IRS Revenue Procedure
2002-9

Code Sec. NONE

Status: Modified & Amplified by 2002-36, Modified & Amplified by 2002-33,
Modified & Amplified by 2002-28, Modified & Amplified by 2002-17,
Modified & Amplified by 2002-27, Modified & Amplified by 2002-19

<<FULL TEXT>>

Status: Modified and clarified by Ann. 2002-17; modified and amplified by
Rev. Rul. 2002-9


26 CFR 601.204: Changes in accounting periods and in methods of
accounting.
(Also Part I, sections 56, 61, 77, 111, 162, 165, 166, 167, 168, 171, 174,
197, 263, 263A, 267, 404, 446, 448, 451, 454, 455, 460, 461, 471, 472,
475, 481, 585, 985, 1272, 1273, 1278, 1281, 1363; 1.61-8, 1.77-1, 1.77-2,
1.162-1, 1.162-3, 1.162-4, 1.162-11, 1.165-2, 1.165-3, 1.167(a)-2,
1.167(a)-14, 1.167(a)-8, 1.167(a)-11, 1.167(e)-1, 1.171-4, 1.174-1,
1.174-3, 1.174-4, 1.197-1T, 1.197-2, 1.263(a)-1, 1.263(a)-2, 1.263A-1,
1.263A-2, 1.263A-3, 1.263A-4, 1.446-1, 1.446-2, 1.448-2T, 1.451-1,
1.454-1, 1.455-6, 1.460-1, 1.460-4, 1.461-4, 1.461-5, 1.471-1, 1.471-2,
1.471-3, 1.472-1, 1.472-2, 1.472-6, 1.472-8, 1.481-1, 1.481-4, 1.861-18,
1.985-5, 1.985-8, 1.1272-1, 1.1273-1, 1.1273-2.)


Rev. Proc. 2002-9

SECTION 1. PURPOSE

SECTION 2. BACKGROUND AND CHANGES
.01 Change in method of accounting defined
.02 Securing permission to make a method change
.03 Terms and conditions of a method change
.04 No retroactive method change
.05 Method change with a section 481(a) adjustment
(1) Need for adjustment
(2) Adjustment period
.06 Method change using a cut-off method
.07 Consistency and clear reflection of income
.08 Separate trades or businesses
.09 Penalties
.10 Change made as part of an examination
.11 Significant changes

SECTION 3. DEFINITIONS
.01 Application
.02 Applicable provisions
.03 Taxpayer
(1) In general
(2) Consolidated group
.04 Timely mailing as timely filing
.05 Timely performance of acts
.06 Year of change
.07 Section 481(a) adjustment period
.08 Under examination
(1) In general
(2) Partnerships and S corporations subject to TEFRA
.09 Issue under consideration
(1) Under examination
(2) Before an appeals office
(3) Before a federal court
.10 Change within the LIFO inventory method
.11 Director

SECTION 4. SCOPE
.01 Applicability
.02 Inapplicability
(1) Under examination
(2) Before an appeals office
(3) Before a federal court
(4) Consolidated group member
(5) Partnerships and S corporations
(6) Prior change
(7) Section 381(a) transaction
(8) Final year of trade or business.
.03 Nonautomatic changes

SECTION 5. TERMS AND CONDITIONS OF CHANGE
.01 In general
.02 Year of change
.03 Section 481(a) adjustment
.04 Section 481(a) adjustment period
(1) In general
(2) Short period as a separate taxable year
(3) Shortened or accelerated adjustment periods
.05 NOL carryback limitation for taxpayer subject to criminal
investigation
.06 Change treated as initiated by the taxpayer

SECTION 6. GENERAL APPLICATION PROCEDURES
.01 Consent
.02 Filing requirements
(1) Applications
(2) Waiver of taxable year filing requirement
(3) Timely duplicate filing requirement
(4) Label
(5) Signature requirements
(6) Where to file copy
(7) No user fee
(8) Single application for certain consolidated groups
(9) Additional copies required where scope restrictions waived
.03 Taxpayer under examination
(1) In general
(2) 90-day window period
(3) 120-day window period
(4) Consent of director
(5) Changes lacking audit protection
.04 Taxpayer before an appeals office
.05 Taxpayer before a federal court
.06 Compliance with provisions

SECTION 7. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE
.01 In general
.02 Exceptions
(1) Change not made or made improperly
(2) Change in sub-method
(3) Prior year Service-initiated change
(4) Criminal investigation

SECTION 8. EFFECT OF CONSENT
.01 In general
.02 Retroactive change or modification

SECTION 9. REVIEW BY DIRECTOR
.01 In general
.02 Changes not made in compliance with all applicable provisions
.03 National office consideration

SECTION 10. REVIEW BY NATIONAL OFFICE
.01 In general
.02 Incomplete application
(1) 30 day rule
(2) Failure to provide additional information
.03 Conference in the national office
.04 National office determination
(1) Consent not granted
(2) Application changed

SECTION 11. APPLICABILITY OF REV. PROCS. 2001-1 AND 2001-4

SECTION 12. INQUIRIES

SECTION 13. EFFECTIVE DATE
.01 In general
.02 Transition rules
.03 Special rules.

SECTION 14. EFFECT ON OTHER DOCUMENTS

SECTION 15. PAPERWORK REDUCTION ACT

DRAFTING INFORMATION

APPENDIX

SECTION 1. COMMODITY CREDIT LOANS (SECTION 77)
.01 Treating amounts received as loans
(1) Description of change and scope
(2) Scope limitations inapplicable
(3) Manner of making change
.02 Reserved

SECTION 1A. TRADE OR BUSINESS EXPENSES (SECTION 162)
.01 Advances made by a lawyer on behalf of clients -- Description
of change and scope
.02 Year 2000 costs -- Description of change and scope
.03 Aircraft maintenance costs
(1) Description of change
(2) Year of change
(3) Scope limitations inapplicable
(4) Transition rule
.04 ISO 9000 costs
(1) Description of change
(2) Scope limitations inapplicable
.05 Track structure expenditures
(1) Description of change and scope
(2) Year of change
(3) Scope limitations inapplicable
(4) Special filing requirements for certain taxpayers
(5) Manner of making change
(6) Audit protection
(7) Effect of consent
.06 Restaurant smallwares packages
(1) Description of change
(2) Scope limitations inapplicable
(3) Section 481(a) adjustment

SECTION 1B. BAD DEBTS (SECTION 166)
.01 Change from reserve method to specific charge-off method --
description of change and scope
.02 Reserved

SECTION 1C. AMORTIZABLE BOND PREMIUM (SECTION 171)
.01 Revocation of section 171(c) election
(1) Description of change and scope
(2) Revocation of election
(3) Manner of making the change
(4) Additional requirements
(5) Audit protection
.02 Reserved

SECTION 2. DEPRECIATION OR AMORTIZATION (SECTION 56(a)(1), 56(g)(4)(A),
167, 168, OR 197, OR FORMER SECTION 168)
.01 Impermissible to permissible method of accounting for
depreciation or amortization
(1) Description of change
(2) Scope
(3) Additional requirements
(4) Section 481(a) adjustment
(5) Basis adjustment
(6) Meaning of depreciation allowable
.02 Permissible to permissible method of accounting for depreciation
(1) Description of change
(2) Scope
(3) Changes covered
(4) Additional requirements
(5) Section 481(a) adjustment
.03 Sale or lease transactions
(1) Description of change and scope
(2) Manner of making the change
(3) No audit protection
.04 Modern golf course greens
(1) Description of change and scope
(2) Additional requirements

SECTION 2A. RESEARCH AND EXPERIMENTAL EXPENDITURES (SECTION 174)
.01 Changes to a different method or different amortization period
(1) Description of change
(2) Scope
(3) Manner of making the change
(4) Additional requirement
(5) No audit protection
.02 Reserved

SECTION 2B. COMPUTER SOFTWARE EXPENDITURES (SECTIONS 162, 167, AND 197)
.01 Description of change
.02 Scope
.03 Inapplicability
.04 Statement required

SECTION 3. CAPITAL EXPENDITURES (SECTION 263)
.01 Package design costs
(1) Description of change and scope
(2) Additional requirements
.02 Line pack gas; cushion gas
(1) Description of change and scope
(2) Additional requirements
.03 Removal costs
(1) Description of change
(2) Additional requirements
(3) Scope limitations inapplicable

SECTION 4. UNIFORM CAPITALIZATION (SECTION 263A)
.01 Certain uniform capitalization (UNICAP) methods used by
resellers and reseller-producers
(1) Description of change and scope
(2) Definitions
(3) Section 481(a) adjustment
(4) Multiple changes
(5) Example
.02 Certain uniform capitalization (UNICAP) methods used by producers
(1) Applicability
(2) Inapplicability
(3) Definition
(4) Multiple changes
.03 Certain uniform capitalization (UNICAP) methods used by taxpayers
in a farming business.
(1) Description of change and scope
(2) Year of change
(3) Scope limitations inapplicable
(4) Manner of making change; audit protection
(5) Multiple changes
.04 Change to no longer capitalize research and experimental
expenditures under uniform capitalization (UNICAP)
(1) Description of change and scope
(2) Manner of making the change
(3) No audit protection

SECTION 4A. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS
BETWEEN RELATED TAXPAYERS (SECTION 267)
.01 Change to comply with section 267
.02 Reserved

SECTION 4B. DEFERRED COMPENSATION (SECTION 404)
.01 Change to comply with section 404(a)(11)
(1) Description of change and scope
(2) Section 481(a) adjustment period
(3) No audit protection
.02 Deferred compensation
(1) Applicability
(2) Inapplicability

SECTION 5. METHODS OF ACCOUNTING (SECTION 446)
.01 Cash or hybrid method to accrual method
(1) Description of change and scope
(2) Section 481(a) adjustment
(3) Change to a special method of accounting
(4) Coordination with section 13.01 of the APPENDIX for short-term
obligations
.02 Multi-year service warranty contracts
(1) Description of change and scope
(2) Manner of making the change
.03 Multi-year insurance policies for multi-year service warranty
contracts -- Description of change and scope
(1) Applicability
(2) Inapplicability
(3) Description of method
.04 Interest accruals on short-term consumer loans -- Rule of 78s
method
(1) Description of change and scope
(2) Background
(3) Manner of making the change
.05 Small taxpayers changing to overall cash method
(1) Description of change
(2) Scope limitations inapplicable
(3) Manner of making the change
(4) Automatic changes to treating inventoriable items as
nonincidental materials and supplies under Rev. Proc. 2001-10
.06 Nonaccrual-experience method
(1) Applicability
(2) inapplicability
(3) Scope limitations inapplicable

SECTION 5A. TAXABLE YEAR OF INCLUSION (SECTION 451)
.01 Accrual of interest on nonperforming loans
(1) Description of change and scope
(2) Section 481(a) adjustment
.02 Cash advances on insurance commissions
(1) Description of change
(2) Year of change
(3) Scope limitations inapplicable
(4) Manner of making the change
.03 Advance rentals -- description of change and scope

SECTION 6. OBLIGATIONS ISSUED AT DISCOUNT (SECTION 454)
.01 Series E, EE or I U.S. savings bonds
(1) Description of change and scope
(2) Manner of making the change
.02 Reserved

SECTION 7. PREPAID SUBSCRIPTION INCOME (SECTION 455)
.01 Prepaid subscription income
(1) Description of change and scope
(2) Manner of making the change
.02 Reserved

SECTION 7A. SPECIAL RULES FOR LONG-TERM CONTRACTS (SECTION 460)
.01 Change to comply with final regulations under section 460
(1) Description of change and scope
(2) Year of change
(3) Manner of making change
(4) Scope limitations inapplicable
(5) No audit protection
.02 Change from exempt-contract method to percentage-of-completion
method
(1) Description of change and scope
(2) Manner of making change
(3) No audit protection

SECTION 8. TAXABLE YEAR OF DEDUCTION (SECTION 461)
.01 Timing of incurring liabilities for employee compensation
(1) Self-insured employee medical benefits
(2) Amounts taken into account
.02 Timing of incurring liabilities for real property taxes,
personal property taxes and state income taxes
(1) Description of change
(2) Scope
(3) Amounts taken into account
.03 Timing of incurring liabilities under a workers' compensation act,
tort, breach of contract, or violation of law
(1) Description of change and scope
(2) Amounts taken into account
.04 Timing of incurring liabilities for payroll taxes
(1) Applicability
(2) Inapplicability
(3) Recurring item exception
(4) Amounts taken into account
.05 Cooperative advertising
(1) Description of change and scope
(2) Scope limitations inapplicable
.06 Distributor commissions
(1) Changes made under Rev. Proc. 2000-38.
(2) Changes not made under Rev. Proc. 2000-38

SECTION 9. INVENTORIES (SECTION 471)
.01 Cash discounts
(1) Description of change and scope
(2) Computation of section 481 adjustment for changes to net
invoice method
(3) Computation of section 481 adjustment for changes to gross
invoice method
.02 Estimating inventory
(1) Description of change and scope
(2) Scope limitations inapplicable
(3) Additional requirements
(4) Audit protection
(5) Future change
.03 Small taxpayer exception from requirement to account for
inventories under section 471
(1) Description of change
(2) Scope limitations inapplicable
(3) Manner of making the change
(4) Automatic changes to the cash method under Rev. Proc. 2001-10
.04 "Floor stocks" payments made or received
(1) Description of change and scope
(2) Requirements
(3) Scope limitations inapplicable
(4) Manner of making the change
.05 Qualifying volume-related trade discounts
(1) Description of change and scope
(2) Section 481 adjustment
.06 Impermissible methods of valuation

SECTION 10. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (SECTION 472)
.01 Change from the LIFO inventory method
(1) Description of change and scope
(2) Limitation on LIFO election
(3) Effect of subchapter S election by corporation
(4) Additional requirements
.02 Determining current-year cost under the LIFO inventory method
(1) Description of change and scope
(2) Manner of making the change
.03 Alternative LIFO inventory method for retail automobile dealers
(1) Description of change and scope
(2) Manner of making the change
.04 Used vehicle alternative LIFO method
(1) Description of change and scope
(2) Additional requirements
(3) Scope limitations inapplicable
(4) Manner of making change
(5) Concurrent change available for certain IPIC taxpayers
.05 Determining the cost of used vehicles purchased or taken as a
trade-in
(1) Description of change and scope
(2) Manner of making the change
.06 Change to inventory price index computation (IPIC) method
(1) Description of change and scope
(2) Manner of making the change
(3) Bargain purchase
.07 Changes within inventory price index computation (IPIC) method
(1) Description of change and scope
(2) Manner of making the change

SECTION 10A. MARK-TO-MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES
(SECTION 475)
.01 Reserved
.02 Commodities dealers, securities traders, and commodities
traders electing to use the mark-to-market method of accounting
under section 475(e) or (f)
(1) Description of change
(2) Scope

SECTION 11. BANK RESERVES FOR BAD DEBTS (SECTION 585)
.01 Changing from the section 585 reserve method to the section 166
specific charge-off method
(1) Description of change and scope
(2) Section 481(a) adjustment
(3) Change from section 585 required when electing S corporation
status
.02 Reserved

SECTION 11A. INCOME FROM SOURCES WITHIN THE UNITED STATES (SECTION 861)
.01 Transactions involving computer programs
.02 Reserved

SECTION 11B. FUNCTIONAL CURRENCY (SECTION 985)
.01 Change in functional currency
(1) Description of change and scope
(2) Manner of making change
.02 Reserved

SECTION 12. ORIGINAL ISSUE DISCOUNT (SECTIONS 1272, 1273)
.01 De minimis original issue discount (OID)
(1) Description of change and scope
(2) Manner of making the change
(3) Additional requirements
(4) No audit protection
.02 Reserved

SECTION 12A. MARKET DISCOUNT BONDS (SECTION 1278)
.01 Revocation of section 1278(b) election
(1) Description of change and scope
(2) Revocation of election
(3) Manner of making the change
(4) Additional requirements
(5) Audit protection
.02 Reserved

SECTION 13. SHORT-TERM OBLIGATIONS (SECTION 1281)
.01 Interest income on short-term obligations
(1) Description of change and scope
(2) Section 481(a) adjustment period
.02 Stated interest on short-term loans of cash method banks
(1) Description of change and scope
(2) Change for prior taxable years
(3) Section 481(a) adjustment period


SECTION 1. PURPOSE

This revenue procedure provides the procedures by which a taxpayer may
obtain automatic consent to change the methods of accounting described in
the APPENDIX of this revenue procedure. This revenue procedure clarifies,
modifies, amplifies, and supersedes Rev. Proc. 99-49 (1999-2 C.B. 725). It
also consolidates automatic consent procedures for changes in several
methods of accounting that were published subsequent to the publication of
Rev. Proc. 99-49, and provides new automatic consent procedures for
changes in several other methods of accounting. A taxpayer complying with
all the applicable provisions of this revenue procedure has obtained the
consent of the Commissioner of Internal Revenue to change its method of
accounting under section 446(e) of the Internal Revenue Code and the
Income Tax Regulations thereunder.


SECTION 2. BACKGROUND AND CHANGES

.01 CHANGE IN METHOD OF ACCOUNTING DEFINED.

(1) Section 1.446-1(e)(2)(ii)(a) of the Income Tax Regulations provides
that a change in method of accounting includes a change in the overall
plan of accounting for gross income or deductions, or a change in the
treatment of any material item. A material item is any item that involves
the proper time for the inclusion of the item in income or the taking of
the item as a deduction. In determining whether a taxpayer's accounting
practice for an item involves timing, generally the relevant question is
whether the practice permanently changes the amount of the taxpayer's
lifetime income. If the practice does not permanently affect the
taxpayer's lifetime income, but does or could change the taxable year in
which income is reported, it involves timing and is therefore a method of
accounting. See Rev. Proc. 91-31 (1991-1 C.B. 566).

(2) Although a method of accounting may exist under this definition
without a pattern of consistent treatment of an item, a method of
accounting is not adopted in most instances without consistent treatment.
The treatment of a material item in the same way in determining the gross
income or deductions in two or more consecutively filed tax returns
(without regard to any change in status of the method as permissible or
impermissible) represents consistent treatment of that item for purposes
of section 1.446-1(e)(2)(ii)(a). If a taxpayer treats an item properly in
the first return that reflects the item, however, it is not necessary for
the taxpayer to treat the item consistently in two or more consecutive tax
returns to have adopted a method of accounting. If a taxpayer has adopted
a method of accounting under these rules, the taxpayer may not change the
method by amending its prior income tax return(s). See Rev. Rul. 90-38
(1990-1 C.B. 57).

(3) A change in the characterization of an item may also constitute a
change in method of accounting if the change has the effect of shifting
income from one period to another. For example, a change from treating an
item as income to treating the item as a deposit is a change in method of
accounting. See Rev. Proc. 91-31.

(4) A change in method of accounting does not include correction of
mathematical or posting errors, or errors in the computation of tax
liability (such as errors in computation of the foreign tax credit, net
operating loss, percentage depletion, or investment credit). See section
1.446-1(e)(2)(ii)(b).


.02 SECURING PERMISSION TO MAKE A METHOD CHANGE. Sections 446(e) and
1.446-1(e) state that, except as otherwise provided, a taxpayer must
secure the consent of the Commissioner before changing a method of
accounting for federal income tax purposes. Section 1.446-1(e)(3)(i)
requires that, in order to obtain the Commissioner's consent to a method
change, a taxpayer must file a Form 3115, Application for Change in
Accounting Method, during the taxable year in which the taxpayer wants to
make the proposed change.

.03 TERMS AND CONDITIONS OF A METHOD CHANGE. Section 1.446-1(e)(3)(ii)
authorizes the Commissioner to prescribe administrative procedures setting
forth the limitations, terms, and conditions deemed necessary to permit a
taxpayer to obtain consent to change a method of accounting in accordance
with section 446(e). The terms and conditions the Commissioner may
prescribe include the year of change, whether the change is to be made
with a section 481(a) adjustment or on a cut-off basis, and the section
481(a) adjustment period.

.04 NO RETROACTIVE METHOD CHANGE. Unless specifically authorized by the
Commissioner, a taxpayer may not request, or otherwise make, a retroactive
change in method of accounting, regardless of whether the change is from a
permissible or an impermissible method. See generally Rev. Rul. 90-38.

.05 METHOD CHANGE WITH SECTION 481(a) ADJUSTMENT.

(1) NEED FOR ADJUSTMENT. Section 481(a) requires those adjustments
necessary to prevent amounts from being duplicated or omitted to be taken
into account when the taxpayer's taxable income is computed under a method
of accounting different from the method used to compute taxable income for
the preceding taxable year. When there is a change in method of accounting
to which section 481(a) is applied, income for the taxable year preceding
the year of change must be determined under the method of accounting that
was then employed, and income for the year of change and the following
taxable years must be determined under the new method of accounting as if
the new method had always been used.

EXAMPLE. A taxpayer that is not required to use inventories uses the
overall cash receipts and disbursements method and changes to an overall
accrual method. The taxpayer has $120,000 of income earned but not yet
received (accounts receivable) and $100,000 of expenses incurred but not
yet paid (accounts payable) as of the end of the taxable year preceding
the year of change. A positive section 481(a) adjustment of $20,000
($120,000 accounts receivable less $100,000 accounts payable) is required
as a result of the change.


(2) ADJUSTMENT PERIOD. Section 481(c) and sections 1.446-1(e)(3)(ii)
and 1.481-4 provide that the adjustment required by section 481(a) may be
taken into account in determining taxable income in the manner and subject
to the conditions agreed to by the Commissioner and the taxpayer.
Generally, in the absence of such an agreement, the section 481(a)
adjustment is taken into account completely in the year of change, subject
to section 481(b) which limits the amount of tax where the section 481(a)
adjustment is substantial. However, under the Commissioner's authority in
section 1.446-1(e)(3)(ii) to prescribe terms and conditions for changes in
methods of accounting, this revenue procedure provides specific adjustment
periods that are intended to achieve an appropriate balance between the
goals of mitigating distortions of income that result from accounting
method changes and providing appropriate incentives for voluntary
compliance.

<<END RULING>>



.06 METHOD CHANGE USING A CUT-OFF METHOD. The Commissioner may
determine that certain changes in methods of accounting will be made
without a section 481(a) adjustment, using a "cut-off method." Under a
cut-off method, only the items arising on or after the beginning of the
year of change (or other operative date) are accounted for under the new
method of accounting. 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. See, for example, sections 1.01 and 7A.01 of
the APPENDIX of this revenue procedure. Because no items are duplicated or
omitted from income when a cut-off method is used to effect a change in
accounting method, no section 481(a) adjustment is necessary.

.07 CONSISTENCY AND CLEAR REFLECTION OF INCOME. Methods of accounting
should clearly reflect income on a continuing basis, and the Internal
Revenue Service exercises its discretion under sections 446(e) and 481(c)
in a manner that generally minimizes distortions of income across taxable
years and on an annual basis.

.08 SEPARATE TRADES OR BUSINESSES.

(1) Sections 1.446-1(d)(1) and (2) provide that when a taxpayer has two
or more separate and distinct trades or businesses, a different method of
accounting may be used for each trade or business provided the method of
accounting used for each trade or business clearly reflects the overall
income of the taxpayer as well as that of each particular trade or
business. No trade or business is separate and distinct unless a complete
and separable set of books and records is kept for that trade or business.

(2) Section 1.446-1(d)(3) provides that if, by reason of maintaining
different methods of accounting, there is a creation or shifting of
profits or losses between the trades or businesses of the taxpayer (for
example, through inventory adjustments, sales, purchases, or expenses) so
that income of the taxpayer is not clearly reflected, the trades or
businesses of the taxpayer are not separate and distinct.


.09 PENALTIES. Any otherwise applicable penalty, addition to the tax, or
additional amount for the failure of a taxpayer to change its method of
accounting (for example, the accuracy-related penalty under section 6662
or the fraud penalty under section 6663) may be imposed if the taxpayer
does not timely file a request to change a method of accounting. See
section 446(f). Additionally, the taxpayer's return preparer may also be
subject to the preparer penalty under section 6694. However, penalties,
additions to the tax, or additional amounts will not be imposed when a
taxpayer changes from an impermissible method of accounting to a
permissible one by complying with all applicable provisions of this
revenue procedure.

.10 CHANGE MADE AS PART OF AN EXAMINATION. Sections 446(b) and
1.446-1(b)(1) provide that if a taxpayer does not regularly employ a
method of accounting that clearly reflects its income, the computation of
taxable income must be made in a manner that, in the opinion of the
Commissioner, does clearly reflect income. If a taxpayer under examination
is not eligible to change a method of accounting under this revenue
procedure, the change may be made by the director. A change resulting in a
positive section 481(a) adjustment will ordinarily be made in the earliest
taxable year under examination with a one-year section 481(a) adjustment
period.

.11 SIGNIFICANT CHANGES. Significant changes to Rev. Proc. 99-49
include:

(1) The term "applicable provisions" is now defined in new section
3.02.

(2) The term "director" as defined in section 3.11 of this revenue
procedure replaces the term "district director" as defined in section 3.11
of Rev. Proc. 99-49.

(3) The scope exclusion in section 4.02(7), relating to a taxpayer
engaging in transactions to which section 381(a) applies, has been
narrowed to exclude certain transactions under section 381(a).

(4) The consent provisions of section 6.01 have been clarified.

(5) A new section 6.02(1), clarifying the form and content of
applications, has been added.

(6) The instructions in section 6.02(6)(c) for hand delivery of
applications to the national office have been modified.

(7) A new section 6.02(9) has been added, which provides that where a
particular change waives the scope limitations of section 4.02 of this
revenue procedure, a taxpayer making such a change that is under
examination, before an appeals office, or before a federal court is
required to provide a copy of its application to the examining agent(s),
appeals officer(s), or counsel(s) for the government, as appropriate. This
requirement was repeated throughout the APPENDIX of Rev. Proc. 99-49 in
each of the various changes that waived the scope limitations of section
4.02. The addition of new section 6.02(9) consolidates these various
requirements into a single uniform provision, and allows the requirements
to be removed throughout the APPENDIX.

(8) A new section 6.03(5) has been added, permitting a taxpayer under
examination to change its method of accounting under this revenue
procedure if the APPENDIX of this revenue procedure provides that the
audit protection provisions of section 7 of this revenue procedure do not
apply to the change made by the taxpayer.

(9) A new section 9.02, relating to taxpayers that have made a change
in method of accounting without complying with all the applicable
provisions of this revenue procedure, has been added.

(10) Section 10.02(2) has been expanded to clarify the procedures
applicable to a taxpayer that does not qualify for automatic consent
procedures of this revenue procedure because the taxpayer has failed to
provide on a timely basis the additional information requested by the
national office.

(11) Section 10.04(1) has been expanded to clarify that in no event
will an application under this revenue procedure be treated as an
application under Rev. Proc. 97-27 (or any successor).

(12) The first sentence of section 13.02, relating to the transition
rules, has been rephrased to express more clearly the intended scope of
the rule.

(13) Section 4.01 of the APPENDIX is modified to include certain
additional uniform capitalization (UNICAP) changes by resellers.

(14) Section 5.01 of the APPENDIX is modified to allow certain
taxpayers producing real or tangible personal property to change from the
cash receipts and disbursements method or a hybrid method to an overall
accrual method (or to the overall accrual method in conjunction with the
recurring item exception under section 461(h)(3)).

(15) Section 8.01 is modified by the removal of provisions relating to
bonuses, which are transferred to section 4B.02 of the APPENDIX.

(16) Section 8.02 of the APPENDIX is modified to include personal
property taxes and state income taxes.

(17) Section 13.02 of the APPENDIX is modified to be applicable to all
cash method banks.

(18) The following changes in method of accounting have been added to
the APPENDIX of this revenue procedure:

(a) Section 1 of the APPENDIX, relating to Commodity Credit Corporation
loans.

(b) Section 1A.03 of the APPENDIX, relating to aircraft maintenance
costs.

(c) Section 1A.04 of the APPENDIX, relating to ISO 9000 costs.

(d) Section 1A.05 of the APPENDIX, relating to railroad track structure
expenditures.

(e) Section 1A.06 of the APPENDIX, relating to restaurant smallwares.

(f) Section 1B.01 of the APPENDIX, relating to bad debts.

(g) Section 2.04 of the APPENDIX, relating to golf course greens.

(h) Section 2B of the APPENDIX, relating to computer software
expenditures.

(i) Section 3.03 of the APPENDIX, relating to costs of retiring or
removing depreciable assets.

(j) Section 4.02 of the APPENDIX, relating to uniform capitalization
(UNI-CAP) changes by producers of real or tangible personal property.

(k) Section 4.03 of the APPENDIX, relating to uniform capitalization
(UNI-CAP) changes by taxpayers engaged in a farming business.

(l) Section 4.04 of the APPENDIX, relating to capitalization of
research and experimental expenditures into inventory under uniform
capitalization (UNICAP).

(m) Section 4A.01 of the APPENDIX, relating to the disallowance or
deferral under section 267 of certain deductions attributable to
transactions between related taxpayers.

(n) Section 4B.02 of the APPENDIX, relating to bonuses and vacation
pay.

(o) Section 5.05 of the APPENDIX, relating to the use of the cash and
disbursements method of accounting by certain small taxpayers.

(p) Section 5.06 of the APPENDIX, relating to the nonaccrual experience
method.

(q) Section 5A.02 of the APPENDIX, relating to cash advances of
insurance commissions.

(r) Section 5A.03 of the APPENDIX, relating to advance rentals.

(s) Sections 7A.01 and 7A.02 of the APPENDIX, relating to long-term
contracts.

(t) Section 8.06 of the APPENDIX, relating to distribution fees of
open-end regulated investment companies.

(u) Section 9.03 of the APPENDIX, relating to an exemption for certain
small taxpayers from the requirement to maintain inventories.

(v) Section 9.04 of the APPENDIX, relating to payments made or received
on "floor stocks."

(w) Section 9.05 of the APPENDIX, relating to volume related trade
discounts.

(x) Section 9.06 of the APPENDIX, relating to certain impermissible
methods of inventory valuation.

(y) Section 10.04 of the APPENDIX, relating to the used vehicle
alternative LIFO method.

(z) Section 10.06 of the APPENDIX, relating to changes to the inventory
price index computation (IPIC) method.

(aa) Section 10.07 of the APPENDIX, relating to changes within the
inventory price index computation (IPIC) method.

(bb) Section 11A.01 of the APPENDIX, relating to transactions involving
computer programs.

(cc) Section 11B.01 of the APPENDIX, relating to functional currency
changes.


(19) The following changes in method of accounting have been removed
from the APPENDIX of this revenue procedure:

(a) Section 8A of the APPENDIX of Rev. Proc. 99-49, relating to rental
agreements.

(b) Section 10A.01 of the APPENDIX of Rev. Proc. 99-49, relating to
mark-to-market accounting for nonfinancial customer paper.

(c) Section 12A.02 of the APPENDIX of Rev. Proc. 99-49, relating to
pools of debt instruments.


SECTION 3. DEFINITIONS

.01 APPLICATION. The term "application" includes a Form 3115, or any
statement that is authorized under the APPENDIX of this revenue procedure
to be filed in lieu of a Form 3115, and any attachments.

.02 APPLICABLE PROVISIONS. The term "applicable provisions" means all
provisions of this revenue procedure pertinent to the taxpayer or its
requested change, including but not limited to:

(1) the scope requirements and limitations of section 4 of this revenue
procedure;

(2) the terms and conditions of change in section 5 of this revenue
procedure;

(3) the requirements regarding the form and content of an application
in section 6 of this revenue procedure;

(4) the filing requirements of section 6 of this revenue procedure; and

(5) the APPENDIX of this revenue procedure, including

(a) the available changes in method of accounting;

(b) any restrictions on the availability of a requested change to the
taxpayer (including provisions that render the change inapplicable to the
taxpayer); and

(c) any special terms and conditions applicable to a change, such as
the use of a cut-off method or a section 481(a) adjustment, the spread
period for any section 481(a) adjustment, and the year of change.


.03 TAXPAYER.

(1) IN GENERAL. The term "taxpayer" has the same meaning as the term
"person" defined in section 7701(a)(1) (rather than the meaning of the
term "taxpayer" defined in section 7701(a)(14)).

(2) CONSOLIDATED GROUP. For purposes of (a) sections 3.08(1), 3.09(1),
and 4.02(1) of this revenue procedure (taxpayer under examination), (b)
sections 3.09(2) and 4.02(2) of this revenue procedure (taxpayer before an
appeals office), or (c) sections 3.09(3) and 4.02(3) of this revenue
procedure (taxpayer before a federal court), the term "taxpayer" includes
a consolidated group.


.04 TIMELY MAILING AS TIMELY FILING. Under the provisions of section
7502, any form (including an application), statement, or other document
required to be filed under this revenue procedure is considered timely
filed if it is timely postmarked and mailed, postage prepaid, to the
proper address (or an address similar enough to complete delivery). If
these requirements are met, the date of filing is the date of the U.S.
postmark or the applicable date recorded or marked by a designated private
delivery service. See Notice 2001-62 (2001-40, I.R.B. 307). If the
requirements of section 7502 are not met, the form, statement, or other
document is considered filed on the date it is delivered to the Service.

.05 TIMELY PERFORMANCE OF ACTS. The rules of section 7503 apply when
the last day for the taxpayer's timely performance of any act (for
example, filing an application or submitting additional information) falls
on a Saturday, Sunday, or legal holiday. The performance of any act is
timely if the act is performed on the next succeeding day that is not a
Saturday, Sunday, or legal holiday.

.06 YEAR OF CHANGE. The year of change is the taxable year for which a
change in method of accounting is effective, that is, the first taxable
year the new method is to be used, even if no affected items are taken
into account for that year.

.07 SECTION 481(a) ADJUSTMENT PERIOD. The section 481(a) adjustment
period is the applicable number of taxable years for taking into account
the section 481(a) adjustment required as a result of the change in method
of accounting. The year of change is the first taxable year in the
adjustment period and the section 481(a) adjustment is taken into account
ratably over the number of taxable years in the adjustment period. The
applicable adjustment periods are set forth in section 5.04 of this
revenue procedure.

.08 UNDER EXAMINATION.

(1) IN GENERAL.

(a) Except as provided in section 3.08(2) of this revenue procedure, an
examination of a taxpayer with respect to a federal income tax return
begins on the date the taxpayer is contacted in any manner by a
representative of the Service for the purpose of scheduling any type of
examination of the return. An examination ends:

(i) in a case in which the Service accepts the return as filed, on the
date of the "no change" letter sent to the taxpayer;

(ii) in a fully agreed case, on the earliest of the date the taxpayer
executes a waiver of restrictions on assessment or acceptance of
overassessment (for example, Form 870, 4549, or 4605), the date the
taxpayer makes a payment of tax that equals or exceeds the proposed
deficiency, or the date of the "closing" letter (for example, Letter
891(IN) or 987(DO)) sent to the taxpayer; or

(iii) in an unagreed or a partially agreed case, on the earliest of the
date the taxpayer (or its representative) is notified by Appeals that the
case has been referred by the examining agent(s) to Appeals, the date the
taxpayer files a petition in the Tax Court, the date on which the period
for filing a petition with the Tax Court expires, or the date of the
notice of claim disallowance.


(b) An examination does not end as a result of the early referral of an
issue to Appeals under the provisions of Rev. Proc. 99-28 (1999-2 C.B.
109).

(c) An examination resumes on the date the taxpayer (or its
representative) is notified by Appeals (or otherwise) that the case has
been referred to the examining agent(s) for reconsideration.



(2) PARTNERSHIPS AND S CORPORATIONS SUBJECT TO TEFRA. For an entity
(including a limited liability company), treated as a partnership or an S
corporation for federal income tax purposes, that is subject to the TEFRA
unified audit and litigation provisions for partnerships and S
corporations, an examination begins on the date of the notice of the
beginning of an administrative proceeding sent to the Tax Matters
Partner/Tax Matters Person (TMP). An examination ends:

(a) in a case in which the Service accepts the partnership or S
corporation return as filed, on the date of the "no adjustments" letter or
the "no change" notice of final administrative adjustment sent to the TMP;

(b) in a fully agreed case, when all the partners, members, or
shareholders execute a Form 870-P, 870-L, or 870-S; or

(c) in an unagreed or a partially agreed case, on the earliest of the
date the TMP (or its representative) is notified by Appeals that the case
has been referred by the examining agent(s) to Appeals, the date the TMP
(or a partner, member, or shareholder) requests judicial review, or the
date on which the period for requesting judicial review expires. But see
section 4.02(5) of this revenue procedure for certain rules that preclude
an entity from requesting a change in accounting method. Also note that S
corporations are not subject to the TEFRA unified audit and litigation
provisions for taxable years beginning after December 31, 1996. See Small
Business Job Protection Act of 1996, Pub. L. No. 104-188, section 1317(a),
110 Stat. 1755, 1787 (1996).


.09 ISSUE UNDER CONSIDERATION.

(1) UNDER EXAMINATION. A taxpayer's method of accounting for an item is
an issue under consideration for the taxable years under examination if
the taxpayer receives written notification (for example, by examination
plan, information document request (IDR), or notification of proposed
adjustments or income tax examination changes) from the examining agent(s)
specifically citing the treatment of the item as an issue under
consideration. For example, a taxpayer's method of pooling under the
dollar-value, last-in, first-out (LIFO) inventory method is an issue under
consideration as a result of an examination plan that identifies LIFO
pooling as a matter to be examined, but it is not an issue under
consideration as a result of an examination plan that merely identifies
LIFO inventories as a matter to be examined. Similarly, a taxpayer's
method of determining inventoriable costs under section 263A is an issue
under consideration as a result of an IDR that requests documentation
supporting the costs included in inventoriable costs, but it is not an
issue under consideration as a result of an IDR that requests
documentation supporting the amount of cost of goods sold reported on the
return. The question of whether a method of accounting is an issue under
consideration may be referred to the national office as a request for
technical advice under the provisions of Rev. Proc. 2001-2 (2001-1 I.R.B.
79) (or any successor).

(2) BEFORE AN APPEALS OFFICE. A taxpayer's method of accounting for an
item is an issue under consideration for the taxable years before an
appeals office if the treatment of the item is included as an item of
adjustment in the examination report referred to Appeals or is
specifically identified in writing to the taxpayer by Appeals.

(3) BEFORE A FEDERAL COURT. A taxpayer's method of accounting for an
item is an issue under consideration for the taxable years before a
federal court if the treatment of the item is included in the statutory
notice of deficiency, the notice of claim disallowance, the notice of
final administrative adjustment, the pleadings (for example, the petition,
complaint, or answer) or amendments thereto, or is specifically identified
in writing to the taxpayer by the counsel for the government.


.10 CHANGE WITHIN THE LIFO INVENTORY METHOD. A change within the LIFO
inventory method is a change from one LIFO inventory method or sub-method
to another LIFO inventory method or sub-method. A change within the LIFO
inventory method does not include a change in method of accounting that
could be made by a taxpayer that does not use the LIFO inventory method
(for example, a method governed by section 471 or 263A).

.11 DIRECTOR. The term "director" has the same meaning as this term has
in Rev. Proc. 2001-1 (2001-1 I.R.B. 1) (or any successor).


SECTION 4. SCOPE

.01 APPLICABILITY. This revenue procedure applies to a taxpayer
requesting the Commissioner's consent to change to a method of accounting
described in the APPENDIX of this revenue procedure. This revenue
procedure is the exclusive procedure for a taxpayer within its scope to
obtain the Commissioner's consent.

.02 INAPPLICABILITY. Except as otherwise provided in the APPENDIX of
this revenue procedure (see, for example, section 1.01 of the APPENDIX of
this revenue procedure), this revenue procedure does not apply in the
following situations:

(1) UNDER EXAMINATION. If, on the date the taxpayer would otherwise
file a copy of the application with the national office, the taxpayer is
under examination (as provided in section 3.08 of this revenue procedure),
except as provided in sections 6.03(2) (90-day window), 6.03(3) (120-day
window), 6.03(4) (director consent) and 6.03(5) (changes lacking audit
protection) of this revenue procedure;

(2) BEFORE AN APPEALS OFFICE. If, on the date the taxpayer would
otherwise file a copy of the application with the national office, the
taxpayer is before an appeals office with respect to any income tax issue
and the method of accounting to be changed is an issue under consideration
by the appeals office (as provided in section 3.09(2) of this revenue
procedure);

(3) BEFORE A FEDERAL COURT. If, on the date the taxpayer would
otherwise file a copy of the application with the national office, the
taxpayer is before a federal court with respect to any income tax issue
and the method of accounting to be changed is an issue under consideration
by the federal court (as provided in section 3.09(3) of this revenue
procedure);

(4) CONSOLIDATED GROUP MEMBER. A corporation that is (or was formerly)
a member of a consolidated group is under examination, before an appeals
office, or before a federal court (for purposes of sections 4.02(1), (2),
and (3) of this revenue procedure) if the consolidated group is under
examination, before an appeals office, or before a federal court for a
taxable year(s) that the corporation was a member of the group;

(5) PARTNERSHIPS AND S CORPORATIONS. For an entity (including a limited
liability company) treated as a partnership or an S corporation for
federal income tax purposes, if, on the date the entity would otherwise
file a copy of the application with the national office, the entity's
accounting method to be changed is an issue under consideration in an
examination of a partner, member, or shareholder's federal income tax
return or an issue under consideration by an appeals office or by a
federal court with respect to a partner, member, or shareholder's federal
income tax return;

(6) PRIOR CHANGE. If the taxpayer, within the last five taxable years
(including the year of change), (a) has made a change in the same method
of accounting (with or without obtaining the Commissioner's consent), or
(b) has applied to change the same method of accounting without effecting
the change (whether, for example, the application to change was withdrawn,
not perfected, not granted, or denied). For purposes of this paragraph
4.02(6), a change in method of accounting does not include the adoption of
a method of accounting in the initial tax return of a taxpayer or in the
first taxable year in which the taxpayer has the item to which the method
of accounting relates;

(7) SECTION 381(a) TRANSACTION. Except as otherwise provided in this
section 4.02(7), if the taxpayer engages in a transaction to which section
381(a) applies within the proposed taxable year of change (determined
without regard to any potential closing of the year under section
381(b)(1)).

(a) NO DIFFERENCES IN METHODS. An acquiring corporation may change its
method of accounting pursuant to this revenue procedure if the acquiring
corporation would be permitted to continue to use its prior method of
accounting under the rules of sections 1.381(c)(4)-1(b)(1) and (3)(i)
(taking into account the third sentence of section 1.381(c)(4)-1(b)(4)
relating to no prior method established by a party to the transaction) or
sections 1.381(c)(5)-1(b)(1) and (3)(i) (taking into account the second
sentence of section 1.381(c)(5)-1(b)(4)(i) relating to no prior inventory
method established by a party to the transaction) because all of the
parties to the transaction used the same method of accounting on the date
of distribution or transfer. The change pursuant to this revenue procedure
is ignored for purposes of determining whether on the date of distribution
or transfer the parties to the transaction used the same methods of
accounting under 1.381(c)(4)-1(b) or section 1.381(c)(5)-1(b), and thus
sections 1.381(c)(4)-1(b)(3)(ii) and (c) and sections
1.381(c)(5)-1(b)(3)(ii) and (c) will not apply.

(b) SEPARATE TRADES OR BUSINESSES. An acquiring corporation may change
pursuant to this revenue procedure a method of accounting used by a trade
or business operated by such corporation if the trade or business would be
permitted to continue to use its prior method of accounting under the
rules of sections 1.381(c)(4)-1(b)(2) or sections 1.381(c)(5)-1(b)(2). The
change pursuant to this revenue procedure is ignored for purposes of
determining whether on the date of distribution or transfer the parties to
the transaction used the same methods of accounting under section
1.381(c)(4)-1(b) or section 1.381(c)(5)-1(b), and thus sections
1.381(c)(4)-1(b)(3) and (c) and sections 1.381(c)(5)-1(b)(3) and (c) will
not apply.


(8) FINAL YEAR OF TRADE OR BUSINESS. If the taxpayer would be required
by section 5.04(3)(c) of this revenue procedure to take the entire amount
of the section 481(a) adjustment into account in computing taxable income
for the year of change.


.03 NONAUTOMATIC CHANGES. If a taxpayer is precluded by other than
sections 4.02(1) through 4.02(5) of this revenue procedure from using this
revenue procedure to make a change in method of accounting, the taxpayer
requesting such a change must file a Form 3115 with the Commissioner in
accordance with the requirements of section 1.446-1(e)(3)(i) and Rev.
Proc. 97-27 (1997-1 C.B. 680) (or any other applicable Code, regulation,
or administrative provision).


SECTION 5. TERMS AND CONDITIONS OF CHANGE

.01 IN GENERAL. An accounting method change filed under this revenue
procedure must be made pursuant to the terms and conditions provided in
this revenue procedure.

.02 YEAR OF CHANGE. The year of change is the taxable year designated
on the application and for which the application is timely filed under
section 6.02(3).

.03 SECTION 481(a) ADJUSTMENT. Unless otherwise provided in this
revenue procedure, a taxpayer making a change in method of accounting
under this revenue procedure must take into account a section 481(a)
adjustment in the manner provided in section 5.04 of this revenue
procedure.

.04 SECTION 481(a) ADJUSTMENT PERIOD.

(1) IN GENERAL. Except as otherwise provided in section 5.04(3) or the
APPENDIX of this revenue procedure, the section 481(a) adjustment period
for positive and negative section 481(a) adjustments is four taxable
years.

(2) SHORT PERIOD AS A SEPARATE TAXABLE YEAR. If the year of change, or
any taxable year during the section 481(a) adjustment period, is a short
taxable year, the section 481(a) adjustment must be included in income as
if that short taxable year were a full 12-month taxable year. See Rev.
Rul. 78-165 (1978-1 C.B. 276).

EXAMPLE 1. A calendar year taxpayer received permission to change an
accounting method beginning with the 2001 calendar year. The section
481(a) adjustment is $30,000 and the adjustment period is four taxable
years. The taxpayer subsequently receives permission to change its annual
accounting period to September 30, effective for the taxable year ending
September 30, 2002. The taxpayer must include $7,500 of the section 481(a)
adjustment in gross income for the short period from January 1, 2002,
through September 30, 2002.

EXAMPLE 2. Corporation X, a calendar year taxpayer, received permission
to change an accounting method beginning with the 2001 calendar year. The
section 481(a) adjustment is $30,000 and the adjustment period is four
taxable years. On July 1, 2003, Corporation Z acquires Corporation X in a
transaction to which section 381(a) applies. Corporation Z is a calendar
year taxpayer that uses the same method of accounting to which Corporation
X changed in 2001. Corporation X must include $7,500 of the section 481(a)
adjustment in gross income for its short period income tax return for
January 1, 2003, through June 30, 2003. In addition, Corporation Z must
include $7,500 of the section 481(a) adjustment in gross income in its
income tax return for calendar year 2003.


(3) SHORTENED OR ACCELERATED ADJUSTMENT PERIODS. The section 481(a)
adjustment period provided in section 5.04(1) or the APPENDIX of this
revenue procedure will be shortened or accelerated in the following
situations.

(a) DE MINIMIS RULE. A taxpayer may elect to use a one-year adjustment
period in lieu of the section 481(a) adjustment period otherwise provided
by this revenue procedure if the entire section 481(a) adjustment is less
than $25,000 (either positive or negative). A taxpayer makes an election
under this de minimis rule by so indicating on the application. For
example, for a taxpayer filing a Form 3115, the taxpayer must complete the
appropriate line on the Form 3115 to elect this de minimis rule.

(b) COOPERATIVES. A cooperative within the meaning of section 1381(a)
generally must take the entire amount of a section 481(a) adjustment into
account in computing taxable income for the year of change. See Rev. Rul.
79-45 (1979-1 C.B. 284).

(c) CEASING TO ENGAGE IN THE TRADE OR BUSINESS OR TERMINATING
EXISTENCE.

(i) IN GENERAL. A taxpayer that ceases to engage in a trade or business
or terminates its existence must take the remaining balance of any section
481(a) adjustment relating to the trade or business into account in
computing taxable income in the taxable year of the cessation or
termination. Except as provided in sections 5.04(3)(c)(iv) and (v) of this
revenue procedure, a taxpayer is treated as ceasing to engage in a trade
or business if the operations of the trade or business cease or
substantially all the assets of the trade or business are transferred to
another taxpayer. For this purpose, "substantially all" has the same
meaning as in section 3.01 of Rev. Proc. 77-37 (1977-2 C.B. 568).

(ii) EXAMPLES OF TRANSACTIONS THAT ARE TREATED AS THE CESSATION OF A
TRADE OR BUSINESS. The following is a nonexclusive list of transactions
that are treated as the cessation of a trade or business for purposes of
accelerating the section 481(a) adjustment under section 5.04(3)(c) of
this revenue procedure:

(A) the trade or business to which the section 481(a) adjustment
relates is incorporated;

(B) the trade or business to which the section 481(a) adjustment
relates is purchased by another taxpayer in a transaction to which section
1060 applies;

(C) the trade or business to which the section 481(a) adjustment
relates is terminated or transferred pursuant to a taxable liquidation;

(D) a division of a corporation ceases to operate the trade or business
to which the section 481(a) adjustment relates; or

(E) the assets of a trade or business to which the section 481(a)
adjustment relates are contributed to a partnership.


(iii) CONVERSION TO OR FROM S CORPORATION STATUS. Except as provided in
section 10.01 of the APPENDIX of this revenue procedure, no acceleration
of a section 481(a) adjustment is required under section 5.04(3)(c) of
this revenue procedure when a C corporation elects to be treated as an S
corporation or an S corporation terminate