Rp 2024-9

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

Finding Lists begin on page ii.




Bulletin No. 2024–5
January 29, 2024

EMPLOYEE PLANS

Rev. Proc. 2024-9, page 628.

Revenue Procedure 2024-9 provides procedures for obtaining automatic consent to change methods of accounting for
specified research or experimental expenditures under § 174
paid or incurred in taxable years beginning after December
31, 2021. Revenue Procedure 2024-9 also clarifies section
9 of Revenue Procedure 2023-24 to provide that section 5 of
Revenue Procedure 2000-50 is obsoleted for costs of developing computer software paid or incurred in any taxable year
beginning after December 31, 2021, and continues to apply
to costs of developing computer software paid or incurred
in any taxable year beginning on or before December 31,
2021.

TAX CONVENTIONS

29, 2024

2

Bulletin No. 2024–5

revenue procedure to “former § 174” refer
to that section as in effect for research
or experimental expenditures paid or
incurred in taxable years beginning before
January 1, 2022, that is, prior to the effective date of the amendments made to § 174
by § 13206(a) of Public Law 115-97, 131
Stat. 2054 (Dec. 22, 2017), commonly
referred to as the Tax Cuts and Jobs Act
(TCJA). References to “§ 174” in this revenue procedure refer to § 174 as amended
by the TCJA.
SECTION 2. BACKGROUND

number).

(202) 317- 5279 (not a toll-free

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also, Part 1, §§ 174, 446, 460, 1.446-1.)

Rev. Proc. 2024-9
SECTION 1. PURPOSE
This revenue procedure modifies sections 7 and 19 of Rev. Proc. 2023-24,
2023-28 I.R.B. 1207, to provide procedures under §  446 of the Internal Revenue Code (Code)1 and §  1.446-1(e) for
obtaining automatic consent of the Commissioner of Internal Revenue (Commissioner) to change methods of accounting
for expenditures paid or incurred in taxable years beginning after December 31,
2021, in reliance on interim guidance
under §§ 174 and 460 provided in Notice
2023-63, 2023-39 I.R.B. 919, as modified
by Notice 2024-12, this Bulletin. This
revenue procedure also clarifies section
9 of Rev. Proc. 2023-24 to provide that
section 5 of Rev. Proc. 2000-50 is obsoleted for costs of developing computer
software paid or incurred in any taxable
year beginning after December 31, 2021,
and continues to apply to costs of developing computer software paid or incurred
in any taxable year beginning on or before
December 31, 2021. References in this

1

.01 Treatment of research and experimental expenditures under former § 174.
Former §  174 allowed taxpayers to
elect to deduct research or experimental
expenditures paid or incurred in connection with a trade or business as current
expenses, to capitalize and amortize such
expenditures over a period of not less than
60 months, or to charge such expenditures
to capital account.
.02 Treatment of SRE expenditures
under § 174.
(1) Section 13206(a) of the TCJA
amended former §  174 for amounts paid
or incurred in taxable years beginning
after December 31, 2021. For amounts
paid or incurred in taxable years beginning after December 31, 2021, that meet
the definition of specified research or
experimental (SRE) expenditures under
§  174(b), §  174(a)(1) disallows deductions for such amounts, except as provided
in § 174(a)(2). Section 174(a)(2) requires
taxpayers to charge SRE expenditures to
capital account and allows amortization
deductions of such capitalized expenditures ratably over the applicable § 174
amortization period, beginning with the
midpoint of the taxable year in which
such expenditures are paid or incurred. As
used in this revenue procedure, the term
“applicable §  174 amortization period”
refers to a 5-year period in the case of
SRE expenditures attributable to domestic research, or a 15-year period in the
case of SRE expenditures attributable to
foreign research. Section 13206(a) of the
TCJA also made other amendments to former § 174, including amendments to treat

any cost to develop computer software as
an SRE expenditure and to prevent the
accelerated recovery of unamortized SRE
expenditures on account of the disposition, retirement, or abandonment of property with respect to which such expenditures were paid or incurred. For additional
background on former § 174 and the TCJA
amendments to former § 174, see section
2 of Notice 2023-63.
(2) Section 13206(b) of the TCJA
requires taxpayers to treat the amendments made by section 13206(a) of the
TCJA as a change in method of accounting for purposes of § 481 that is (i) initiated by the taxpayer, (ii) made with the
consent of the Secretary of the Treasury
or her delegate, and (iii) applied on a cutoff basis to SRE expenditures paid or
incurred in taxable years beginning after
December 31, 2021. Thus, no adjustments
under §  481(a) are required or permitted
with respect to research or experimental
expenditures paid or incurred in taxable
years beginning before January 1, 2022.
.03 Treatment of SRE expenditures
under § 460. Section 460(a) generally
requires use of the percentage-of-completion method (PCM) to account for taxable
income from a long-term contract. Section
1.460-4(b)(2)(i) provides that under the
PCM, the portion of the contract price a
taxpayer must report in a taxable year corresponds to the ratio of incurred allocable
contract costs to total estimated allocable
contract costs. This ratio represents the
portion of a contract considered completed
for purposes of the PCM. Under the PCM,
a taxpayer generally deducts allocable
contract costs as they are incurred. Thus,
under §  1.460-4(b)(2)(iv), an increase in
the percentage of the contract price to be
reported is generally matched by deduction of the incurred costs that cause the
increase. Under the current §  460 regulations in § 1.460-5(b)(2)(vi), allocable
contract costs include research or experimental expenses, other than independent research and development expenses.
Thus, when these expenses are incurred,
they increase the portion of a contract considered completed and the percentage of
the contract price required to be reported.
The current § 460 regulations were drafted

Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

January 29, 2024

628

Bulletin No. 2024–5

with respect to taxable years in which a
taxpayer could currently deduct research
or experimental expenses under former
§  174. Section 174(a) requires that SRE
expenditures be charged to capital account
and deducted over the applicable §  174
amortization period. As a result, under the
current §  460 regulations, incurred SRE
expenditures increase the percentage of
the contract price required to be reported,
although § 174(a) prevents a corresponding current deduction of those incurred
SRE expenditures.
.04 Procedural guidance under Rev.
Proc. 2023-11.
(1) On December 29, 2022, the Department of the Treasury (Treasury Department) and the Internal Revenue Service
(IRS) issued Rev. Proc. 2023-11, 2023-3
I.R.B. 417, modifying and superseding
Rev. Proc. 2023-8, 2023-3 I.R.B. 407, to
provide procedures to obtain automatic
consent to change methods of accounting for SRE expenditures to comply with
§ 174. The change in method of accounting provided by Rev. Proc. 2023-11 was
subsequently included in section 7.02 of
Rev. Proc. 2023-24.
(2) Section 7.02(4)(a) of Rev. Proc.
2023-24 implements the requirement
imposed by § 13206(b) of the TCJA that a
taxpayer must make a change in method of
accounting to comply with § 174 on a cutoff basis if the change is made for the taxpayer’s first taxable year beginning after
December 31, 2021. Section 7.02(4)(a)
of Rev. Proc. 2023-24 also provides that
the requirement of §  1.446-1(e)(3)(i) to
file a Form 3115, Application for Change
in Accounting Method, is waived, and a
statement in lieu of a Form 3115 is authorized for the change in method of accounting for which the year of change is the first
taxable year beginning after December 31,
2021. However, section 7.02(4)(b) of Rev.
Proc. 2023-24 provides that a taxpayer
making the change for a taxable year subsequent to the taxpayer’s first taxable year
beginning after December 31, 2021, is
required to make that change with a modified §  481(a) adjustment that takes into
account only SRE expenditures paid or
incurred in taxable years beginning after
December 31, 2021, and is required to file
a Form 3115.
(3) Section 7.02(6) of Rev. Proc. 202324 waives the eligibility rule in section

Bulletin No. 2024–5

5.01(1)(f) of Rev. Proc. 2015-13 (regarding changes made in the previous 5 years
for the same item) for changes to comply
with § 174 for the taxpayer’s first taxable
year beginning after December 31, 2021.
(4) Section 7.02(7) of Rev. Proc. 202324 provides that a taxpayer that changes
its method of accounting for SRE expenditures under Rev. Proc. 2023-24 will
receive limited audit protection. Specifically, audit protection will not apply for
expenditures paid or incurred in taxable
years beginning on or before December
31, 2021. Audit protection also will not
apply for expenditures paid or incurred
in taxable years beginning after December 31, 2021, if a change in method of
accounting is made for the taxable year
immediately subsequent to the first taxable year beginning after December 31,
2021.
.05 Interim guidance under Notice
2023-63.
(1) Notice 2023-63 was issued on
September 8, 2023, to announce that the
Treasury Department and the IRS intend
to issue proposed regulations addressing
(1)  the capitalization and amortization
of SRE expenditures under §  174, (2)
the treatment of SRE expenditures under
§ 460, and (3) the application of § 482 to
cost sharing arrangements involving SRE
expenditures. Sections 3 through 9 of
Notice 2023-63 provide interim guidance
regarding issues intended to be addressed
by forthcoming proposed regulations. Section 3 of Notice 2023-63 provides interim
guidance regarding the requirement to
capitalize and amortize SRE expenditures,
SRE expenditures attributable to foreign
research, and the determination of the midpoint of a taxable year (including a short
taxable year). Section 4 of Notice 2023-63
provides interim guidance regarding the
definition of SRE expenditures and SRE
activities, the types of expenditures that
are SRE expenditures, the allocation of
such expenditures to SRE activities, and
the consistent treatment of SRE expenditures under other provisions of the Code.
Section 5 of Notice 2023-63 provides
interim guidance regarding activities that
constitute software development, expenditures in connection with which are SRE
expenditures. Section 6 of Notice 202363 provides interim guidance regarding
the treatment of expenditures for research

629

performed under a contract. Section 7 of
Notice 2023-63 provides interim guidance
regarding the treatment of unamortized
SRE expenditures if the property with
respect to which such expenditures were
paid or incurred is disposed of, retired,
or abandoned. Section 8 of Notice 202363 provides interim guidance regarding
the application of the PCM under §  460
if allocable contract costs include SRE
expenditures and allows taxpayers to
treat only the amortization of incurred
SRE expenditures as increasing the percentage of the contract price required to
be reported. Section 9 of Notice 2023-63
provides interim guidance regarding the
treatment under §1.482-7 of cost sharing
transaction payments in certain cost sharing arrangements that involve SRE activities.
(2) Section 10.01 of Notice 2023-63, as
modified by Notice 2024-12, provides that
taxpayers may rely on the rules in sections
3 through 9 of Notice 2023-63 prior to the
publication date of the forthcoming proposed regulations in the Federal Register
for expenditures paid or incurred in taxable years beginning after December 31,
2021. However, taxpayers may not rely on
the rules in section 7 of the notice regarding the treatment of SRE expenditures
paid or incurred with respect to property
that is contributed to, distributed from, or
transferred from a partnership.
(3) Section 10.02 of Notice 2023-63
provides that the Treasury Department
and the IRS intend to issue guidance to
provide procedures for taxpayers to obtain
automatic consent to change methods of
accounting to rely on the notice. Notice
2023-63 provides that taxpayers may rely
on section 7.02 of Rev. Proc. 2023-24 to
change their methods of accounting under
§ 174 to rely on Notice 2023-63 until the
issuance of such procedural guidance.
This revenue procedure provides such
procedural guidance.
(4) Section 12 of Notice 2023-63, as
clarified by Notice 2024-12, provides that
for amounts paid or incurred in taxable
years beginning after December 31, 2021,
section 5 of Rev. Proc. 2000-50 is removed
as obsolete. Section 5 of Rev. Proc. 200050 continues to apply to amounts paid or
incurred in taxable years beginning on or
before December 31, 2021. Section 3 of
this revenue procedure clarifies section

January 29, 2024

9.01 of Rev. Proc. 2023-24 to provide
that section 5 of Rev. Proc. 2000-50 is
obsolete for costs of developing computer
software paid or incurred in any taxable
year beginning after December 31, 2021,
and continues to apply to costs of developing computer software paid or incurred
in any taxable year beginning on or before
December 31, 2021.
.06 Changing methods of accounting
under section 446(e).
(1) Except as otherwise expressly
provided in the Code and the regulations
thereunder, §  446(e) and §  1.446-1(e)(2)
require a taxpayer to secure the consent
of the Commissioner before changing a
method of accounting for Federal income
tax purposes. Section 1.446-1(e)(3)(i)
states, in part, that except as otherwise
provided under the authority of §  1.4461(e)(3)(ii), to secure the Commissioner’s
consent to a taxpayer’s change in method
of accounting the taxpayer generally must
file a Form 3115, Application for Change
in Accounting Method, with the Commissioner during the taxable year in which
the taxpayer desires to make the change
in method of accounting. Section 1.4461(e)(3)(ii) authorizes the Commissioner
to prescribe administrative procedures
under which taxpayers will be permitted
to change their method of accounting. The
administrative procedures will prescribe
those terms and conditions necessary to
obtain the Commissioner’s consent to
effect the change and to prevent amounts
from being duplicated or omitted.
(2) 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. 2021-34, 202135 I.R.B. 337, Rev. Proc. 2021-26, 202122 I.R.B. 1163, Rev. Proc. 2017-59, 201748 I.R.B. 543, and section 17.02(b) and (c)
of Rev. Proc. 2016-1, 2016-1 I.R.B. 1, sets
forth the general administrative procedures by which a taxpayer may obtain the
automatic consent of the Commissioner to
change a method of accounting described
in the List of Automatic Changes. Rev.
Proc. 2023-24 contains the current List of
Automatic Changes.
(3) A change in a taxpayer’s treatment
of expenditures paid or incurred in taxable years beginning after December 31,
2021, to rely on the interim guidance in
sections 3 through 7 of Notice 2023-63 is

January 29, 2024

generally a change in method of accounting to which §§  446(e) and 481, and the
corresponding regulations, apply. Further,
a change to rely on the interim guidance
in section 8 of Notice 2023-63 in determining income from a long-term contract
under the PCM is generally a change in
method of accounting to which §§ 446(e)
and 481, and the corresponding regulations, apply. A taxpayer that changes
its method of accounting to rely on the
interim guidance in sections 3 through 8
of Notice 2023-63 must use the accounting method change procedures in Rev.
Proc. 2015-13 or its successor. Section 3
of this revenue procedure modifies Rev.
Proc. 2023-24 to, among other things,
allow taxpayers to obtain automatic consent to change their method of accounting
to rely on the interim guidance provided
in sections 3 through 8 of Notice 2023-63
for taxable years beginning after December 31, 2021.
(4) Pursuant to section 2.07 of Rev.
Proc. 2015-13, if a change in method of
accounting is made without a §  481(a)
adjustment (for example, on a cut-off
basis), in general, only the items subject to
the method change arising on or after the
beginning of the year of change, or other
operative date, are accounted for under the
method of accounting for which consent is
granted. Any items arising before the year
of change, or other operative date, continue to be accounted for under the taxpayer’s former method of accounting. If a
change in method of accounting is made
on a cut-off basis, no amounts are duplicated or omitted, and therefore, a § 481(a)
adjustment is not necessary or permitted.
(5) In accordance with §  13206(b)
of the TCJA, a change in a taxpayer’s
method of accounting to comply with
§  174, including a change to rely on the
interim guidance in sections 3 through
7 of Notice 2023-63, for the first taxable year that the amendments made by
§  13206(a) of the TCJA are effective,
must be made on a cut-off basis. The procedures in section 3 of this revenue procedure provide that an automatic change
in method of accounting to comply with
§  174, including a change in method of
accounting to rely on the interim guidance
in sections 3 through 7 of Notice 2023-63,
may be made by filing a statement with
the taxpayer’s original Federal income tax

630

return for the first taxable year in which
§ 174 becomes effective, in lieu of a Form
3115. If a change in method of accounting
to comply with § 174, including a change
in method of accounting to rely on the
interim gudiance in sections 3 through 7
of Notice 2023-63, is made for a taxable
year subsequent to the taxable year of the
taxpayer in which §  174 becomes effective, the change is made by filing a Form
3115, with a modified § 481(a) adjustment
that takes into account only expenditures
paid or incurred in taxable years beginning after December 31, 2021.
(6) Under § 1.460-5(g), a change in a
taxpayer’s method of allocating costs to
its long-term contracts must be made on
a cut-off basis, with the change applying
only to contracts entered into on or after
the year of change. The Treasury Department and the IRS, however, intend to
amend the regulation to permit changes
made to rely on section 8 of Notice 202363 to be made on the same cut-off basis
or modified cut-off basis, as applicable, as
changes made to rely on sections 3 through
7 of the notice (that is, changes applicable
to allocable contract costs paid or incurred
in taxable years beginning after December
31, 2021).
(7) A taxpayer that changes its method
of accounting under section 7.02 of Rev.
Proc. 2023-24, as modified by section 3
of this revenue procedure, will receive
limited audit protection under section
8.01 of Rev. Proc. 2015-13. Consistent
with current section 7.02(7) of Rev.
Proc. 2023-24, audit protection will not
apply for expenditures paid or incurred
in taxable years beginning on or before
December 31, 2021. Audit protection
also will not apply for expenditures paid
or incurred in the taxpayer’s first taxable
year beginning after December 31, 2021,
if a change in method of accounting to
comply with §  174, including a change
in method of accounting to rely on the
interim gudiance in sections 3 through 7
of Notice 2023-63, is made for the taxpayer’s taxable year immediately subsequent to such taxable year and the taxpayer did not make a change in method
of accounting for such expenditures
for its first taxable year beginning after
December 31, 2021.
(8) A taxpayer that changes its method
of accounting under section 19.02 of

Bulletin No. 2024–5

Rev. Proc. 2023-24, as added by section
3 of this revenue procedure, to change its
method of accounting under § 460 to rely
on the interim guidance provided in section 8 of Notice 2023-63 will receive limited audit protection under section 8.01 of
Rev. Proc. 2015-13. Consistent with section 7.02(7) of Rev. Proc. 2023-24, audit
protection will not apply for expenditures
paid or incurred in taxable years beginning on or before December 31, 2021.
SECTION 3. MODIFICATIONS TO
REV. PROC. 2023-24
.01 Modification of section 7 of Rev.
Proc. 2023-24. Section 7.02 of Rev. Proc.
2023-24, is modified to read as follows:
.02 Change in Method of Accounting
for SRE Expenditures.
(1) Description of change.
(a) In general. This change applies to a
taxpayer that wants to change its method
of accounting for expenditures paid or
incurred in taxable years beginning after
December 31, 2021, to:
(i) comply with § 174, as amended by
§ 13206(a) of the TCJA; or
(ii) rely on interim guidance provided
in sections 3, 4, 5, 6, or 7 of Notice 202363, 2023-39 I.R.B. 919, as modified by
Notice 2024-12, 2024-5 I.R.B. 616.
(b) References to § 174. Unless otherwise stated, references to “§ 174” in this
section 7.02 refer to § 174 as amended by
§ 13206(a) of the TCJA. Section 13206(e)
of the TCJA provides that the amendments
made by §  13206 of the TCJA apply to
amounts paid or incurred in taxable years
beginning after December 31, 2021.
(c) Changes included in section 7.02(1)
(a) of this revenue procedure. The changes
described in section 7.02(1)(a) of this
revenue procedure include, among other
changes, a change:
(i) from capitalizing specified research
or experimental (SRE) expenditures, as
defined in § 174(b) and section 4.02(2) of
Notice 2023-63, as applicable, to inventoriable property or depreciable property
and recovering such expenditures through
cost of goods sold or depreciation, respectively, to capitalizing and amortizing such
expenditures under §  174(a) or section
3.02 of Notice 2023-63, as applicable; and
(ii) from treating an expenditure that
does not meet the definition of an SRE

Bulletin No. 2024–5

expenditure as an SRE expenditure subject to capitalization and amortization
under §  174(a) or section 3.02 of Notice
2023-63, as applicable, to treating that
expenditure under the appropriate provision of the Code.
(2) Inapplicability. The change
described in section 7.02(1)(a) of this revenue procedure does not apply to:
(a) a change in the treatment of
acquired, leased, or licensed computer
software under Rev. Proc. 2000-50,
2000-2 C.B. 601, as modified by Rev.
Proc. 2007-16, 2007-1 C.B. 358 (see section 9.01 of this revenue procedure);
(b) a change in the treatment of research
or experimental expenditures under former § 174 (that is, § 174 as in effect prior
to the amendments made by §  13206(a)
of the TCJA), or software development
expenditures, paid or incurred in taxable
years beginning before January 1, 2022
(see sections 7.01 and 9.01 of this revenue
procedure, respectively); or
(c) a change from treating SRE expenditures paid or incurred by a taxpayer that
transfers related property (that is, property
with respect to which such SRE expenditures were paid or incurred) in a § 351
exchange as amortizable by the transferee
corporation following such exchange to
treating such SRE expenditures as amortizable by the transferor following such
exchange (as such a change is not a change
in method of accounting).
(3) Manner of making change.
(a) Year of change is the first taxable
year beginning after December 31, 2021.
(i) Cut-off basis. A change under section 7.02(1)(a) of this revenue procedure
for the taxpayer’s first taxable year beginning after December 31, 2021, is implemented on a cut-off basis.
(ii) Statement in lieu of a Form 3115 for
first taxable year beginning after December 31, 2021. The requirement of § 1.4461(e)(3)(i) to file a Form 3115, Application for Change in Accounting Method,
is waived, and a statement in lieu of a
Form 3115 is authorized for the change
in method of accounting under section
7.02(1)(a) of this revenue procedure for
which the year of change is the taxpayer’s
first taxable year beginning after December 31, 2021. Notwithstanding the definition of Form 3115 in section 3.07 of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, the

631

statement in lieu of a Form 3115 that is
permitted under this section 7.02(3)(a)(ii)
is considered a Form 3115 for purposes of
the automatic change procedures of Rev.
Proc. 2015-13. 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 for each applicant:
(A) the name and employer identification number or social security number, as
applicable, of the applicant that has paid
or incurred expenditures after December
31, 2021;
(B) the beginning and ending dates of
the first taxable year in which the change
described in section 7.02(1)(a) takes effect
for the applicant (year of change);
(C) the designated automatic accounting method change number for this change
(see section 7.02(7) of this revenue procedure);
(D) a general description of the type
of expenditures included as SRE expenditures;
(E) the amount of SRE expenditures
paid or incurred by the applicant during
the year of change; and
(F) a declaration that the applicant is
changing its method of accounting to capitalize SRE expenditures to a SRE capital account, and amortize the capitalized
amount over either a 5-year period for
domestic research or a 15-year period for
foreign research (as applicable), beginning with the mid-point of the taxable
year in which such expenditures are paid
or incurred in accordance with §  174 or
sections 3 through 7 of Notice 2023-63,
as applicable. Also, the declaration must
state that the applicant is making the
change on a cut-off basis.
(b) Year of change later than the first
taxable year beginning after December
31, 2021.
(i) Modified §  481(a) adjustment and
cut-off.
(A) In general. Except as provided
in section 7.02(3)(b)(i)(B) of this revenue procedure, the change under section
7.02(1)(a) of this revenue procedure for a
year of change later than the first taxable
year beginning after December 31, 2021,
is made with a modified § 481(a) adjustment that takes into account only expenditures paid or incurred in taxable years
beginning after December 31, 2021.

January 29, 2024

(B) Exception for negative modified
§ 481(a) adjustment. If a change described
in section 7.02(3)(b)(i)(A) of this revenue
procedure results in a modified §  481(a)
adjustment that is negative, the taxpayer
may instead choose to implement the
change on a cut-off basis.
(ii) Form 3115 and required statement.
In completing a Form 3115, Application
for Change in Accounting Method, to
make the change in method of accounting under section 7.02(1)(a) of this revenue procedure for a year of change later
than the first taxable year beginning after
December 31, 2021, a taxpayer must
include on an attachment to the Form
3115:
(A) a general description of the type
of expenditures included as SRE expenditures;
(B) the taxable year(s) in which the
expenditures subject to the change were
paid or incurred by the applicant; and
(C) a declaration that provides the reason for which the applicant is changing
its method of accounting under section
7.02(1)(a) of this revenue procedure.
The declaration must also state whether
the applicant is making the change on a
cut-off basis under section 7.02(3)(b)(i)
(B) of this revenue procedure or with a
modified §  481(a) adjustment that takes
into account only expenditures paid
or incurred in taxable years beginning
after December 31, 2021, under section
7.02(3)(b)(i)(A) of this revenue procedure.
(4)  Transition rule. A taxpayer who
filed a Federal tax return on or before January 17, 2023, for a taxable year beginning after December 31, 2021, is deemed
to have complied with the § 446 method
change procedures and section 7.02 of this
revenue procedure to change its method
of accounting for expenditures paid or
incurred in the first taxable year beginning
after December 31, 2021, to comply with
§ 174 if the taxpayer:
(a) reported the amount of SRE expenditures paid or incurred for such taxable
year on Part VI of Form 4562, Depreciation and Amortization, filed with the Federal tax return, and
(b) properly capitalized and amortized
such SRE expenditures in accordance
with § 174 for such taxable year.

January 29, 2024

(5) Certain eligibility rule inapplicable.
(a) In general. 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 described in section 7.02(1)(a) of
this revenue procedure for the taxpayer’s
first or second taxable year beginning
after December 31, 2021.
(b) Changes made in successive taxable years. A taxpayer may make a change
described in section 7.02(1)(a) of this
revenue procedure for its second taxable
year beginning after December 31, 2021,
regardless of whether the taxpayer made,
or purported to make, a change for the
same item for its first taxable year beginning after December 31, 2021.
(6) Limited audit protection. A taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13
for a change under section 7.02(1)(a) of
this revenue procedure with respect to
expenditures paid or incurred in taxable
years beginning on or before December
31, 2021. Additionally, a taxpayer does
not receive audit protection under section
8.01 of Rev. Proc. 2015-13 for a change
under section 7.02(1)(a) of this revenue
procedure in the second taxable year
beginning after December 31, 2021, with
respect to expenditures paid or incurred
in the first taxable year beginning after
December 31, 2021, if the taxpayer did
not make, or attempt to make, a change
described in section 7.02(1)(a) for the
first taxable year beginning after December 31, 2021. 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 section 7.02(1)(a)(i) of this revenue procedure is “265.” The designated automatic
accounting method change number for
a change under section 7.02(1)(a)(ii) of
this revenue procedure is “270.”
(8) No inference relating to expenditures paid or incurred in taxable years
prior to the first taxable year in which
§ 174 becomes effective. No inference
may be drawn from section 7.02 of this
revenue procedure regarding the treatment of expenditures paid or incurred in,
and changes in methods of accounting for,

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taxable years in which former § 174 was
in effect, including issues relating to the
application of §§ 1.174-1, 1.174-2, 1.1743, and 1.174-4 for taxable years in which
former § 174 was in effect.
(9) No ruling on method used. The consent granted under section 9 of Rev. Proc.
2015-13 for a change made under section
7.02(1)(a)(i) of this revenue procedure is
not a determination by the Commissioner
that the new method of accounting is a
permissible method of accounting, nor
does it create any presumption that the
new method of accounting is a permissible method of accounting. The director
will ascertain whether the new method
of accounting is a permissible method of
accounting.
(10) Contact information. For further
information regarding a change under
this section, contact Bruce Chang at (202)
317-7005 (not a toll-free number).
.02 Clarification of section 9 of Rev.
Proc. 2023-24. Section 9.01 of Rev. Proc.
2023-24 is clarified to provide that section
5 of Rev. Proc. 2000-50 (costs of developing computer software) applies to costs
of developing computer software paid or
incurred in any taxable year beginning on
or before December 31, 2021.
(1) Section 9.01(1) of Rev. Proc. 202324 is clarified to read as follows:
(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,
2000-2 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 applicable 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.
Section 13206 of Public Law 115-97, 131
Stat. 2054 (Dec. 22, 2017), commonly
referred to as the Tax Cuts and Jobs Act
(TCJA), amended § 174 to treat the costs
of software development as research or
experimental expenditures, effective for
amounts paid or incurred in taxable years
beginning after December 31, 2021. Section 12 of Notice 2023-63, 2023-39 I.R.B.

Bulletin No. 2024–5

919, as modified by Notice 2024-12, provides that, as a result of the TCJA amendments to § 174 and the rules in sections 3
through 5 of Notice 2023-63, section 5 of
Rev. Proc. 2000-50 is obsolete for costs
of developing software paid or incurred
in taxable years beginning after December 31, 2021. Accordingly, section 5 of
Rev. Proc. 2000-50 (costs of developing
computer software) applies only to costs
of developing computer software paid or
incurred in any taxable year beginning on
or before December 31, 2021.
(2) Section 9.01(3) of Rev. Proc. 202324 is clarified to read as follows:
(3) Inapplicability. This change does
not apply to costs of developing computer
software that are paid or incurred in taxable years beginning after December 31,
2021.
.03 Modification of section 19 of Rev.
Proc. 2023-24. Section 19 of Rev. Proc.
2023-24 is modified to add new section
19.02 to read as follows:
.02 Change to rely on the interim guidance provided in section 8 of Notice 202363, 2023-39 I.R.B. 919.
(1) Description of change. This
change applies to a taxpayer that wants
to change its method of accounting
under § 460 to rely on the interim guidance provided in section 8 of Notice
2023-63, 2023-39 I.R.B. 919, so that the
costs allocable to a long-term contract
accounted for using the PCM include
amortization deductions of specified research or experimental (SRE)
expenditures, as defined in §  174(b)
and section 4.02(2) of Notice 2023-63,
as applicable, under §  174(a)(2)(B),
rather than the capitalized amount of
such expenditures, and the amortization deductions of such expenditures
is treated as incurred for purposes of
determining the percentage of contract completion in the taxable year the
amortization is deducted. For purposes
of determining the percentage of contract completion, estimated total allocable contract costs include either (1) all
amortization of SRE expenditures that
directly benefit or are incurred by reason of the performance of the long-term
contract, or (2) only that portion of such
amortization expected to be incurred
and deducted during the term of the

Bulletin No. 2024–5

contract. A taxpayer using the first
alternative is required to report any portion of the contract price not previously
reported by the taxable year following
the taxable year in which the contract is
completed, notwithstanding that some
portion of the SRE expenditures remain
unamortized. See § 460(b)(1).
(2) Inapplicability. This change does
not apply to:
(a) A change in method of accounting under § 460 with respect to expenditures capitalized under §  59(e)(2)(B), or
under § 174(b) prior to its amendment by
§ 13206(a) of the TCJA.
(b) A change in method of accounting
for independent research and development
expenditures, as defined in §  460(c)(5),
which are not allocable contract costs.
(c) Any contract not accounted for
under the PCM, as described in § 460(b)
(1) and §  1.460-4(b)(2), as of the beginning of the year of change.
(3) Manner of making change.
(a) Cut-off basis. A change under section 19.02(1) of this revenue procedure for
the taxpayer’s first taxable year beginning
after December 31, 2021, applies to the
§ 460 treatment of SRE expenditures paid
or incurred in taxable years beginning
after December 31, 2021. Accordingly,
such change is made on a cut-off basis,
and applies to all long-term contracts for
which an SRE expenditure is an allocable
contract cost, including long-term contracts entered into before the beginning
of the year of change. A taxpayer making
this change does not recompute its taxable
income under § 1.460-4(b) for any taxable
year beginning on or before December 31,
2021.
(b) Modified §  481(a) adjustment or
cut-off basis.
(i) In general. Except as provided
in section 19.02(3)(b)(ii) of this revenue procedure, a change under section
19.02(1) of this revenue procedure for a
year of change later than the first taxable
year beginning after December 31, 2021,
is made with a modified § 481(a) adjustment that takes into account the §  460
treatment of SRE expenditures paid or
incurred in taxable years beginning after
December 31, 2021. Such change applies
to all long-term contracts for which an
SRE expenditure is an allocable con-

633

tract cost, including long-term contracts
entered into before the beginning of the
year of change.
(ii) Exception for negative modified
§ 481(a) adjustment. If a change described
in section 19.02(3)(b)(i) of this revenue
procedure results in a modified §  481(a)
adjustment that is negative, the taxpayer
may instead choose to implement the
change on a cut-off basis.
(4) 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 described
in section 19.02(1) of this revenue procedure for the taxpayer’s first or second taxable year beginning after December 31,
2021.
(5) Limited audit protection. A taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13
for a change under section 19.02(1) of
this revenue procedure with respect to the
§  460 treatment of expenditures paid or
incurred in taxable years beginning on or
before December 31, 2021.
(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.02
of this revenue procedure is “271.”
(7) Contact information. For further
information regarding a change under
section 19.02 of this revenue procedure,
contact John Aramburu at (202) 317-7006
(not a toll-free number).
SECTION 4. EFFECT ON OTHER
DOCUMENTS
This revenue procedure modifies sections 7 and 19, and clarifies section 9, of
Rev. Proc. 2023-24.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
Forms 3115 filed on or after December 22,
2023.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of

January 29, 2024

Management and Budget under OMB
control numbers 1545-0074 for individual filers and 1545-0123 for business
filers, in accordance with the Paperwork
Reduction Act (44 U.S.C. § 3507(d)). An
agency may not conduct or sponsor, and
a person is not required to respond to, a
collection of information unless the collection of information displays a valid
OMB control number. The collection of

January 29, 2024

information in this revenue procedure is
in section 3, which adds section 7.02(3)(a)
(ii) and (3)(b)(ii) to Rev. Proc. 2023-24.
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 a taxpayer to obtain
consent to change its method of accounting.

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SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Bruce Chang of the Office
of Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this revenue procedure, please
contact Mr. Chang at (202) 317-7005 (not
a toll-free number).

Bulletin No. 2024–5