to dispositions of tangible depreciable assets in a

general asset account under § 1.168(i)–1T
and Prop. Reg. § 1.168(i)–1;
(g) Section 6.32, relating to general
asset
account
elections
under
§ 1.168(i)–1, § 1.168(i)–1T, and Prop.
Reg. § 1.168(i)–1; and
(h) Section 10.11(3)(b), relating to
changes for tangible property under the
temporary tangible property regulations.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Charles Magee of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Mr. Magee at (202) 317-7005 (not a tollfree number).

For further information regarding a
specific change in method of accounting
in this revenue procedure, contact the individual listed in the “Contact Person(s)”
section located at the end of each section
of the revenue procedure (calls are not
toll-free) or see the CONTACT LIST at
the end of this revenue procedure. The
contact person is with one of the following Offices of Associate Chief Counsel:
Corporate (CORP), Financial Institutions
and Products (FI&P), Income Tax & Accounting (IT&A), International (INTL),
Passthroughs and Special Industries
(P&SI), or Tax Exempt and Government
Entities (TEGE).

LIST OF AUTOMATIC CHANGES CONTACT LIST

Section Number
1.01
2.01
3.01
3.02
3.03
3.04
3.05
3.06
3.07
3.08
3.09
3.10
3.11
4.01
4.02
5.01
5.02
6.01
6.02
6.03
6.04
6.05
6.06
6.07
6.08
6.09
6.10
6.11

Designated Automatic
Accounting Change Number
91
1
2
3
4
86
See § 11.08
See § 11.08
158
159
160
182
208, 209
5
211
16
212
7
8
10
87
88
89
107
145
157
196
197

Bulletin No. 2016 –21

Contact Name
William E. Blanchard
William Ruane
Peter Ford
Peter Ford
Peter Ford
Peter Ford
See § 11.08
See § 11.08
Lewis Saideman
Lewis Saideman
Lewis Saideman
Lewis Saideman
Merrill Feldstein
Charles Gorham
K. Scott Brown
William E. Blanchard
Joseph Vetting
Charles Magee
Charles Magee
Edward Schwartz
Elizabeth Binder
Elizabeth Binder
Bernard Harvey
Charles Magee
Elizabeth Binder
Charles Magee
Patrick Clinton
Patrick Clinton

977

Telephone Number
(202) 317-3900
(202) 317-4718
(202) 317-7011
(202) 317-7011
(202) 317-7011
(202) 317-7011
See § 11.08
See § 11.08
(202) 317-5100
(202) 317-5100
(202) 317-5100
(202) 317-5100
(202) 317-5100
(202) 317-7003
(202) 317-6945
(202) 317-3900
(202) 317-4960
(202) 317-7005
(202) 317-7005
(202) 317-7006
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005

Office
FI&P
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
INTL
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

May 23, 2016

Section Number
6.12
6.13
6.14
6.15
6.16
6.17
6.18

Designated Automatic
Accounting Change Number
198
199
200
205
206
207

6.19
6.20
7.01
8.01
9.01
10.01
11.01
11.02
11.03
11.04
11.05
11.06
11.07
11.08
11.09
11.10
12.01
12.02
12.03
12.04
12.05
12.06
12.07
12.08
12.09
12.10
12.11
12.12
12.13
12.14
13.01

210
221
17
152
18
223
19
20
21
47
78
109
121
184–193
213
222
22
23
25
77
92
150, 151
181
194
195
201
202
214
215
224
26

14.01
14.02

28
29

15.01
15.02

122, 123
31

May 23, 2016

Contact Name
Patrick Clinton
Patrick Clinton
Patrick Clinton
Patrick Clinton
Patrick Clinton
Patrick Clinton
Summary of changes
related
to dispositions of
MACRS property
Charles Magee
Elizabeth Binder
Elizabeth Binder
Jennifer Bernardini
Charles Magee
Elizabeth Binder
Jason Kristall
Jason Kristall
Jason Kristall
Jason Kristall
Jason Kristall
Jason Kristall
Jason Kristall
Lewis Saideman
Charles Gorham
Merrill Feldstein
Natasha Mulleneaux
Natasha Mulleneaux
Natasha Mulleneaux
Sean Dwyer
Sean Dwyer
Natasha Mulleneaux
Patrick Clinton
Natasha Mulleneaux
Sue-Jean Kim
Sean Dwyer
Sean Dwyer
Sean Dwyer
Sean Dwyer
Steven Gee
Steven Gee
Joseph Vetting
Maryellen Furr
David Zeigler
Carlton Watkins
Cheryl Oseekey
Timothy Azarchs

978

Telephone Number
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005
(202) 317-7005

Office
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)

IT&A
IT&A
IT&A
P&SI
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
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
IT&A
INTL
TEGE
EP
EP
IT&A
IT&A

317-7005
317-7003
317-7005
317-6853
317-7005
317-7005
317-7003
317-7003
317-7003
317-7003
317-7003
317-7003
317-7003
317-5100
317-7003
317-5100
317-7007
317-7007
317-7007
317-7005
317-7005
317-7007
317-7005
317-7007
317-7007
317-7005
317-7005
317-7005
317-7005
317-7007
317-7007
317-4960
317-5600
317-8629
317-8631
317-7007
317-5100

Bulletin No. 2016 –21

Section Number
15.03
15.04
15.05
15.06
15.07
15.08
15.09
15.10
15.11
15.12
15.13

Designated Automatic
Accounting Change Number
32,33
34, 35
71
85
90
108
124
125
126
127
128

15.14
15.15
16.01
16.02
16.03
16.04
16.05
16.06
16.07
16.08
16.09
16.10
17.01
18.01
19.01
19.02
19.03
19.04
19.05
19.06

129
148
36
37
38
39
80, 81
82
83, 84, 216
94
130, 217
153
131
132
42, 133, 134
43
44
45, 113
46
106

19.07
19.08
19.09

135
149
154

19.10

156

19.11

161

19.12
20.01
21.01
21.02
21.03
21.04

220
136
48
49
50, 51
53

Bulletin No. 2016 –21

Contact Name
Megan Kirmil
Sean Dwyer
William E. Blanchard
Bernard Harvey
Rebecca L. Baxter
K. Scott Brown
Douglas Kim
Timothy Azarchs
Megan Kirmil
K. Scott Brown
Maxine Woo-Garcia
Christina Glendening
David H. McDonnell
Charles W. Culmer
K. Scott Brown
Daniel Cassano
Sandra Cheston
Bill Ruane
Kate Sleeth
Kate Sleeth
Peter Ford
Kate Sleeth
Peter Cohn
Ronald Goldstein
William E. Blanchard
Patrick Clinton
Sandra Cheston
Kari Fisher
Kari Fisher
Mon Lam
Mon Lam
Christina M. Glendening
Mon Lam
Daniel Cassano
Christina M. Glendening
Christina M. Glendening
Christina M. Glendening
David Christensen
William Ruane
Steven Gee
Steven Gee
Natasha Mulleneaux
Steven Gee

979

Telephone Number
(202) 317-7007
(202) 317-7005
(202) 317-3900
(202) 317-7005
(202) 317-6995
(202) 317-6945
(202) 317-7003
(202) 317-5100
(202) 317-7007
(202) 317-6945
(202) 317-7011
(202) 317-7003
(202) 317-4137
(202) 317-6945
(202) 317-6945
(202) 317-7011
(202) 317-7011
(202) 317-4718
(202) 317-7053
(202) 317-7053
(202) 317-7011
(202) 317-7053
(202) 317-7011
(202) 317-7003
(202) 317-3900
(202) 317-7005
(202) 317-7011
(202) 317-5100
(202) 317-5100
(202) 317-5100
(202) 317-5100
(202) 317-7003

Office
IT&A
IT&A
FI&P
IT&A
FI&P
FI&P
IT&A
IT&A
IT&A
FI&P
IT&A
IT&A
P&SI
FI&P
FI&P
IT&A
IT&A
IT&A
FI&P
FI&P
IT&A
FI&P
IT&A
IT&A
FI&P
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

(202) 317-5100
(202) 317-7011
(202) 317-7003

IT&A
IT&A
IT&A

(202) 317-7003

IT&A

(202) 317-7011

IT&A

(202)
(202)
(202)
(202)
(202)
(202)

IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

317-7011
317-4718
317-7007
317-7007
317-7007
317-7007

May 23, 2016

Section Number
21.05
21.06
21.07
21.08
21.09
21.10
21.11
21.12
21.13
21.14
21.15
21.16

Designated Automatic
Accounting Change Number
54
55
63
96
110
111
137
138
139
114
203
204

21.17

225

22.01
22.02
22.03
22.04
22.05
22.06
22.07
22.08
22.09
22.10
23.01
23.02
24.01

56
57
58
59
60
61
62
112
140
141
64
218
66

25.01
25.02
25.03
26.01
27.01
28.01
29.01
29.02
30.01
31.01
31.02

67
155
219
68
79
70
72
183
73
74
75

May 23, 2016

Contact Name
Natasha Mulleneaux
Andrew Braden
Andrew Braden
Andrew Braden
Jason Kristall
Steven Gee
Steven Gee
Andrew Braden
Andrew Braden
Leo Nolan
Sean Dwyer
Natasha M. Mulleneaux
Natasha M. Mulleneaux
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Leo Nolan
Eric E. Boody
Eric E. Boody
K. Scott Brown
Laura Fields
Adrienne Mikolashek
Rebecca L. Baxter
Rebecca L. Baxter
Rebecca L. Baxter
Rebecca L. Baxter
John W. Rogers, III
Peter Merkel
William E. Blanchard
Charles W. Culmer
William E. Blanchard
William E. Blanchard
William E. Blanchard

980

Telephone Number
(202) 317-7007
(202) 317-7007
(202) 317-7007
(202) 317-7007
(202) 317-7003
(202) 317-7007
(202) 317-7007
(202) 317-7007
(202) 317-7007
(202) 317-7007
(202) 317-7005
(202) 317-7007

Office
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A
IT&A

(202) 317-7007

IT&A

(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)
(202)

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

317-7007
317-7007
317-7007
317-7007
317-7007
317-7007
317-7007
317-7007
317-7007
317-7007
317-6945
317-6945
317-6945
317-6850
317-6850
317-6995
317-6995
317-6995
317-6995
317-6895
317-4919
317-3900
317-6945
317-3900
317-3900
317-3900

Bulletin No. 2016 –21