Internal Revenue Bulletin 2008-36 (PDF rendition): IRS Revenue Procedures

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
8-36
September 8, 200
8
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.
INCOME TAX
Rev. Rul. 2008–46, page 572.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for September 2008.
T.D. 9415, page 570.
Final regulations under section 860G of the Code relate to in-
come that is associated with a residual interest in a Real Es-
tate Mortgage Investment Conduit (REMIC) and that is allocated
through certain entities to foreign persons who have invested
in those entities. The regulations accelerate the time when in-
come is recognized for withholding tax purposes to conform
to the timing of income recognition for general income tax pur-
poses.
Notice 2008–70, page 575.
Under section 54B of the Code, up to $500,000,000 qualified
forestry conservation bonds (QFCBs) may be issued for quali-
fied forestry conservation purposes. The Secretary of the De-
partment of Treasury must allocate the QFCB limitation amount
among qualified applicants seeking any portion of the limitation.
This notice solicits applications from qualified issuers of QFCBs
for an allocation of the limitation and sets forth application re-
quirements.
Rev. Proc. 2008–48, page 586.
This procedure provides how, for purposes of sections 105(b),
106(a), 132(h)(2)(B), 220(d)(2), and 223(d)(2) of the Code, the
IRS will treat a child of parents who are divorced, separated, or
living apart as a dependent of both parents, when the custodial
parent has not released the claim to the personal exemption
for the child under section 152(e)(2).
Rev. Proc. 2008–52, page 587.
This document provides the procedures by which taxpay-
ers may obtain automatic consent for specifically identified
changes in methods of accounting described in its APPEN-
DIX. Rev. Proc. 2001–10, section 6.02(1)(a), modified and
amplified. Rev. Proc. 2002–9 clarified, modified, amplified,
and superseded. Rev. Proc. 2002–28, section 7.02(1)(a),
modified and amplified. Rev. Proc. 2007–14 superseded.
Rev. Proc. 2008–43 modified.
Rev. Proc. 2008–53, page 678.
This procedure provides domestic asset/liability percentages
and domestic investment yields needed by foreign life insur-
ance companies and foreign property and liability insurance
companies to compute their minimum effectively connected
net investment income under section 842(b) of the Code for
taxable years beginning after December 31, 2006.
EXCISE TAX
REG–120476–07, page 680.
Proposed regulations under section 4980G of the Code as
amended by the Tax Relief and Health Care Act of 2006 pro-
vide guidance on employer contributions to Health Savings Ac-
counts (HSAs). The regulations provide guidance on contribu-
tions to nonhighly compensated employees, guidance for em-
ployers that offer qualified HSA distributions, and guidance for
employers that choose to make the maximum annual HSA con-
tribution on behalf of all employees who are eligible individu-
als during the last month of the taxable year. The regulations
also provide guidance relating to the requirement of a return to
accompany payment of the excise tax under section 4980B,
4980D, 4980E, or 4980G and the time for filing that return. A
public hearing is scheduled for October 30, 2008.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
September 8, 20082008–36 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Sectio
n 54A.—Qualified
Tax Credit Bonds
A notice soliciting applications and setting forth
application requirements for the allocation of the
qualified forestry conservation bond volume cap
under section 54B of the Internal Revenue Code,
and providing guidance with respect to certain other
qualified forestry conservation bond requirements.
See Notice 2008-70, page 575.
Section 54B.—Qualified
For
estry Conservation
Bonds
A notice soliciting applications and setting forth
application requirements for the allocation of the
qualified forestry conservation bond volume cap
under section 54B of the Internal Revenue Code,
and providing guidance with respect to certain other
qualified forestry conservation bond requirements.
See Notice 2008-70, page 575.
Section 105.—Amounts
Received Under Accident
and Health Plans
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 106.—Contri-
butions by Employer to
Accident and Health Plans
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 132.—Certain
Fringe Benefits
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 152.—Dependent
Defined
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 213.—Medical,
Dental, etc., Expenses
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 220.—Archer MSAs
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 223.—Health
Savings Accounts
A revenue procedure describing the circumstances
under which the Internal Revenue Service will treat
a child of parents who are divorced, separated, or
living apart as the dependent of both parents for
purposes of sections 105(b), 106(a), 132(h)(2)(B),
213(d)(5), 220(d)(2), and 223(d)(2) of the Internal
Revenue Code when the custodial parent has not
released the claim to the exemption for the child
under section 152(e)(2). See Rev. Proc. 2008-48,
page 586.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2008. See
Rev. Rul. 2008-46, page 572.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of September 2008. See Rev.
Rul. 2008-46, page 572.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
2008–36 I.R.B.569September 8, 2008

of September 2008. See Rev. Rul. 2008-46, page
572.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2008. See
Rev. Rul. 2008-46, page 572.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2008. See
Rev. Rul. 2008-46, page 572.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 860A.—Taxation
of REMIC’s
Final regulations under section 860G of the Code
relate to income that is associated with a residual in-
terest in a Real Estate Mortgage Investment Conduit
(REMIC) and that is allocated through certain entities
to foreign persons who have invested in those entities.
See T.D. 9415, page 570.
Section 860G.—Other
Definitions and Special
Rules
26 CFR 1.860G–3: Treatment of foreign persons.
T.D. 9415
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
REMIC Residual
Interests—Accounting for
REMIC Net Income (Including
Any Excess Inclusions)
(Foreign Holders)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations relating to income that is
associated with a residual interest in a
Real Estate Mortgage Investment Conduit
(REMIC) and that is allocated through
certain entities to foreign persons who
have invested in those entities. The for-
eign persons covered by these regulations
include partners in domestic partnerships,
shareholders of real estate investment
trusts, shareholders of regulated invest-
ment companies, participants in common
trust funds, and patrons of subchapter T
cooperatives. These regulations are nec-
essary to prevent inappropriate avoidance
of current income tax liability by foreign
persons to whom income from REMIC
residual interests is allocated.
DATES:Effective Date:These regulations
are effective on July 14, 2008.
Dates of Applicability:For dates
of applicability, see §§1.860A–1(b)(5),
1.863–1(f) and 1.1441–2(f).
FOR FURTHER INFORMATION
CONTACT: Arturo Estrada, (202)
622–3900 (not a toll-free number).
Background
This document contains amendments
to 26 CFR part 1 under sections 860A,
860G(b), 863, 1441, and 1442 of the
Internal Revenue Code (Code). On
August 1, 2006, temporary regulations
(T.D. 9272, 2006–2 C.B. 332) were pub-
lished in theFederal Register(71 FR
43363). A notice of proposed rulemak-
ing (REG–159929–02, 2006–2 C.B. 341)
cross-referencing the temporary regula-
tions was published in theFederal Reg-
isterfor the same day (71 FR 43398).
The preamble to the temporary regula-
tions contains an explanation of these
provisions. No comments were received
from the public in response to the notice
of proposed rulemaking. Accordingly,
this Treasury Decision adopts the pro-
posed regulations without any substantive
changes. No public hearing was requested
or held.
Dates of App
licability
The regulations regarding the timing
of REMIC income inclusions apply to
REMIC net income of a foreign person
with respect to REMIC residual interests
with respect to which the first REMIC net
income allocation to the foreign person
under section 860C occurs on or after Au-
gust 1, 2006. The regulations regarding
the source of excess inclusions are appli-
cable for taxable years ending after August
1, 2006.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) and (d) of the Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to this regulation.
Pursuant to section 605(b) of the Reg-
ulatory Flexibility Act, 5 U.S.C. §605(b),
it has also been determined that the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6) does not apply to these regulations be-
cause these regulations do not have a sig-
nificant economic impact on a substantial
number of small entities. According to the
Small Business Administration definition
of a “small business,” 13 C.F.R. 121.201, a
REMIC is classified as an “Other Financial
Vehicle,” NAICS code 525990, and is con-
sidered a small entity if it accumulates less
than 6.5 million dollars in annual receipts.
It has been determined that REMICs af-
fected by these regulations generally will
September 8, 20085702008–36 I.R.B.

have greater than 6.5 million dollars in an-
nual receipts and therefore will not gener-
ally be classified as small business entities.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding this regulation was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Dale Collinson, formerly with the
Office of the Associate Chief Counsel (Fi-
nancial Institutions and Products). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§860A–1T and 860G–3T to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.860A–0 is amended
by adding entries for §§1.860A–1(b)(5)
and 1.860G–3(b) and removing the entries
for §§1.860A–1T and 1.860G–3T to read
as follows:
§1.860A–0 Outline of REMIC provisions.
*****
§1.860A–1 Effective dates and transition
rules.
*****
(b) * * *
(5) Accounting for REMIC net income
of foreign persons.
*****
§1.860G–3 Treatment of Foreign Persons.
*****
(b) Accounting for REMIC net income.
(1) Allocation of partnership income to
a foreign partner.
(2) Excess inclusion income allocated
by certain pass-through entities to a for-
eign person.
Par. 3. Section 1.860A–1(b)(5) is re-
vised to read as follows:
§1.860A–1 Effective dates and transition
rules.
*****
(b) * * *
(5) Accounting for REMIC net income
of foreign persons. Section 1.860G–3(b) is
applicable to REMIC net income (includ-
ing excess inclusions) of a foreign person
with respect to a REMIC residual interest
if the first net income allocation under sec-
tion 860C(a)(1) to the foreign person with
respect to that interest occurs on or after
August 1, 2006.
§1.860A–1T [Removed]
Par. 4. Section 1.860A–1T is removed.
Par. 5. Section 1.860G–3(b) is revised
to read as follows:
§1.860G–3 Treatment of foreign persons.
*****
(b)Accounting for REMIC net in-
come—(1)Allocation of partnership in-
come to a foreign partner.Adomestic
partnership shall separately state its alloca-
ble share of REMIC taxable income or net
loss in accordance with §1.702–1(a)(8).
If a domestic partnership allocates all
or some portion of its allocable share of
REMIC taxable income to a partner that
is a foreign person, the amount allocated
to the foreign partner shall be taken into
account by the foreign partner for pur-
poses of sections 871(a), 881, 1441, and
1442 as if that amount were received on
the last day of the partnership’s taxable
year, except to the extent that some or all
of the amount is required to be taken into
account by the foreign partner at an earlier
time under section 860G(b) as a result of
a distribution by the partnership to the for-
eign partner or a disposition of the foreign
partner’s indirect interest in the REMIC
residual interest. A disposition in whole
or in part of the foreign partner’s indirect
interest in the REMIC residual interest
may occur as a result of a termination of
the REMIC, a disposition of the partner-
ship’s residual interest in the REMIC, a
disposition of the foreign partner’s interest
in the partnership, or any other reduction
in the foreign partner’s allocable share
of the portion of the REMIC net income
or deduction allocated to the partnership.
See §1.871–14(d)(2) for the treatment of
interest received on a regular or residual
interest in a REMIC. For a partnership’s
withholding obligations with respect to
excess inclusion amounts described in this
paragraph (b)(1), see §§1.1441–2(b)(5),
1.1441–2(d)(4), 1.1441–5(b)(2)(i)(A), and
§§1.1446–1 through 1.1446–7.
(2)Excess inclusion income allocated
by certain pass-through entities to a for-
eign person.If an amount is allocated un-
der section 860E(d)(1) to a foreign person
that is a shareholder of a real estate invest-
ment trust or a regulated investment com-
pany, a participant in a common trust fund,
or a patron of an organization to which
part I of subchapter T applies and if the
amount so allocated is governed by sec-
tion 860E(d)(2) (treating it “as an excess
inclusion with respect to a residual inter-
est held by” the taxpayer), the amount shall
be taken into account for purposes of sec-
tions 871(a), 881, 1441, and 1442 at the
same time as the time prescribed for other
income of the shareholder, participant, or
patron from the trust, company, fund, or
organization.
§1.860G–3T [Removed]
Par. 6. Section 1.860G–3T is removed.
Par. 7. Section 1.863–0 is amended by
adding an entry for 1.863–1(f) and remov-
ing the entries for §1.863–1T to read as fol-
lows:
§1.863–1 Allocation of gross income
under section 863(a).
*****
(f)Effective/applicability date.
Par. 8. Section 1.863–1 paragraphs
(e)(2) and (f) are revised to read as follows:
§1.863–1 Allocation of gross income
under section 863(a).
*****
(e)***(1)***
(2)Excess inclusion income and net
losses. An excess inclusion (as defined in
section 860E(c)) shall be treated as income
from sources within the United States. To
the extent of excess inclusion income pre-
viously taken into account with respect to
2008–36 I.R.B.571September 8, 2008

a residual interest (reduced by net losses
previously taken into account under this
paragraph), a net loss (described in section
860C(b)(2)) with respect to the residual in-
terest shall be allocated to the class of gross
income and apportioned to the statutory
grouping(s) or residual grouping of gross
income to which the excess inclusion in-
come was assigned.
(f)Effective/applicability date.Para-
graph (e)(2) of this section applies for tax-
able years ending after August 1, 2006.
§1.863–1T [Removed]
Par. 9. Section 1.863–1T is removed.
Par. 10. Section 1.1441–0 is amended
by revising the entry for §1.1441–2(f) and
removing the entries for §1.1441–2T to
read as follows:
§1.1441–0 Outline of regulation
provisions for section 1441.
*****
§1.1441–2 Amounts subject to
withholding.
*****
(f) Effective/applicability date.
Par. 11. Section 1.1441–2(b)(5), (d)(4)
and (f) are revisedto read as follows:
§1.1441–2 Amounts subject to
withholding.
*****
(b) * * *
(5)REMIC residual interests.Amounts
subject to withholding include an excess
inclusion described in §1.860G–3(b)(2)
and the portion of an amount described in
§1.860G–3(b)(1) that is an excess inclu-
sion.
*****
(d) * * *
(4)Withholding exemption inapplica-
ble. The exemption in §1.1441–2(d) from
the obligation to withhold shall not apply
to amounts described in §1.860G–3(b)(1)
(regarding certain partnership allocations
of REMIC net income with respect to a
REMIC residual interest).
*****
(f)Effective/applicability date.This
section applies to payments made after De-
cember 31, 2000. Paragraphs (b)(5) and
(d)(4) of this section apply to payments
made after August 1, 2006.
§1.1441–2T [Removed]
Par. 12. Section 1.1441–2T is removed.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved June 30, 2008.
Eric Solomon,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on July 11, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 14, 2008, 73 F.R. 40171)
Section 863.—Special
Rules for Determining
Source
Final regulations under section 860G of the Code
relate to income that is associated with a residual in-
terest in a Real Estate Mortgage Investment Conduit
(REMIC) and that is allocated through certain entities
to foreign persons who have invested in those entities.
See T.D. 9415, page 570.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for September 2008.
Rev. Rul. 2008–46
This revenue ruling provides various
prescribed rates for federal income tax
purposes for September 2008 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
September 8, 20085722008–36 I.R.B.

REV. RUL. 2008–46 TABLE 1
Applicable Federal Rates (AFR) for September 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR2.38%2.37%2.36%2.36%
110% AFR2.63%2.61%2.60%2.60%
120% AFR2.86%2.84%2.83%2.82%
130% AFR3.10%3.08%3.07%3.06%
Mid-term
AFR3.46%3.43%3.42%3.41%
110% AFR3.81%3.77%
3.75%
3.74%
120% AFR4.16%4.12%4.10%4.09%
130% AFR
4.51%
4.46%4.44%4.42%
150% AFR5.22%5.15%5.12%5.10%
175% AFR
6.09%6.00%
5.96%5.93%
Long-term
AFR
4.58%4.53%4.50%
4.49%
110% AFR
5.04%
4.98%
4.95%
4.93%
120% AFR
5.51%5.44%5.40%5.38%
130% AFR
5.98%5.89%5.85%5.82%
REV. RUL. 2008–46 TABLE 2
Adjusted AFR for September 2008
Period for Compounding
AnnualSemiannu
al
Quarterl
y
Monthly
Short-term adjusted
AFR
1.81%1.80%1.80%1.79%
Mid-term adjusted AFR3.21%3.18%3.17%3.16%
Long-term adjusted
AFR
4.53%
4.48%4.46%4.44%
REV. RUL. 2008–46 TABLE 3
Rates Under Section 382 for September 2008
Adjusted federal long-term rate for the current month
4.53%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.65%
REV. RUL. 2008–46 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for September 2008
Appropriate percentage for the 70% present value low-income housing credit7.93%
Appropriate percentage for the 30% present value low-income housing credit3.40%
2008–36 I.R.B.573September 8, 2008

REV. RUL. 2008–46 TABLE 5
Rate Under Section 7520 for September 2008
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest4.2%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 1441.—Withholding
of Tax on Non
resident Aliens
Final regul
ations under section 860G of the Code
relate to in
come that is associated with a residual in-
terest in a Real Estate Mortgage Investment Conduit
(REMIC) and that is allocated through certain entities
to foreign persons who have invested in those entities.
See T.D. 9415, page 570.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2008. See Rev. Rul. 2008-46, page
572.
September 8, 20085742008–36 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Qualified Forestry
Conservation Bonds
Notice 2008–70
SECTION 1. PURPOSE
This notice solicits applications for
authority to issue qualified forestry con-
servation bonds (QFCBs) under section
54B(c) of the Internal Revenue Code (the
“Code”). There is a national limitation of
$500,000,000 on the volume of QFCBs
that may be authorized (the “QFCB Na-
tional Limitation”). Applications must be
submitted in accordance with this notice.
SECTION 2. INTRODUCTION
Section 15316 of the Food, Conserva-
tion, and Energy Act of 2008, Public L.
No. 110–246, 122 Stat. 1651 (2008) (the
“Act”), added sections 54A and 54B to the
Code. Section 54A sets forth general pro-
visions applicable to qualified tax credit
bonds and provides that the term “quali-
fied tax credit bond” means a QFCB that
is part of an issue that meets the require-
ments in section 54A(d)(2), (3), (4), (5),
and (6). Section 54B(a) defines a QFCB
and authorizes the issuance of QFCBs for
one or more qualified forestry conserva-
tion purposes. No more than $500,000,000
of QFCBs may be issued. Under section
54B(d), the Secretary of the Treasury (or
his or her delegate) must make allocations
of the QFCB National Limitation among
qualified forestry conservation purposes in
the manner that the Secretary determines is
appropriate to ensure that all of the QFCB
National Limitation is allocated before the
date that is 24 months after the date of en-
actment of the Act. The Internal Revenue
Service (IRS) has responsibility for mak-
ing these allocations in coordination with
the United States Forest Service (USFS)
and relevant State authorities.
SECTION 3. BACKGROUND AND
GENERAL REQUIREMENTS
(1)Qualified Tax Credit Bonds
Section 54A(a) provides that a taxpayer
that holds a qualified tax credit bond on
one or more credit allowance dates of the
bond during the taxable year shall be al-
lowed a credit against the taxpayer’s in-
come tax for the taxable year equal to the
sum of the credits determined under sec-
tion 54A(b).
Thecreditamountforanycredital-
lowance date is 25 percent of the annual
credit determined with respect to the bond.
The annual credit is determined by mul-
tiplying the applicable credit rate by the
outstanding face amount of the bond. The
applicable credit rate for the bond is the
rate that the Secretary estimates will per-
mit the issuance of the qualified tax credit
bond with a specified maturity or redemp-
tion date without discount and without in-
terest cost to the qualified issuer.
Section 54A(d) provides that a quali-
fied tax credit bond means a QFCB that
is part of an issue that meets the require-
ments of paragraphs (2) through (6) of sec-
tion 54A(d). Paragraphs (2), (3), (4), (5),
and (6) set forth requirements related to ex-
penditures, reporting, arbitrage, maturity,
and conflicts of interest, respectively.
Other definitions are set forth in section
54A(e). For example, the term “credit al-
lowance date” means March 15, June 15,
September 15, and December 15 of each
year, as well as the last day on which the
bond is outstanding. The term “available
project proceeds” means the excess of the
proceeds from the sale of the issue over the
issuance costs financed by the issue (to the
extent that such costs do not exceed 2 per-
cent of such proceeds) plus the investment
return from any investment of the excess.
Section 54A(f) provides that the credit
amount determined in section 54A(a) is
treated as interest that is includable in
gross income.
Under section 54A(g), if an S corpora-
tion or a partnership allocates to its share-
holders or partners (as the case may be) a
credit allowed by section 54A, then the al-
location is treatedas a distribution.
Section 54A(i) permits, under regula-
tions to be issued by the Secretary, the
separation of the ownership of a qualified
tax credit bond and the entitlement of the
credit with respect to that bond. In the
case of any such separation, the credit is
allowed to the person who on the credit
allowance date holds the instrument evi-
dencing the entitlement to the credit and
not to the holder of the bond, and the rules
of section 1286 apply to the qualified tax
credit bond as if it were a stripped bond
and to the credit under section 54A as if it
were a stripped coupon.
(2)Qualified Forestry Conservation
Bonds
Section 54B(a) defines a QFCB as any
bond issued as part of an issue if—
(a) The bond is issued by a qualified
issuer;
(b) The issuer designates the bond for
purposes of section 54B (under section
54B(b), the maximum amount of QFCBs
that may be designated by any issuer shall
not exceed the limitation amount allocated
to that issuer by the Secretary); and
(c) 100 percent of the available project
proceeds of the issue are to be used for
one or more qualified forestry conserva-
tion purposes.
Qualified issuer. Under section 54B(f),
a State or any political subdivision or in-
strumentality thereof, or a 501(c)(3) organ-
ization (as defined in section 150(a)(4)),
may be a qualified issuer of a QFCB.
Limitation on the amount of QFCBs
designated.Section 54B(c) sets forth the
QFCB National Limitation for the aggre-
gate amount of bonds that may be des-
ignated under section 54B(a). No more
than $500,000,000 of QFCBs may be des-
ignated under section 54B(a). Under sec-
tion 54B(d), the Secretary shall make allo-
cations of the QFCB National Limitation
among qualified forestry conservation pur-
poses in such manner as the Secretary de-
termines appropriate so as to ensure that all
of the QFCB National Limitation is allo-
cated before the date that is 24 months af-
ter the date of enactment of the Act. The
Secretary shall solicitapplications for allo-
cations of the National Limitation not later
than 90 days after the date of enactment of
the Act.
Qualified forestry conservation pur-
pose.Undersection54B(e)theterm
“qualified forestry conservation purpose”
means the acquisition by a State or any
political subdivision or instrumentality
thereof, or by a 501(c)(3) organization
(as defined in section 150(a)(4)), from an
unrelated person of forest and forest land
meeting all the following qualifications:
2008–36 I.R.B.575September 8, 2008

•Some portion of the land acquired must
be adjacent to USFS Land. For pur-
poses of this qualification, a parcel of
land is adjacent to USFS Land if it—
•Touches any unit of the Na-
tional Forest System as defined in
16 U.S.C. 1609(a);
•Shares a common boundary with
any unit of the National Forest Sys-
tem, or
•Is located within the boundaries of
a unit of the National Forest Sys-
tem.
If at least one portion of the land
acquired is adjacent to USFS Land, it
is irrelevant that other non-contiguous
acquired parcels are not adjacent to it.
•The amount of acreage acquired must
be at least 40,000 acres.
•All of the land must be subject to a na-
tive fish habitat conservation plan ap-
proved by the United States Fish and
Wildlife Service (USFWS).
•The person acquiring the land must sat-
isfy the disposition requirement in sec-
tion 54B(e)(2).
Disposition requirement.TheCodees-
tablishes a two-part requirement regarding
the disposition of the acquired land. Sec-
tion 54B(e)(2) provides, “At least half of
the land acquired must be transferred to
the United States Forest Service at no net
cost to the United States, and not more than
half of the land acquired may either re-
main with, or be conveyed to, a State.” The
first part of this requirement means that the
qualified issuer that acquired the land must
transfer to the USFS at least half of the land
acquired. The second part means that all of
the acquired land that is not transferred to
the USFS (land that necessarily is no more
than half of the land acquired) either (a) if
the qualifying issuer is not a State, must be
transferred to one or more States, or (b) if
the qualifying issuer is a State, must be re-
tained by that State or conveyed to one or
more other States. (For purposes of this
requirement, “the land acquired” or “the
acquired land” means land that the qual-
ified issuer acquired using proceeds de-
rived from issuance of the bonds or from
receipt of the refund of the deemed pay-
ment, as described below.)
If the qualified issuer is not a State, the
USFS and any State(s) involved may con-
sult with each other as to the identification
of land that the qualified issuer proposes
to transfer to each of them. If the USFS
and the State(s), however, do not agree, re-
quests for allocation that correspond to the
preferences of the USFS are expected to be
favored. The transfers to the USFS and,
if applicable, to one or more States must
occur not longer after the qualified issuer
acquires the land than is prescribed by the
deadlines in Section 6(3)(e)(iii) of this no-
tice.
The requirement that the transfer to
the USFS be made “at no net cost to the
United States” means that the transferor
must cover all costs directly incident to
the transfer of the land to the USFS (for
example, any survey costs, title insurance,
transfer taxes, recordation fees, etc.), but
not indirect costs to the Department of
Agriculture such as USFS salary and over-
head and expenses for travel, legal review,
and clearance.
Election to receive cash instead of using
the allocation to designate QFCBs.Un-
der section 54B(h)(1), if a qualified issuer
receives an allocation of the QFCB Na-
tional Limitation, then, without regard to
whether the issuer is subject to tax under
Chapter 1 of the Code, the issuer may elect
to be treated as having made a payment
(the “deemed payment”) against that tax,
for the taxable year preceding the taxable
year in which the allocation is received,
in an amount equal to 50 percent of the
amount of the allocation. Under section
54B(h)(2)(A), the Secretary shall not use
the deemed payment of tax as an offset or
credit against any tax liability of the issuer
but shall refund the deemed payment to the
issuer. Under section 54B(h)(2)(B), ex-
cept as provided in section 54B(h)(3), the
deemed payment shallnot be taken into ac-
count in determining any amount of inter-
est under the Code.
Section 54B(h)(3) provides that an elec-
tion to be treated as making a deemed pay-
ment shall not take effect unless the qual-
ified issuer certifies to the Secretary that
any payment of the tax refunded to the is-
suer will be used exclusively for one or
more qualified forestry conservation pur-
poses.
Failure to use all of the refund or all of
available project proceeds for a qualified
forestry conservation purpose.If the qual-
ified issuer fails to use any portion of the
refund for a qualified forestry conservation
purpose (either because the issuer fails to
purchase land described in section 54B(e)
or because the issuer fails to dispose of
the acquired land in a manner that satisfies
section 54B(e)(2)), then the issuer shall be
liable to the United States in an amount
equal to that portion, plus interest at the
overpayment rate under section 6621, for
the period from the date the portion was re-
funded to the date the amount is paid to the
United States. Any such amount shall be
assessed and collected in the same manner
as tax imposed by Chapter 1, except that
subchapter B of Chapter 63 (relating to de-
ficiency procedures) shall not apply in re-
spect of such assessment or collection.
If a qualified issuer issues QFCBs and,
within the expenditure period defined by
section 54A(d)(2)(B)(ii) and (iii), fails to
use 100 percent of the available project
proceeds to acquire land described in sec-
tion 54B(e), some of the bonds must be
redeemed within 90 days after the end of
the expenditure period. The bonds to be
redeemed are nonqualifying bonds deter-
mined in the same manner as under sec-
tion 142. See section 54A(d)(2)(B)(i). If
a qualified issuer issues QFCBs and uses
some or all of the available project pro-
ceeds to acquire land described in section
54B(e) but some portion of the land so
acquired is not disposed of in a manner
that satisfies section 54B(e)(2), then, in the
same manner as under section 142, a por-
tion of the QFCBs is treated as nonquali-
fying, and the issuer is treated as if the tax
credits allowed under section 54A with re-
spect to the non-qualifying portion of the
QFCBs are a refund of the deemed pay-
ment under section 54B(h) that was not
used for a qualified forestry conservation
purpose. The treatment of such a refund is
set forth in section 54B(h)(3)(A) (last two
sentences). This treatment also applies to
all tax credits allowed with respect to non-
qualifying QFCBs. For this purpose, each
credit allowance date is treated as the be-
ginning of a period for which overpayment
interest is to be assessed.
Just as the amount of available project
proceeds includes investment return from
investment of the net proceeds from the
sale of an issue, in the case of a quali-
fied issuer that has made the election un-
der section 54B(h), the amount that must
be used for qualified forestry conservation
purposes includes any investment return
from investment of the money received
September 8, 20085762008–36 I.R.B.

as a refund. The requirements, however,
that all available project proceeds (includ-
ing any investment return), or the entire
refund (including any investment return),
must be used for qualified forestry conser-
vation purposes is not violated by use of
some or all of the investment return to pay
for one or more surety bonds required by
Section 6(3)(e)(vi) of this notice.
Between the time a qualified issuer re-
ceives either proceeds from the sale of
QFCBs or a refund of a deemed payment
under section 54B(h) and the time the land
described in section 54B(e) is acquired, the
qualified issuer mustgive a surety bond
that complies with 31 USC 9304–9308.
The bond must cover the full amount of
the proceeds (or the refund) that was re-
ceived by that qualified issuer and all in-
vestment return on those funds. Alterna-
tively, as is provided by 31 CFR Part 225,
the qualified issuer may pledge Govern-
ment obligations (securities whose princi-
pal and interest are unconditionally guar-
anteed by the United States Government)
in lieu of a surety bond. If that is done,
it is permissible for the qualified issuer to
use the proceeds (or the refund) to acquire
the Government obligations. No other al-
ternative will be acceptable.
SECTION 4. APPLICATION
PROCESS AND DEADLINES
Because each applicant for an alloca-
tion of the QFCB National Limitation must
address various requirements administered
by the IRS, by the USFS, and potentially
by one or more States, the process de-
scribed below is designed to support ap-
plicants in efficiently completing their ap-
plications. Except to the extent waived by
the applicant, all information that the ap-
plicant provides in the course of the appli-
cation process to the IRS, to the USFS, or
to any State is confidential tax return in-
formation within the meaning of section
6103. If some of the land acquired will
be transferred to one or more States (and
thus application information will have to
be given to that State or those States), the
applicant should notify the IRS immedi-
ately. Although the process contains dead-
lines for some of its stages, applicants that
have completed one stage before the dead-
line are encouraged immediately to em-
bark on the next. Nothing in this process
prevents some applicants from submitting
their Final Applications even before the
due date for other applicants’ Expressions
of Interest. If all Final Applications are
submitted substantially before the deadline
below, the IRS and the USFS intend that al-
locations will be made substantially before
the statutory deadline in section 54B(d)(1).
The application process consists of the
following five stages:
•Preliminary Consultation.Both the
USFS and States have specific require-
ments that must be satisfied in order
for land to be transferred to them. In
particular, at a minimum, land to be
transferred to the USFS must be by
general warranty deed or the functional
equivalent under applicable State law,
with title otherwise acceptable to the
Department of Agriculture, Office of
the General Counsel, and in confor-
mity with the title standards of the
U.S. Attorney General. All lands con-
veyed to the USFS must be managed
pursuant to the laws and regulations
governing the National Forest System.
Applicants should immediately be-
gin consultations with the USFS and
with any relevant States regarding the
applicable requirements, including re-
quirements regarding the condition of
the land at the time of transfer in light
of timber harvesting or other land man-
agement activities occurring prior to
transfer. (For purposes of this notice,
the term “applicant” includes poten-
tial applicants.) These consultations
should also address how the qualified
forestry conservation projects to be
included in an application can be struc-
tured in ways that maximally advance
the statutory purposes of section 54B.
•Expression of Interest.To enable the
IRS, the USFS, and any affected State
to determine the resources that must be
dedicated to the allocation process, all
persons who may apply for an alloca-
tion to issue QFCBs must file an Ex-
pression of Interest no later than Octo-
ber 21, 2008. The signed original of
the Expression of Interest and a copy
must be filed with the IRS, and two
additional copies must be sent to the
USFS, as well as to each relevant State,
if any of the property will be conveyed
to a State or States. See Section 17, be-
low, for instructions on where to file.
Section 5 of this notice describes the
requirements for the Expression of In-
terest.
•Pro Forma application.The vari-
ous government agencies need suf-
ficient time to determine whether
the proposed landacquisitions and
dispositions satisfy all applicable re-
quirements. Although prior informal
consultation generally will enable
applicants to anticipate most of the re-
quirements that they must meet, mate-
rials reflecting a complete application
are needed for government officials to
perform a thorough evaluation. The
duedateforthePro Formaapplication
is designed to provide applicants with
ample opportunity to revise and refine
their applications toaddress any addi-
tional concerns raised and suggestions
presented. The completePro Forma
application must be filed with the IRS,
the USFS, and any affected State not
later than February 18, 2009. Section
7 of this notice describes the require-
ments for thePro Formaapplication.
•Draft of Final Application.Once all
issues have been resolved, a complete
draft of the Final Application must be
provided to the USFS and to all States
involved, for them to provide the re-
quired certifications. At this stage of
the process, there should have been
sufficient consultation and exchange
of information so that the USFS and
the States have the limited task of con-
firming that the materials submitted
for certification conform in all respects
to pre-existing understandings with
the applicants. After that confirma-
tion, the USFS and the States will
provide to the applicants the certifi-
cations that must be incorporated into
the applicant’s Final Application. The
draft of the Final Application must be
filed with the USFS and any affected
State not later than March 1, 2010,
and a copy must simultaneously be
filedwiththeIRS.Section8ofthis
notice describes the requirements for
the draft of the Final Application.
•Final Application.The filing of the Fi-
nal Application is an applicant’s last
step in establishing its eligibility for an
allocation of the QFCB National Limi-
tation. If the applicant chooses to make
the election under section 54B(h), that
election is made as part of the Final
Application. The original of the Final
2008–36 I.R.B.577September 8, 2008

Application must be filed with the IRS
not later than April 1, 2010, and copies
must simultaneously be filed with the
USFS and all affected States. Section
6 of this notice describes the require-
ments for the Final Application. The
allocations of the QFCB National Lim-
itation will be made not later than the
earlier of—
•24 months after the date of enact-
ment of the Act; or
•60 days after the date on which
all applicants have filed their Final
Applications.
SECTION 5. EXPRESSION OF
INTEREST
Each Expression of Interest in apply-
ing for an allocation of some or all of the
QFCB National Limitation must comply
with this Section 5.
(1)Identification of the applicant.The
Expression of Interest must identify the
applicant by name, address, and taxpayer
identification number. There must be suf-
ficient information to establish that the
applicant is a qualified issuer within the
meaning of section 54B(f).
(2)Contact person.The Expression
of Interest must designate one or more
persons with knowledge regarding the
contemplated application (including the
proposed acquisition and transfer of land)
whom the applicant authorizes to discuss
these matters with the IRS, the USFS, and
any relevant State authorities. This desig-
nation must include the designee’s name,
title, telephone number, fax number, and
mailing address. If a designee is not an
official or officer of the applicant, the
Expression of Interest must include an ex-
ecuted Form 2848 (Power of Attorney and
Declaration of Representative) that autho-
rizes the IRS, the USFS, and all affected
States to discuss with the designee any
taxpayer information specifically relating
to the potential application, acquisition,
and transfer.
(3)General description of the contem-
plated qualified forest conservation pur-
pose.The Expression of Interest must in-
clude a general description of the land pro-
posed to be acquired, the portions of the
land that are being considered for transfer
to the USFS, and the portions that are be-
ing considered for retention by the appli-
cant, if the applicant is a State, or for trans-
fer to one or more States. The Expression
of Interest must also identify the specific
habitat conservation plan approved by the
USFWS that applies to the land proposed
to be acquired. (The plan must be in ef-
fect by the time the Expression of Interest
is filed.)
(4)Declaration and signature.The
declaration described in Section 16 of this
notice must be included in the Expression
of Interest, and an authorized official or
officer of the potential applicant must sign
the document.
SECTION 6. FINAL APPLICATION
Each Final Application for an alloca-
tion of the QFCB National Limitation must
comply with this Section 6.
(1)Applicant(s). An application may be
filed either by a single applicant or by more
than one applicant.(For additional re-
quirements governing applications jointly
filed by multiple applicants, see Section
6(4) of this notice.) Each applicant for an
allocation of the QFCB National Limita-
tion must be—
(a) A State or any political subdivision
or instrumentality thereof; or
(b) A 501(c)(3) organization (as defined
in section 150(a)(4)).
The application must demonstrate
clearly that each applicant meets this re-
quirement. For this purpose, standards
under section 103 of the Code determine
whether an entity is a political subdivision
or instrumentality. The applicant must
have timely filed the Expression of Inter-
est described in Sections 4 and 5 of this
notice.
(2)Dedication of bond proceeds, or of
refund of deemed payment, to qualified
forestry conservation purposes.Theap-
plicant must certify that, for each issue
of its bonds that may be designated pur-
suant to an allocation of any portion of
the QFCB National Limitation and for any
amount of the allocation for which an elec-
tion under section 54B(h) is being made,
100 percent of the available project pro-
ceeds of the issue (including any invest-
ment return), or 100 percent of the refund
of the deemed payment (including any in-
vestment return), will be used for one or
more qualified forestry conservation pur-
poses. (The expenditure requirement in
the preceding sentence is not violated by
useofsomeoralloftheinvestmentre-
turn to pay for one or more surety bonds
required by Section 6(3)(e)(vi) of this no-
tice.)
(3)Certifications and additional infor-
mation. Each application must contain the
information and certifications by the appli-
cant required by this subsection (3).
(a)Requirements governing the land to
be acquired. With respect to the land to
be acquired with the available project pro-
ceeds of each issue (or, if applicable, with
the refund of the deemed payment), each
application must contain a certification by
the applicant that includes the following
statements and information:
(i) The land is forest and forest land that
the applicant has established is suitable for
conveyance to the USFS or the State.
(ii) Some portion of the land to be ac-
quired is adjacent to USFS land (within
the meaning set forth under “Qualified
forestry conservationpurpose”inSection
3(2)(c) of this notice).
(iii) All of the land is subject to a native
fish habitat conservation plan approved by
the USFWS. The conservation plan ap-
proved by the USFWS must accompany
the application.
(iv) The amount of acreage to be ac-
quired is at least 40,000 acres.
(v) The application must set forth a spe-
cific date, no later than three years after is-
suance of the bonds or, if applicable, af-
ter receipt of the refund of the deemed
payment, on or before which the applicant
expects to acquire the land. See Section
13(2) of this notice regarding the proce-
dure for requesting an extension of this
three-year deadline.
(b)Land description and location.The
application must specifically describe the
land to be acquired, with an emphasis on
characteristics that qualify the land as for-
est or forest land. The description must
include the location of the land to be ac-
quired and demonstrate that the land is ad-
jacent to USFS land (within the meaning
set forth under “Qualified forestry conser-
vation purpose” in Section 3(2)(c) of this
notice). United States Geological Survey
maps for all quadrants containing any of
the land must be included with the applica-
tion, and the land must be clearly and pre-
cisely identified on the map or maps. Le-
gal descriptions must be depicted on a map
or plat of a scale of 1:24,000 or larger un-
less otherwise allowed by the USFS.
September 8, 20085782008–36 I.R.B.

(c)Current owner (or owners) of the
land. The application must state from
whomthelandistobeacquiredandmust
certify that no such current owner is re-
lated, directly or indirectly, to the applicant
that will purchase the land.
(d)Acquisition cost and other financial
arrangements. The application must dis-
close the acquisition cost of the land to be
acquired with the QFCB proceeds (or, if
applicable, the refund of the deemed pay-
ment).
(e)Land transfer. The application must
contain a commitment by the applicant that
at least one-half of the land to be acquired
will be transferred to the USFS by general
warranty deed, or the functional equivalent
under applicable State law, at no net cost
to the United States, and that the entire
remainder either will be conveyed to one
or more States or, if the applicant is a State,
will remain with the applicant.
(i) The application must certify the ap-
plicant’s intent to transfer the land to the
USFS and, if applicable, to the affected
State or States.
(ii) With respect to each transferee, the
application must contain—
•A legal description of the land to be
transferred in at least the level of de-
tail set forth in Section 6(3)(b) of this
notice;
•Copies of any land surveys;
•A description of the state of the title of
thelandtobetransferred;
•A statement whether any of the land
to be transferred is, or after transfer
will be, subject to liens, easements, or
other encumbrances and, if so, both
a detailed description (including thor-
ough documentation) of all such bur-
dens and a disclosure whether any of
those burdens is expected to remain af-
ter the land is transferred (in particu-
lar, the application must disclose any
rights or reservations, including with-
out limitation any contractual rights to
be retained with respect to the land by
the applicant or any third party);
•A statement whether any of the land
contains toxic, hazardous, or other
noxious materials that have the poten-
tial to impair enjoyment of the land to
be transferred or to subject the trans-
feree to liability; and
•Any other information or documenta-
tion requested by that transferee.
(iii) The application must describe
in detail the applicant’s commitment to
satisfying the Disposition Requirement,
describedaboveinSection3(2),andto
meeting the deadlines in this Section
6(3)(e)(iii), including the following: With
respect to each portion of the land acquired
(except for portions that are going to be
retained by the applicant if the applicant is
a State), either paragraph (A) or paragraph
(B) of this Section 6(3)(e)(iii) must be
satisfied not later than six months after the
completion of the acquisition of the land.
(A) That portion of the acquired land
has been transferred to the ultimate recipi-
ent of that portion (the USFS or a State);
1
or
(B) The following two events have oc-
curred—
•The applicant and the ultimate re-
cipient of that portion of the land
(the USFS or a State) have entered
into a contract that satisfies Section
6(3)(e)(iv) and is effective under State
or Federal law immediately to vest in
the ultimate recipient equitable title to
that portion of the land; and
•That contract has been appropriately
recorded or referenced in all land
records for that portion of the land.
See Section 13(2) of this notice regard-
ing the procedure for requesting an exten-
sion of this six-month deadline.
(iv) At a minimum, the contract de-
scribed in Section 6(3)(e)(iii)(B) must—
•Specify the date by which the portion
of the acquired land to which the con-
tract refers will be completely trans-
ferred to the ultimate recipient;
•Prescribe the title requirements of the
land to be transferred, including re-
quirements for abstracts of title or title
reports by a title insurance company;
•Describe requirements for the condi-
tion of the land at the time of that
transfer to the ultimate recipient in-
cluding any environmental documen-
tation that the USFS may require pur-
suant to the Comprehensive Environ-
mental Response, Compensation and
Liability Act (42 U.S.C. 9601,et seq.)
or that a transferee State may require
pursuant to its requirements for land to
be transferred to it;
•Prescribe standards for land manage-
ment by the applicant between the time
it transfers equitable title to the ulti-
mate recipient and the time it com-
pletely transfers the land to the ulti-
mate recipient; and
•Contain such other terms and condi-
tions as the USFS or State, as appro-
priate, may require.
(v) Each of the following constitutes a
failure to use the corresponding amount
of available project proceeds (or the cor-
responding amount of the refund of the
deemed payment) for a qualifying forestry
conservation purpose within the meaning
of section 54B(e). As such, each produces
the consequences, as appropriate, that are
described in section 54A(d)(2)(B) of the
Code, section 54B(h)(3)(A) of the Code,
and Section 3(2) of this notice.
(A) Failure to satisfy Section
6(3)(e)(iii)(A) or (B) before the expiration
of the six-month deadline (taking any ex-
tensions into account); or
(B) Failure of a qualified issuer to
consummate timely all land transfers that
were promised in one or more contracts
that were intended to satisfy Section 6(3)
and Section 6(3)(e)(iv) of this notice.
(Whether a transfer is timely is determined
taking into account any extensions ob-
tained pursuant to Section 13(3) of this
notice.)
•Failure timely to transfer land to the
USFS or to a State is not excused on
the grounds that the intended recipient
refuses to accept the proposed trans-
fer because, in the intended recipient’s
sole discretion, the proposed transfer
for any reason does not satisfy the cri-
teria that apply to the intended recipi-
ent at the time of the proposed transfer
for accepting a transfer of land.
•See Section 13(3) of this notice for a
procedure to request an extension of
time for consummating a transfer that
1
As is stated elsewhere in this notice, transfers to the USFS must be by a general warranty deed, or the functional equivalent under applicable State law, with title otherwise acceptable
to the Department of Agriculture, Office of the General Counsel, and in conformity with the title standards of the U.S. Attorney General. Any transferto a State must meet the analogous
requirements under State law.
2008–36 I.R.B.579September 8, 2008

was promised in a contract that was in-
tended to satisfy Section 6(3)(e)(iii)(B)
and Section 6(3)(e)(iv) of this notice.
•See Section 14 of this notice for a pro-
cedure for transferring Replacement
Land to the USFS or to a State in par-
tial satisfaction of the requirement in
section 54B(e)(2).
(vi)Ifanyofthelandcoveredbyacon-
tract described in Section 6(3)(e)(iii)(B)
of this notice is scheduled to be trans-
ferred to the USFS (or, if applicable, to a
State), more than three years after the ex-
ecution of the contract, then the qualified
issuer must obtain a surety bond accept-
able to the Treasury Department to cover
satisfaction of any possible liability from
a failure by that qualified issuer to trans-
fer the promised land. (The qualified is-
suer may also satisfy this bonding require-
ment by providing a bond that is secured
with Government obligations. See 31 CFR
Part 225.) The amount of the qualified is-
suer’s bond must be at least five percent
of the portion of the available bond pro-
ceeds (or, if applicable, of the refund of
the deemed overpayment) that is alloca-
ble to the qualified issuer’s acquisition of
the land the transfer of which under the
contract is scheduled for more than three
years after the execution of the contract.
The amount of bond may be reduced from
time to time as the qualified issuer’s con-
veyances of land to the USFS (or a State)
reduce the portion of the available bond
proceeds (or, if applicable, of the refund of
the deemed overpayment) that is allocable
to the qualified issuer’s acquisition of the
land the transfer of which under the con-
tract has not yet occurred.
Alternatively, the qualified issuer may
reduce or eliminate the amount of this re-
quired surety bond if the qualified issuer
posts sufficient appropriate land as collat-
eral by deed of trust or by conveyance in
escrow in favor of the United States. The
USFS must determine, taking into account
all of the land’s attributes, that the land
proposed to be used ascollateral will pro-
vide effective protection for the interests of
the United States. If the IRS and the USFS
approve the use of that land as collateral
for this purpose, the amount of the required
bond shall be reduced by one half of the es-
timate of value by the USFS for the land
that is proposed to be used as collateral.
(Thus, if the value of the land used as col-
lateral is at least twice the amount of the re-
quired bond, the need for a surety bond is
eliminated.) The USFS need not conduct
a formal appraisal of any property for any
determination under this provision. The
collateral may be partially released from
time to time as conveyances of land to the
USFS (or a State) reduce the amount of the
surety bond required.
(f)Certification by the United States
Forest Service. The application must be
accompanied by a signed statement from
the USFS—
(i) Certifying that the land to be ac-
quired satisfies the requirements in Section
6(3)(a)(i) through (iv) of this notice;
(ii) Confirming that the USFS is willing
to accept the land proposed for transfer in
the application; and
(iii) Containing any other comments the
USFS has with respect to the information
provided by the applicant.
USFS confirmation of a willingness to
accept the offered land does not waive
any requirement for conveyance of accept-
able title or remediation of hazardous sub-
stances, or any other requirement of fed-
eral land acquisition.
(g)Certification of Affected State or
States. With respect to any State to which
a portion of the acquired property is to be
transferred, a statement signed by an au-
thorized State official confirming that the
State is willing to accept the land described
in the application proposed to be trans-
ferred to the State must accompany the
application. Any such confirmation by a
State of its willingness to accept the of-
fered land does not waive any requirement
for conveyance of acceptable title or re-
mediation of hazardous substances, or any
other requirement of land acquisition un-
derthelaworpoliciesoftheState.
(4)Applications filed jointly by more
than one applicant. If an application is
filed jointly by more than one applicant—
•Each applicant must satisfy the re-
quirements set forth in Section 6(1) of
this notice;
•Each applicant must make the certifi-
cation described in Section 6(2) of this
notice;
•Each such proposed use of bond pro-
ceeds, or of the refund of the deemed
payment, separately must satisfy the
criteria to be a qualified forestry con-
servation purpose;
•The various qualified forestry conser-
vation purposes for which the applica-
tion requests allocations must be con-
sistent and complementary with each
other; and
•The aggregate allocations that the ap-
plication requests for all joint appli-
cants must be no more than the QFCB
National Limitation.
(5)Election under section 54B(h).Any
election under section 54B(h) must be in-
cluded with the Final Application. See
Section 11 of this notice.
(6)Declaration and signatures.The
declaration described in Section 16 of this
notice must be included in the Final Appli-
cation, and an authorized official or officer
of each applicant must sign the application.
SECTION 7.PRO FORMA
APPLICATION
APro Formaapplication is similar to a
Final Application with the following dif-
ferences:
•In lieu of making all of the required
certifications, the applicant may de-
scribe the certifications that the appli-
cant in good faith expects to make as
part of the Final Application but that
the applicant cannot yet make. If the
applicant does not yet have sufficient
information to make a certification, the
applicant must describe the additional
information it needs and how it intends
to obtain that information.
•If the applicant does not have sufficient
information satisfactorily to complete
the items described in Section 6(3)(a)
through (e) of this notice, the applicant
must provide the required information
that is in its possession and must de-
scribe both whatever additional infor-
mationisrequiredbysection54B,by
this notice, by the USFS, or by any af-
fected State and how the applicant in-
tends to obtain that information.
•The certifications required by Section
6(3)(f) and Section 6(3)(g) are not re-
quired.
•An executed election under section
54B(h) need not be included, but the
applicant must statewhether it intends
to make the election.
September 8, 20085802008–36 I.R.B.

SECTION 8. DRAFT OF FINAL
APPLICATION
A draft of the Final Application is sim-
ilar to a Final Application with the follow-
ing difference:
•The certifications required by Section
6(3)(f) and Section 6(3)(g) are not re-
quired.
SECTION 9. COORDINATION WITH
FEDERAL AND STATE AGENCIES
(1) The IRS may consult with the
USFS, the USFWS, and any State contain-
inganyofthelandtobeacquired.
(2) If the IRS receives applications for
aggregate allocations that are in excess of
the QFCB National Limitation or compet-
ing applications not all of which can be ful-
filled (for example,because they relate in
whole or in part to the same land), alloca-
tions will be made in a manner consistent
with the recommendations of the USFS.
SECTION 10. CONSENT TO
DISCLOSURE AND TO USE OF
INFORMATION
(1) In order to provide the public with
information on how the IRS has allocated
the QFCB National Limitation, to disclose
the resulting benefits to the USFS and
to one or more States, and to facilitate
oversight of the QFCB program, the IRS
intends to publish the results of the allo-
cation process. The published informa-
tion will identify the specific allocations
awarded and the successful applicants’
uses of the resulting funds. Section 6103
requires consent for the IRS to disclose
the return information with respect to an
applicant to which an allocation has been
awarded. Therefore, the IRS requests that
each applicant submit with its application
a separate document, in the form set forth
in Appendix A, consenting to the public
disclosure by the IRS of the name of the
applicant, the amount of the allocation,
and certain other information, including a
description (including the location) of the
land to be acquired with the proceeds of
QFCBs (or, if applicable, the refund of the
deemed payment) and the disposition of
the land so acquired. An authorized offi-
cial of the applicant must sign the consent.
An applicant is not required to provide
this consent in order to receive an alloca-
tion. The IRS will not publish any return
information with respect to applications
that are not awarded an allocation of the
QFCB National Limitation.
(2) In order for the USFS or the State
to which land is transferred under section
54B to manage the land, the applicant must
consent for the USFS or State, as applica-
ble, to retain and make use of the informa-
tion described in Appendix B that the ap-
plicant provided about the land either dur-
ing the application process or in connec-
tion with the transfer of land or negotiating
the contract to transfer land. The applicant
is required to provide this consent, in the
form set forth in Appendix B, in order to
receive an allocation.
SECTION 11. ELECTION TO TREAT
HALF OF THE ALLOCATION AS
PAYMENT OF TAX
In lieu of issuing bonds pursuant to an
allocation of some of the QFCB National
Limitation, an applicant may elect to treat
50 percent of any such allocation to it as a
deemed payment of a tax, which the IRS
must then refund to the applicant. See sec-
tion 54B(h). Any suchelection must be in-
cluded with the Final Application but must
be set forth in a document separate from
the application. The election document
must contain also—
•A certification by the electing appli-
cant that, within three years of the re-
ceipt of the refund, the applicant will
use the deemed payment, exclusively
for the qualified forestry conservation
purpose described in the application;
and
•A certification by the electing appli-
cant that between the time the appli-
cant receives the refund and the time it
acquires the land, it will comply with
the last paragraph of Section 3 of this
notice.
In describing the amounts to be used for
qualifying forestry conservation purposes,
the application must be consistent with
whether the requested allocation will be
used to issue bonds or to qualify for a re-
fund of a deemed payment. Whether an
applicant makes the election will affect the
amount of funds available for the purchase
oflanddescribedinsection54B(e). Be-
cause the minimum amount of land to be
transferred to USFS is “one half of the land
acquired,” making the election will affect
the amount of that minimum transfer but
will not affect its fractional relation to the
amount of land acquired.
SECTION 12. ISSUANCE OF THE
QFCBS
If an applicant has not made the elec-
tion described in Section 11 of this notice
and receives an allocation of the QFCB
National Limitation, the applicant must is-
sue the bonds within one year of the alloca-
tion, unless an extension of time has been
granted under Section 13(1) of this notice.
SECTION 13. EXTENSIONS OF
TIME
(1)Time to issue QFCBs.Pursuant to
a written request (not a request for a let-
ter ruling), upon a showing of good cause,
theIRSmayprovideareasonableexten-
sion of the one-year period within which
bonds must be issued. Any request for an
extension must be sent to the address set
forthinSection17(1)(A)ofthisnotice.
(2)Time to acquire and transfer land.
Pursuant to a written request (not a request
for a letter ruling), following issuance of
the bonds (or if applicable, receipt of the
refund of the deemed payment), upon a
showing of good cause, the IRS may pro-
vide a reasonable extension of the three-
year period described in Section 6(3)(a)(v)
or the six-month period described in Sec-
tion 6(3)(e)(iii). The original of any re-
quest for an extension must be sent to the
address set forth in Section17(1)(A)ofthis
notice, and copies must also be sent to the
USFS and to any State to which any of the
land to be acquired is planned to be trans-
ferred.
(3)Extension of time to transfer land
under a contract intended to satisfy Sec-
tion 6(3)(e)(iii)(B)and Section 6(3)(e)(iv)
of this notice.If a qualified issuer and
the USFS (or a State, as applicable) agree
to modify a contract that was intended
to satisfy Section 6(3)(e)(iii)(B) and Sec-
tion 6(3)(e)(iv) of this notice and if the
agreed-to modification would create no
more than a reasonable delay in the time
when land governed by the contract must
be transferred to the USFS (or to the State),
then, pursuant to a written request (not
a request for a letter ruling), and upon a
showing of good cause, the IRS may agree
2008–36 I.R.B.581September 8, 2008

to an extension of the deadlines contained
in the contract. The original of any request
for such an extension must be sent to the
address set forth in Section 17(1)(A) of
this notice, and copies must also be sent
to the other party to the contract (to which
any of the land required to be transferred).
SECTION 14. TRANSFER OF
REPLACEMENT LAND IN
PARTIAL SATISFACTION OF
SECTION 54B(e)(2) AND THE
REQUIREMENTS OF THIS NOTICE
(1)Transfer of Replacement Land
treated as transfer of Unacceptable Land
for purposes of satisfying the Disposition
Requirement.If land that is required to
be transferred to the USFS (or, if appli-
cable, to a State) is not so transferred
because it is Unacceptable Land (within
the meaning of Section 14(2)(a) of this
notice) and if the qualified issuer instead
transfers to the USFS or the State land that
is Replacement Land with respect to the
Unacceptable Land (within the meaning
of Section 14(2)(b) of this notice), then
the transfer of the Replacement Land is
treated like a transfer of the Unacceptable
Land for purposes of satisfying the re-
quirements of section 54B(e)(2) and this
notice.
(2)Definitions.
(a)Unacceptable Land.The term “Un-
acceptable Land” means land that is re-
quired to be transferred to the USFS or to
a State under the requirements of section
54B and this notice but that the intended
recipient will not accept because of—
•Defects in title—
•Of which the qualified issuer was
unaware at the time it acquired the
land; or
•Of which the qualified issuer was
aware at the time it acquired the
land, which it reasonably believed
that it could remedy, but which
were not remedied by the qualified
issuer’s reasonable efforts; or
•Conditions that—
•Existed at the time the qualified is-
suer acquired the land but of which
the qualified issuer was then un-
aware; or
•Did not exist at the time the qual-
ified issuer acquired the land and
were not subsequently caused by
the qualified issuer or by any per-
son that was related to, or acting
on behalf of, the qualified issuer.
(If an unrelated person engages in
activities on the land with the per-
mission of the qualified issuer—re-
gardless whether the qualified is-
suer is legally required to allow
some form of those activities—that
person is treated for this purpose as
acting on behalf of the qualified is-
suer.)
(b)Replacement Land.With respect
to particular Unacceptable Land, the term
“Replacement Land” means land such
that—
•If the qualified issuer had acquired the
Replacement Land instead of acquir-
ing the Unacceptable Land, the acqui-
sition would have satisfied the require-
mentsofsection54B(e)(otherthan
section 54B(e)(2));
•The total acreage of the land is no less
than the total acreage of the Unaccept-
able Land;
•The intended recipient of the Unac-
ceptable Land explicitly determines
that the land is no less desirable than
the Unacceptable Land would have
been if the cause for its unacceptability
did not exist; and
•The intended recipient specifically
consents to accept the land in lieu of
the Unacceptable Land.
(3)Application procedure.If a quali-
fied issuer and the USFS (or a State, as ap-
plicable) agree to treat certain land as Re-
placement Land with respect to certain Un-
acceptable Land, then, pursuant to a writ-
ten request (not a request for a letter rul-
ing), and upon a showing of good cause,
the IRS may agree to treat the land as Re-
placement Land. The original of any re-
quest for this treatment must be sent to the
address set forth in Section 17(1)(A) of this
notice, and copies must also be sent to the
other party to the contract (to which any of
thelandisrequiredtobetransferred).The
request must include complete documen-
tation establishing that both the alleged
Unacceptable Land and the requested Re-
placement Land meet the requirements of
this Section 14.
SECTION 15. CERTIFICATIONS OF
ACQUISITION AND TRANSFER OF
LAND
Each of the following certifications
must be submitted to the IRS at the address
set forth in Section 17(1)(B) of this notice:
(1) Not later than one month after the
expiration (taking into account any exten-
sions) of the three-year period described in
Section 6(3)(a)(v), the applicant must cer-
tify that it has acquired the land described
in the application. The certification must
describe in detail how the proceeds from
the sale of the QFCBs (or the refund of the
deemed payment) were used during that
period, between their receipt by the appli-
cant and the applicant’s acquisition of the
land described in the application, must ac-
count for the entire compound investment
return on those funds, and must demon-
strate that, during that period, the interests
of the United States were protected in a
manner consistent with the last paragraph
of Section 3 of this notice.
(2) If the IRS grants one or more exten-
sions of the six-month period described in
Section 6(3)(e)(iii) of this notice, then, not
later than one month after receiving each
extension, the applicant must provide to
the USFS and to any affected State a copy
of the extension document (including any
attachments).
(3) Not later than one month after the
expiration of each six-month deadline in
Section 6(3)(e)(iii) (taking into account
any extensions), the applicant must cer-
tify that it has complied with Section
6(3)(e)(iii) of this notice and must provide
detailed information and documents suf-
ficient to demonstrate that compliance. If
the applicant is complying with Section
6(3)(e)(iii)(B) (that is, by contracting to
transfer the land in the future), the docu-
ments provided must include a copy of the
contract or contracts and evidence that the
contract has been appropriately recorded
or referenced in all relevant land records.
The certification must highlight compli-
ance with the requirements designed to
ensure satisfaction of any obligation that
may arise under section 54B(h)(3)(A) of
the Code and Section 3(2) of this notice.
(4) If the applicant has executed a con-
tract that was intended to satisfy Section
6(3)(e)(iii)(B) and Section 6(3)(e)(iv) of
this notice, then, not later than one month
after the expiration of the deadline for the
September 8, 20085822008–36 I.R.B.

transfer of each portion of land as pro-
vided in the contract (taking extensions un-
der Section 13(3) of this notice into ac-
count), the applicant must certify that the
property to which that deadline applies has
been properly transferred; and, in the case
of the last such deadline, the filing must in-
clude a certification that at least one-half of
all the land acquired has been conveyed to
the USFS at no net cost to the United States
and that the remainder of the land acquired
has been retained by the applicant if the ap-
plicant is a State or has been transferred to
oneormoreStates,iftheapplicantisnot
a State. All such certifications must con-
tain detailed information and documents
sufficient to demonstrate that compliance.
The last such filing must contain a certifi-
cation by the USFS that the applicant has
fulfilled its contractual obligations and has
conveyed at least one half of the land ac-
quired to the USFS at no cost to the United
States. The IRS may request the USFS to
provide it corroboration of any certifica-
tion of an applicant made pursuant to this
section.
SECTION 16. REQUIRED
DECLARATIONS
Except for the consents described in
Section 10 of this notice, each applica-
tion, certification, report, or other docu-
ment submitted under this notice must in-
clude the following declaration signed by
an authorized official or officer who has
personal knowledge ofthe relevant facts
and circumstances: “Under penalties of
perjury, I declare that I have examined
this document (including any attachments)
and, to the best of my knowledge and be-
lief, the document (including any attach-
ments) contains all of the relevant facts,
and such facts are true, correct, and com-
plete.”
SECTION 17. ADDRESSES
(1)Internal Revenue Service.
(A) Application materials and requests
for extensions—
Internal Revenue Service
Attention CC:FI&P:Branch 5
1111 Constitution Avenue, NW,
Room 4017
Washington, D.C. 20224
Alternatively, these materials and re-
quests may be hand delivered Monday
through Friday between the hours of
8:00 a.m. and 4:00 p.m. to:
Courier’s Desk
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC, attention CC:FI&P:5
(B) Certifications required by Section
15 must be submitted to:
Internal Revenue Service
Attention: SE:T:G:TEB
1111 Constitution Avenue, NW,
PE–5S1
Washington, D.C. 20224
(2)United States Forest Service.Appli-
cations and materials to be filed with the
USFS must be either submitted by postal
service or hand delivered Monday through
Friday between the hours of 8:00 a.m. and
4:00 p.m. to:
United States Forest Service
Attention: Director of Lands
1400 Independence Avenue, SW
Mailstop:1124
Washington, D.C. 20250
Alternatively applications and materi-
als may be sent by express mail to:
United States Forest Service
Attention: Director of Lands
201 14th Street, SW
Washington, DC 20024
SECTION 18. INFORMATION
REPORTING
An applicant that receives an alloca-
tion of the QFCB National Limitation must
file Form 8038,Information Return for
Tax-Exempt Private Activity Bond Issues,
in accordance with the instructions for that
form and this notice. A copy of the com-
pleted and signed Form 8038 must simul-
taneously be sent to the IRS and USFS at
the addresses listed in section 17(1) and (2)
of this notice, respectively. An applicant
that used the allocation to issue QFCBs
must complete Part II by checking the box
on Line 11q (Other), writing in “Qualified
Forestry Conservation Bonds,” and enter-
ing the amount of the bonds in the Issue
Price column. An applicant that elects the
application of section 54B(h) (and thus re-
ceives a refund of a deemed payment in
lieu of issuing QFCBs) must file the Form
8038 not later than the date that it would
have been required to file the form if it had
issued QFCBs on the date that it receives
the refund. That applicant must complete
Part II of the Form 8038 by checking the
box on Line 11q (Other), writing in “Re-
fund Under Section 54B(h),” and entering
the amount of the refund in the Issue Price
column.
SECTION 19. DRAFTING
INFORMATION
The principal author of this notice is
Timothy L. Jones of the Office of Asso-
ciate Chief Counsel (Financial Institutions
and Products). However, other personnel
from the IRS and the Department of the
Treasury participated in its development.
For further information regarding this no-
tice, please contact Mr. Jones at (202)
622–3980 (not a toll-free number).
2008–36 I.R.B.583September 8, 2008

APPENDIX A
CONSENT TO PUBLIC DISCLOSURE OF CERTAIN QUALIFIED
FORESTRY CONSERVATION BOND APPLICATION INFORMATION
In the event that the Application of [(Insert name of applicant here):] (the “Applicant”) for an allocation of the QFCB
National Limitation to issue QFCBs under section 54B of the Internal Revenue Code is approved, the undersigned authorized
representative of the Applicant hereby consents to the disclosure by the Internal Revenue Service through publication of a Notice
in the Internal Revenue Bulletin or a press release or press conference of the name of applicant, the amount of the allocation,
and a description (including the location) of the property to be acquired with the proceeds of the QFCBs (or if applicable,
the refund of the deemed payment).
This authorization shall becomeeffective upon the execution thereof. Except to the extent disclosure is authorized herein,
the returns and return information of the undersigned taxpayer are confidential and are protected by law under the Internal
Revenue Code.
I certify that I have the authority to execute this consent to public disclosure on behalf of the taxpayer named below.
Date:Signature:
Print name:
Title:
Name of Applicant-Taxpayer:
Taxpayer Identification Number of the Applicant:
Applicant’s Address:
Note: Treasury Regulation § 301.6103(c)–1 requires that the Internal Revenue Service must receive this consent within 60 days
after it is signed and dated.
September 8, 20085842008–36 I.R.B.

APPENDIX B
CONSENT TO DISCLOSURE OF CERTAIN QUALIFIED FORESTRY
CONSERVATION BOND APPLICATION INFORMATION AND RELATED
DOCUMENTS
In the event that the Application of [(Insert name of applicant here): ] (the “Applicant”) for an allocation of the QFCB
National Limitation to issue QFCBs under section 54B of the Internal Revenue Code is approved, the undersigned authorized
representative of the Applicant hereby consents as follows: At all times after the transfer of title to any land acquired with the
proceeds of QFCBs (or the refund of any deemed payment)to the United States Forest Service (USFS) or to [insert name of any
State to which any part of the acquired land may be transferred], the officers and employees of the USFS or [insert the name
of any State to which any part of the acquired land may be transferred] may use (and if they so desire, disclose) information
from any or all of the following documents related to such transferred land: title reports; title abstracts; surveys; maps; leases
and other uses of the land; water rights, habitat conservation plans and related implementation documents; environmental
documents; resource inventories; management plans; documents relatedto the condition of the land;documentation of hazardous
contamination, remediation, and clearances; and documents developed in connection with the transfer of the land to the United
States Forest Service or [insert name of any State to which any part of the acquired land may be transferred].
The undersigned understands that the information described in this consent may be published, broadcast, discussed, or otherwise
disseminated in the public record.
This authorization shall becomeeffective upon the execution thereof. Except to the extent disclosure is authorized herein,
the returns and return information of the undersigned taxpayer are confidential and are protected by law under the Internal
Revenue Code.
I certify that I have the authority to execute this consent to public disclosure on behalf of the taxpayer named below.
Date:Signature:
Print name:
Title:
Name of Applicant-Taxpayer:
Taxpayer Identification Number of the Applicant:
Applicant’s Address:
Note: Treasury Regulation § 301.6103(c)–1 requires that the Internal Revenue Service must receive this consent within 60 days
after it is signed and dated.
2008–36 I.R.B.585September 8, 2008

26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also Part I, §§ 105, 106, 132, 152, 213, 220, 223;
1.106–1, 1.152–4.)
Rev. Proc. 2008–48
SECTION 1. PURPOSE
This revenue procedure describes the
circumstances underwhich the Internal
Revenue Service will treat a child of
parents who are divorced, separated, or
living apart as the dependent of both par-
ents for purposes of §§ 105(b), 106(a),
132(h)(2)(B), 213(d)(5), 220(d)(2) and
223(d)(2) of the Internal Revenue Code
when the custodial parent has not released
the claim to the exemption for the child
under § 152(e)(2).
SECTION 2. BACKGROUND
.01 Section 105(b) provides an ex-
clusion from gross income to employees
for certain employer-provided medical
expense reimbursements, including ex-
penses incurred by the employee for the
medical care (as defined in § 213(d)) of
the employee, the employee’s spouse, or
the employee’s dependent (as defined un-
der § 152 determined without regard to
subsections (b)(1), (b)(2) and (d)(1)(B)).
.02 Section 106(a) provides that the
gross income of an employee does not
include employer-provided coverage un-
der an accident or health plan. Section
1.106–1 of the Income Tax Regulations
provides that the exclusion from gross
income extends to contributions that the
employer makes to an accident or health
plan on behalf of the employee and the
employee’s spouse or dependents, as de-
fined in § 152. Notice 2004–79, 2004–2
C.B. 898, states that the Service intends to
revise § 1.106–1 to provide that the term
“dependent” for purposes of § 106 has
the same meaning as in § 105(b), and that
taxpayers may rely on the notice pending
the publication of the regulations.
.03 Section 132(a)(1) and (2) provides
an exclusion from gross income for cer-
tain fringe benefits that qualify as no-addi-
tional-cost services or qualified employee
discounts. Section 132(h)(2)(A) provides
that use of the fringe benefit by the em-
ployee’s spouse or dependent is treated as
use by the employee. For this purpose, de-
pendent child means any child (as defined
in § 152(f)(l)) of the employee (i) who is a
dependent of the employee, or (ii) both of
whose parents are deceased and who has
not attained age 25.
.04 Section 213(a) allows a deduction
for medical expenses of the taxpayer,
the taxpayer’s spouse, or the taxpayer’s
dependent (as defined under § 152 de-
termined without regard to subsections
(b)(1), (b)(2) and (d)(1)(B)).
.05 Sections 220(f)(1) and 223(f)(1) al-
low an exclusion from gross income for
distributions from Archer Medical Savings
Accounts (MSAs) and Health Savings Ac-
counts (HSAs), respectively, if the distri-
butions are used to pay qualified medi-
cal expenses (as defined in § 213(d)) of
the account beneficiary, the account ben-
eficiary’s spouse, or the account benefi-
ciary’s dependent (as defined under § 152
determined without regard to subsections
(b)(1), (b)(2) and (d)(1)(B)).
.06 For purposes of §§ 105(b),
132(a)(1) and (2), and 213(a), any child
to whom § 152(e) applies is treated as
a dependent of both parents. Sections
220(d)(2) and 223(d)(2) do not include a
similar rule. However, §§ 220(d)(2)(A)
and 223(d)(2)(A) define medical care
by reference to § 213(d), and under
§213(d)(5),achildtowhom§152(e)
applies is treated as the dependent of both
parents.
.07 Under prior § 152(e), children
of divorced or separated parents were
treated as dependents of both parents un-
der §§ 105(b), 132(h)(2)(B), and 213(d)(5)
whether or not a parent released the claim
to the exemption. The Working Families
Tax Relief Act of 2004, Pub. L. 108–311,
118 Stat. 1166, and the Gulf Opportunity
Zone Act of 2005, Pub. L. 109–135, 119
Stat. 2577, amended § 152(e) for taxable
years beginning after December 31, 2004.
Section 152(e) now provides that, in the
absence of a qualified pre-1985 instrument
(see § 152(e)(3)), a child may be treated as
the dependent of the noncustodial parent
only if the custodial parent releases the
claim to the exemption. Section 152(e)(2).
If the custodial parent does not release the
claim, the right to the exemption is deter-
mined under the general rules of § 152(c)
or (d). Consequently, the preamble to
§ 1.152–4(f), 73 FR 37797 (July 2, 2008),
explains that, if a custodial parent does
not release the claim to the exemption,
only the taxpayer who is entitled to claim
the child as a dependent under § 152(c)
or (d) may treat the child as a dependent
for purposes of §§ 105(b), 132(h)(2)(B),
and 213(d)(5). This guidance provides a
limited exception to that conclusion.
SECTION 3. SCOPE
This revenue procedure applies to tax-
payers who:
.01 Are divorced, legally separated un-
der a decree of divorce or separate main-
tenance, legally separated under a written
separation agreement, or live apart at all
times for the last 6 months of the calendar
year; and
.02 Are the parents of a child who:
(1) Receives over one-half of the child’s
support during the calendar year from the
child’s parents;
(2) Is in the custody of one or both par-
ents for more than one-half of the calendar
year; and
(3) Qualifies under § 152(c) or 152(d)
as a qualifying child or qualifying relative
of one of the child’s parents.
SECTION 4. APPLICATION
The Service will treat a child described
in the scope section of this revenue pro-
cedure of taxpayers within the scope of
this revenue procedure as the dependent
of both parents under §§ 105(b), 106(a),
132(h)(2)(B), 213(d)(5), 220(d)(2), and
223(d)(2), whether or not the custodial
parent releases the claim to the exemption
under § 152(e)(2).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective Au-
gust 18, 2008. However, taxpayers may
apply this revenue procedure in any tax-
able year beginning after December 31,
2004, for which the period of limitation on
credit or refund under § 6511 has not ex-
pired as of August 18, 2008.
SECTION 6. ADDITIONAL
INFORMATION
The principal author of this revenue
procedure is Mireille Khoury of the Of-
fice of Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other individuals
September 8, 20085862008–36 I.R.B.

participated in its development. For fur-
ther information regarding this revenue
procedure as it relates to §§ 105, 106,
220 and 223, contact Mireille Khoury
at (202) 622–6080 (not a toll-free call).
For further information regarding this
revenue procedure as it relates to § 132,
contact Neil Shepherd at (202) 622–6040
(not a toll-free call). For further infor-
mation regarding this revenue procedure
as it relates to §§ 152 and 213, contact
Victoria Driscoll at (202) 622–4920 (not a
toll-free call).
26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 56, 61, 1.61–4, 77, 162, 1.162–12, 166, 167, 168, 171, 174, 179B, 181, 194, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461,
467, 471, 472, 475, 481, 585, 832, 846, 861, 985, 1012, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61–1, 1.61–4, 1.61–8, 1.77–1, 1.77–2, 1.471–4,
1.162–1, 1.162–3, 1.162–4, 1.162–11, 1.162–12, 1.166–1, 1.166–4, 1.167(a)–2, 1.167(a)–3(b), 1.167(a)–7, 1.167(a)–8, 1.167(a)–11, 1.167(a)–14, 1.167(e)–1,
1.168(d)–1, 1.168(i)–1, 1.168(i)–4, 1.168(i)–6, 1.168(k)–1, 1.171–4, 1.174–1, 1.174–3, 1.174–4, 1.179–5, 1.181–1T, 1.181–2T, 1.181–3T, 1.194–1, 1.197–2,
1.263(a)–1, 1.263(a)–2, 1.263(a)–4, 1.263(a)–5, 1.263A–1, 1.263A–2, 1.263A–3, 1.263A–4, 1.263A–7, 1.267(a)–1, 1.280F–6, 1.404(b)–1T, 1.446–1, 1.446–1T,
1.446–2, 1.446–6, 447, 1.448–2, 1.467–1, 1.471–4, 1.471–5, 1.471–8, 1.448–1T, 1.451–1, 1.454–1, 1.455–6, 1.460–1, 1.460–4, 1.461–1, 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, 1.832–4, 1.860A–6, 1.861–18, 1.985–5, 1.985–8, 1.1012–1, 1.1016–3, 1.1245–3, 1.1272–1,
1.1273–1, 1.1273–2, 1.1363–2, 1.1374–4, 1.1400L(b)–1.)
Rev. Proc. 2008–52
TABLE OF CONTENTS
SECTION 1. PURPOSE
............................................................................................ 606
SECTION 2. BACKGROUND....................................................................................... 606
.01Changeinmethodofaccountingdefined ....................................................................... 606
.02Securingpermissiontomakeamethodchange.................................................................. 607
.03Termsandconditionsofamethodchange ...................................................................... 607
.04Noretroactivemethodchange................................................................................. 607
.05Methodchangewitha§481(a)adjustment ..................................................................... 607
(1)Needforadjustment...................................................................................... 607
(2)Adjustmentperiod........................................................................................ 607
.06Methodchangeusingacut-offbasis........................................................................... 607
.07Consistencyandclearreflectionofincome ..................................................................... 607
.08Separatetradesorbusinesses.................................................................................. 607
.09Penalties ................................................................................................... 608
.10Changemadeaspartofanexamination ........................................................................ 608
SECTION 3. DEFINITIONS......................................................................................... 608
.01Application................................................................................................. 608
.02Applicableprovisions........................................................................................ 608
.03Taxpayer................................................................................................... 608
(1)Ingeneral............................................................................................... 608
(2)Consolidatedgroup....................................................................................... 608
.04Timelymailingastimelyfiling................................................................................ 608
.05Timelyperformanceofacts................................................................................... 608
.06Yearofchange.............................................................................................. 608
.07Section481(a)adjustmentperiod.............................................................................. 608
.08Underexamination .......................................................................................... 608
(1)Ingeneral............................................................................................... 608
(2)PartnershipssubjecttoTEFRA............................................................................. 609
(3)ScorporationssubjecttoTEFRA........................................................................... 609
.09Issueunderconsideration..................................................................................... 609
(1)Underexamination....................................................................................... 609
(2)Beforeanappealsoffice................................................................................... 609
(3)Beforeafederalcourt..................................................................................... 609
.10ChangewithintheLIFOinventorymethod ..................................................................... 609
.11Director.................................................................................................... 609
SECTION 4. SCOPE............................................................................................... 609
.01Applicability................................................................................................ 609
.02Inapplicability............................................................................................... 609
2008–36 I.R.B.587September 8, 2008

(1)Underexamination....................................................................................... 609
(2)Consolidatedgroupmember............................................................................... 609
(3)PartnershipsandScorporations............................................................................ 609
(4)Section381(a)transaction................................................................................. 610
(a)Nodifferencesinmethods.............................................................................. 610
(b)Separatetradesorbusinesses............................................................................ 610
(5)Finalyearoftradeorbusiness ............................................................................. 610
(6)Priorfive-yearoverallmethodchange ...................................................................... 610
(7)Priorfive-yearitemchange................................................................................ 610
(a)Ingeneral............................................................................................. 610
(b)Exceptions............................................................................................ 610
(c)Examples............................................................................................. 611
.03Nonautomaticchanges....................................................................................... 611
SECTION 5. TERMS AND CONDITIONS OF CHANGE................................................................ 611
.01Ingeneral................................................................................................... 611
.02Yearofchange.............................................................................................. 611
.03Section481(a)adjustment.................................................................................... 611
.04Section481(a)adjustmentperiod.............................................................................. 611
(1)Ingeneral............................................................................................... 611
(2)Shortperiodasaseparatetaxableyear...................................................................... 611
(3) Shortened or accelerated §481(a) adjustment periods......................................................... 611
(a)De minimisrule ....................................................................................... 611
(b)Cooperatives.......................................................................................... 611
(c)Ceasingtoengageinthetradeorbusinessorterminatingexistence .......................................... 611
(i)Ingeneral .......................................................................................... 611
(ii)Examplesoftransactionsthataretreatedasthecessationofatradeorbusiness............................. 611
(iii)ConversiontoorfromScorporationstatus............................................................ 612
(iv)Certaintransferstowhich§381(a)applies ............................................................ 612
(v)Certaintransferspursuantto§351withinaconsolidatedgroup........................................... 612
(A)Ingeneral....................................................................................... 612
(B)Exception....................................................................................... 612
.05NOLcarrybacklimitationfortaxpayersubjecttocriminalinvestigation............................................ 612
.06Certainforeigncorporations .................................................................................. 612
.07Changetreatedasinitiatedbythetaxpayer...................................................................... 613
SECTION 6. GENERAL APPLICATION PROCEDURES............................................................... 613
.01Consent.................................................................................................... 613
.02Filingrequirements.......................................................................................... 613
(1)Applications............................................................................................. 613
(a)Form................................................................................................. 613
(b)Separateapplications................................................................................... 613
(c)Contents.............................................................................................. 613
(2)Waiveroftaxableyearfilingrequirement ................................................................... 613
(3)Timelyduplicatefilingrequirement......................................................................... 613
(a)Ingeneral............................................................................................. 613
(b)Certainforeigncorporations ............................................................................ 614
(c)Limitedreliefforlateapplication........................................................................ 614
(i)Automaticextension................................................................................. 614
(ii)Otherextensions.................................................................................... 614
(4) Designated automatic accounting method change number..................................................... 614
(5)Signaturerequirements.................................................................................... 614
(6)Authorizedrepresentative................................................................................. 614
(7)Wheretofilecopy........................................................................................ 615
(8) No acknowledgement of receipt............................................................................ 615
(9)Nouserfee.............................................................................................. 615
(10)Singleapplicationforcertaintaxpayers.................................................................... 615
(11)Additionalcopiesrequired ............................................................................... 615
September 8, 20085882008–36 I.R.B.

(a)Scoperestrictionswaivedfortaxpayerunderexamination .................................................. 615
(b)Taxpayerbeforeanappealsofficeorafederalcourtandissuenotunderconsideration ......................... 615
.03Taxpayerunderexamination.................................................................................. 615
(1)Ingeneral............................................................................................... 615
(2)90-daywindowperiod.................................................................................... 615
(3)120-daywindowperiod................................................................................... 615
(4)Consentofdirector....................................................................................... 616
(5)Changeslackingauditprotection. .......................................................................... 616
(6)IssuePending............................................................................................ 616
.04Taxpayerbeforeanappealsoffice ............................................................................. 616
.05Taxpayerbeforeafederalcourt................................................................................ 616
.06Compliancewithprovisions .................................................................................. 616
SECTION 7. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE............................... 617
.01Ingeneral................................................................................................... 617
.02Exceptions.................................................................................................. 617
(1)Changenotmadeormadeimproperly ...................................................................... 617
(2)Changeinsub-method.................................................................................... 617
(3)PrioryearService-initiatedchange ......................................................................... 617
(4)Criminalinvestigation .................................................................................... 617
SECTION 8. EFFECT OF CONSENT................................................................................ 617
.01Ingeneral................................................................................................... 617
.02Retroactivechangeormodification............................................................................ 617
SECTION 9. REVIEW BY DIRECTOR............................................................................... 617
.01Ingeneral................................................................................................... 617
.02Changesnotmadeincompliancewithallapplicableprovisions. .................................................. 617
.03Nationalofficeconsideration.................................................................................. 618
SECTION 10. REVIEW BY NATIONAL OFFICE...................................................................... 618
.01Ingeneral................................................................................................... 618
.02Incompleteapplication....................................................................................... 618
(1)30-dayrule.............................................................................................. 618
(2)Failuretoprovideadditionalinformation.................................................................... 618
.03Nationalofficedetermination................................................................................. 618
(1)Conferenceinthenationaloffice........................................................................... 618
(2)Consentnotgranted ...................................................................................... 618
(3)Applicationchanged...................................................................................... 618
SECTION 11. APPLICABILITY OF REV. PROCS. 2008–1 AND 2008–4................................................... 618
SECTION 12. EFFECTIVE DATE................................................................................... 618
.01Ingeneral................................................................................................... 618
.02Transitionrules.............................................................................................. 618
SECTION 13. EFFECT ON OTHER DOCUMENTS.................................................................... 619
SECTION 14. PAPERWORK REDUCTION ACT...................................................................... 619
SECTION 15. SIGNIFICANT CHANGES............................................................................. 619
DRAFTING INFORMATION........................................................................................ 621
APPENDIX....................................................................................................... 621
SECTION 1. GROSS INCOME (§ 61)................................................................................ 621
.01 Up-front Payments for NetworkUpgrades received by Utilities................................................... 621
(1)Descriptionofchange..................................................................................... 621
(2) Designated automatic accounting method change number..................................................... 622
(3)Contactinformation...................................................................................... 622
2008–36 I.R.B.589September 8, 2008

.02Reserved................................................................................................... 622
SECTION 2. COMMODITY CREDIT LOANS (§ 77).................................................................... 622
.01 Treating amounts received as loans............................................................................ 622
(1)Descriptionofchange..................................................................................... 622
(2)Scopelimitationsinapplicable ............................................................................. 622
(3)Mannerofmakingchange................................................................................. 622
(4) Designated automatic accounting method change number..................................................... 622
(5)Contactinformation...................................................................................... 622
.02Reserved................................................................................................... 622
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)................................................................ 622
.01Advancesmadebyalawyeronbehalfofclients................................................................. 622
(1)Descriptionofchange..................................................................................... 622
(2) Designated automatic accounting method change number..................................................... 622
(3)Contactinformation...................................................................................... 622
.02ISO9000costs.............................................................................................. 622
(1)Descriptionofchange..................................................................................... 622
(2)Scopelimitationsinapplicable ............................................................................. 622
(3) Designated automatic accounting method change number..................................................... 622
(4)Contactinformation...................................................................................... 622
.03Restaurantortavernsmallwarespackages...................................................................... 622
(1)Descriptionofchange..................................................................................... 622
(2)Scopelimitationsinapplicable ............................................................................. 622
(3)Section481(a)adjustmentperiod........................................................................... 622
(4) Designated automatic accounting method change number..................................................... 622
(5)Contactinformation...................................................................................... 622
.04Timbergrowerfertilizationcosts.............................................................................. 622
(1)Descriptionofchange..................................................................................... 622
(2)Scopelimitationsinapplicable ............................................................................. 622
(3) Designated automatic accounting method change number..................................................... 622
(4)Contactinformation...................................................................................... 622
SECTION 4. BAD DEBTS (§ 166).................................................................................... 623
.01Changefromreservemethodtospecificcharge-offmethod....................................................... 623
(1)Descriptionofchange..................................................................................... 623
(2) Designated automatic accounting method change number..................................................... 623
(3)Contactinformation...................................................................................... 623
.02Reserved................................................................................................... 623
SECTION 5. AMORTIZABLE BOND PREMIUM (§ 171)................................................................ 623
.01Revocationof§171(c)election ............................................................................... 623
(1)Descriptionofchange..................................................................................... 623
(2)Revocationofelection.................................................................................... 623
(3)Mannerofmakingchange................................................................................. 623
(4) Designated automatic accounting method change number..................................................... 623
(5)Additionalrequirements. ................................................................................. 623
(6)Auditprotection.......................................................................................... 623
(7)Contactinformation...................................................................................... 623
.02Reserved................................................................................................... 623
SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 56(g)(4)(A), 167, 168, 197, 280F(a), 1400I,
1400L, or 1400N(d), OR FORMER § 168)
.................................................................. 623
.01 Impermissible to permissible method ofaccounting for depreciation or amortization................................. 623
(1)Descriptionofchange..................................................................................... 623
(a)Applicability.......................................................................................... 623
(b)Taxpayerhasnotadoptedamethodofaccountingfortheitemofproperty.................................... 623
(c)Inapplicability......................................................................................... 623
(2)Certainscopelimitationsinapplicable....................................................................... 625
September 8, 20085902008–36 I.R.B.

(3)Additionalrequirements................................................................................... 625
(a)Permissiblemethodofaccountingfordepreciation......................................................... 625
(b)Statementsrequired.................................................................................... 625
(4)Section481(a)adjustment................................................................................. 625
(5)Basisadjustment......................................................................................... 626
(6)Meaningofdepreciationallowable. ........................................................................ 626
(a)Ingeneral............................................................................................. 626
(b)Section56(a)(1)property............................................................................... 626
(c)Section56(g)(4)(A)property............................................................................ 626
(d)Section167property................................................................................... 626
(e)Section168property................................................................................... 626
(f)Section197property ................................................................................... 626
(g)Former§168property ................................................................................. 626
(h)Qualifiedrevitalizationbuilding......................................................................... 626
(7)Concurrentautomaticchange.............................................................................. 627
(8) Designated automatic accounting method change number..................................................... 627
(9)Contactinformation...................................................................................... 627
.02Permissibletopermissiblemethodofaccountingfordepreciation ................................................. 627
(1)Descriptionofchange..................................................................................... 627
(2)Scope................................................................................................... 627
(a)Applicability.......................................................................................... 627
(b)Inapplicability......................................................................................... 627
(3)Certainscopelimitationsinapplicable....................................................................... 627
(4)Changescovered......................................................................................... 627
(5)Additionalrequirements................................................................................... 628
(a)Basisfordepreciation.................................................................................. 628
(b)Rateofdepreciation.................................................................................... 628
(c)Regulatoryrequirements................................................................................ 628
(d)Publicutilityproperty.................................................................................. 628
(6)Section481(a)adjustment................................................................................. 628
(7)Concurrentautomaticchange.............................................................................. 628
(8) Designated automatic accounting method change number..................................................... 628
(9)Contactinformation...................................................................................... 628
.03Sale,lease,orfinancingtransactions........................................................................... 629
(1)Descriptionofchangeandscope........................................................................... 629
(a)Applicability.......................................................................................... 629
(b)Inapplicability......................................................................................... 629
(2)Mannerofmakingchange................................................................................. 629
(3)Noauditprotection....................................................................................... 629
(4) Designated automatic accounting method change number..................................................... 629
(5)Contactinformation...................................................................................... 629
.04Moderngolfcoursegreens.................................................................................... 629
(1)Descriptionofchange..................................................................................... 629
(2)Additionalrequirements................................................................................... 629
(3) Designated automatic accounting method change number..................................................... 629
(4)Contactinformation...................................................................................... 629
.05 Original and replacement tire costs............................................................................ 629
(1)Descriptionofchange..................................................................................... 629
(2) Designated automatic accounting method change number..................................................... 629
(3)Contactinformation...................................................................................... 629
.06Depreciationofgaspumpcanopies. ........................................................................... 629
(1)Descriptionofchange..................................................................................... 629
(2)Additionalrequirements................................................................................... 629
(3) Designated automatic accounting method change number..................................................... 630
(4)Contactinformation...................................................................................... 630
.07Depreciationofutilityassets. ................................................................................. 630
(1)Descriptionofchange..................................................................................... 630
(2) Designated automatic accounting method change number..................................................... 630
2008–36 I.R.B.591September 8, 2008

(3)Contactinformation...................................................................................... 630
.08DepreciationofcableTVfiberoptics.......................................................................... 630
(1)Descriptionofchange..................................................................................... 630
(2) Designated automatic accounting method change number..................................................... 630
(3)Contactinformation...................................................................................... 630
.09 Change in general asset account treatment due to a change in the use of MACRS property........................... 630
(1)Descriptionofchange..................................................................................... 630
(2)Mannerofmakingchange................................................................................. 630
(3) Designated automatic accounting method change number..................................................... 630
(4)Contactinformation...................................................................................... 630
.10ChangeinmethodofaccountingfordepreciationduetoachangeintheuseofMACRSproperty. .................... 630
(1)Descriptionofchange..................................................................................... 630
(2) Designated automatic accounting method change number..................................................... 630
(3)Contactinformation...................................................................................... 630
.11Depreciationofqualifiednon-personalusevansandlighttrucks................................................... 630
(1)Descriptionofchange..................................................................................... 630
(2) Designated automatic accounting method change number..................................................... 630
(3)Contactinformation...................................................................................... 631
.12Depreciationofqualifiedrevitalizationbuildingintheexpandedareaofarenewalcommunity........................ 631
(1)Descriptionofchange..................................................................................... 631
(2)Scopelimitationsinapplicable ............................................................................. 631
(3)Timeformakingchange .................................................................................. 631
(4) Designated automatic accounting method change number..................................................... 631
(5)Contactinformation...................................................................................... 631
.13 Loss disallowance rule upon a disposition of an insurance contract acquired in an assumption
re-insurancetransaction ...................................................................................... 631
(1)Descriptionofchange..................................................................................... 631
(a)Applicability.......................................................................................... 631
(b)Inapplicability......................................................................................... 631
(2)Scopelimitationsinapplicable ............................................................................. 631
(3)Additionalrequirements................................................................................... 631
(4) Designated automatic accounting method change number..................................................... 631
(5)Contactinformation...................................................................................... 631
.14 Income forecast method of depreciation........................................................................ 631
(1)Descriptionofchange..................................................................................... 631
(2)Scope................................................................................................... 631
(a)Applicability.......................................................................................... 631
(b)Inapplicability......................................................................................... 631
(3)Timeformakingthechange............................................................................... 631
(4)Scopelimitationsinapplicable ............................................................................. 631
(5)Additionalrequirements................................................................................... 631
(6) Designated automatic accounting method change number..................................................... 631
(7)Contactinformation...................................................................................... 631
.15GOZoneadditionalfirstyeardepreciationdeduction ............................................................ 631
(1)Descriptionofchange..................................................................................... 632
(2)Scopelimitationsinapplicable ............................................................................. 632
(3)Timeformakingthechange............................................................................... 632
(4) Designated automatic accounting method change number..................................................... 632
(5)Contactinformation...................................................................................... 632
.16Additionalfirstyeardepreciationdeduction..................................................................... 632
(1)Descriptionofchange..................................................................................... 632
(2)Scopelimitationsinapplicable ............................................................................. 632
(3)Timeformakingthechange............................................................................... 632
(4) Designated automatic accounting method change number..................................................... 632
(5)Contactinformation...................................................................................... 632
.17 Impermissible to permissible method of accounting for depreciation or amortization for disposed
depreciableoramortizableproperty............................................................................ 632
(1)Descriptionofchange..................................................................................... 632
September 8, 20085922008–36 I.R.B.

(2)Scope................................................................................................... 632
(a)Applicability.......................................................................................... 632
(b)Inapplicability......................................................................................... 632
(3)Mannerofmakingthechange.............................................................................. 633
(a)Changemadeonanoriginalreturnfortheyearofchange................................................... 633
(b)Changemadeonanamendedreturnfortheyearofchange ................................................. 633
(4)Yearofchange........................................................................................... 633
(5)Scopelimitationsinapplicable ............................................................................. 633
(6)Filingrequirements....................................................................................... 633
(7)Section481(a)adjustmentperiod........................................................................... 633
(8) Designated automatic accounting method change number..................................................... 633
(9)Contactinformation...................................................................................... 633
.18 Depreciation of MACRS property acquired in a like-kind exchangeor as a result of an involuntary
conversion.................................................................................................. 633
(1)Descriptionofchange..................................................................................... 633
(2)Applicability ............................................................................................ 633
(3) Designated automatic accounting method change number..................................................... 633
(4)Contactinformation...................................................................................... 633
.19Lessorimprovementsabandonedatterminationoflease.......................................................... 633
(1)Descriptionofchange. ................................................................................... 633
(a)Applicability.......................................................................................... 633
(b)Inapplicability......................................................................................... 633
(2) Designated automatic accounting method change number..................................................... 633
(3)Contactinformation...................................................................................... 634
.20Repairableandreusablespareparts............................................................................ 634
(1)Descriptionofchange..................................................................................... 634
(a)Applicability.......................................................................................... 634
(b)Inapplicability......................................................................................... 634
(2)Establishmentofpools.................................................................................... 634
(3)Permissiblemethodsofidentifyingdisposedrepairableandreusablespareparts ................................. 634
(4)Mannerofmakingchange................................................................................. 634
(a)Establishmentofpools ................................................................................. 634
(b)Identifyingdisposedrepairableandreusablespareparts.................................................... 635
(5)Concurrentautomaticchange. ............................................................................. 635
(6) Designated automatic accounting method change number..................................................... 635
(7)Contactinformation...................................................................................... 635
.21Land....................................................................................................... 635
(1)Descriptionofchange..................................................................................... 635
(a)Applicability.......................................................................................... 635
(b)Inapplicability......................................................................................... 635
(2)Concurrentautomaticchange.............................................................................. 635
(3) Designated automatic accounting method change number..................................................... 635
(4)Contactinformation...................................................................................... 635
.22Kansasadditionalfirstyeardepreciation........................................................................ 635
(1)Descriptionofchange..................................................................................... 635
(2)Scopelimitationsinapplicable ............................................................................. 635
(3) Designated automatic accounting method change number..................................................... 636
(4)ContactInformation...................................................................................... 636
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)............................................... 636
.01Changestoadifferentmethodordifferentamortizationperiod.................................................... 636
(1)Descriptionofchange..................................................................................... 636
(2)Scope................................................................................................... 636
(a)Applicability.......................................................................................... 636
(b)Inapplicability......................................................................................... 636
(3)Scopelimitationsclarified................................................................................. 636
(4)Mannerofmakingchange................................................................................. 636
(5)Additionalrequirement ................................................................................... 636
2008–36 I.R.B.593September 8, 2008

(6)Noauditprotection....................................................................................... 636
(7) Designated automatic accounting method change number..................................................... 636
(8)Contactinformation...................................................................................... 636
.02Reserved................................................................................................... 637
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§§ 179B(a), 181, and 194(b))......................................... 637
.01Treatmentofqualifiedfilmandtelevisionproductions ........................................................... 637
(1)Descriptionofchange..................................................................................... 637
(2)Scope................................................................................................... 637
(a)Applicability.......................................................................................... 637
(b)Inapplicability......................................................................................... 637
(3)Timeformakingthechange............................................................................... 637
(4)Scopelimitationsinapplicable ............................................................................. 637
(5)Additionalrequirements................................................................................... 637
(6) Designated automatic accounting method change number..................................................... 637
(7)Contactinformation...................................................................................... 637
.02Expensingofcertainreforestationexpenditures ................................................................. 637
(1)Descriptionofchange..................................................................................... 637
(2)Scope................................................................................................... 637
(a)Applicability.......................................................................................... 637
(b)Inapplicability......................................................................................... 637
(3)Timeformakingthechange............................................................................... 637
(4)Scopelimitationsinapplicable ............................................................................. 637
(5)Additionalrequirements................................................................................... 637
(6) Designated automatic accounting method change number..................................................... 637
(7)Contactinformation...................................................................................... 637
.03 Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur
regulations.................................................................................................. 637
(1)Descriptionofchange..................................................................................... 637
(2)Scope................................................................................................... 637
(a)Applicability.......................................................................................... 637
(b)Inapplicability......................................................................................... 637
(3)Timeformakingthechange............................................................................... 638
(4)Scopelimitationsinapplicable ............................................................................. 638
(5)Additionalrequirements................................................................................... 638
(6) Designated automatic accounting method change number..................................................... 638
(7)Contactinformation...................................................................................... 638
SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197).......................................... 638
.01Computersoftwareexpenditures .............................................................................. 638
(1)Descriptionofchange..................................................................................... 638
(2)Scope................................................................................................... 638
(3)Statementrequired ....................................................................................... 638
(4) Designated automatic accounting method change number..................................................... 638
(5)Contactinformation...................................................................................... 638
.02Year2000costs ............................................................................................. 638
(1)Descriptionofchange..................................................................................... 638
(2) Designated automatic accounting method change number..................................................... 638
(3)Contactinformation...................................................................................... 638
SECTION 10. CAPITAL EXPENDITURES (§ 263)...................................................................... 638
.01Packagedesigncosts......................................................................................... 638
(1)Descriptionofchange..................................................................................... 638
(a)Applicability.......................................................................................... 638
(b)Inapplicability......................................................................................... 638
(2)Additionalrequirements................................................................................... 638
(3) Designated automatic accounting method change number..................................................... 638
(4)Contactinformation...................................................................................... 639
September 8, 20085942008–36 I.R.B.

.02Linepackgasorcushiongas.................................................................................. 639
(1)Descriptionofchange..................................................................................... 639
(2)Additionalrequirements................................................................................... 639
(3) Designated automatic accounting method change number..................................................... 639
(4)Contactinformation...................................................................................... 639
.03Removalcosts .............................................................................................. 639
(1)Descriptionofchange..................................................................................... 639
(2)Additionalrequirements................................................................................... 639
(3)Scopelimitationsinapplicable ............................................................................. 639
(4) Designated automatic accounting method change number..................................................... 639
(5)Contactinformation...................................................................................... 639
.04Distributorcommissions...................................................................................... 639
(1)Descriptionofchange..................................................................................... 639
(a)Applicability.......................................................................................... 639
(b)Inapplicability......................................................................................... 639
(2)Mannerofmakingchange................................................................................. 639
(3) Designated automatic accounting method change number..................................................... 639
(4)Contactinformation...................................................................................... 639
.05Intangibles.................................................................................................. 639
(1)Descriptionofchange..................................................................................... 639
(2) Prior unauthorized change in method of accounting........................................................... 639
(3)Scopelimitations......................................................................................... 639
(4)Section481(a)adjustment................................................................................. 639
(5) Designated automatic accounting method change number..................................................... 639
(6)Contactinformation...................................................................................... 639
.06Rotablespareparts .......................................................................................... 640
(1)Descriptionofchange..................................................................................... 640
(2)Scopelimitationsinapplicable ............................................................................. 640
(3)Changefromsafeharbormethod........................................................................... 640
(4) Designated automatic accounting method change number..................................................... 640
(5)Contactinformation...................................................................................... 640
.07Repairableandreusablespareparts............................................................................ 640
(1)Descriptionofchange..................................................................................... 640
(a)Applicability.......................................................................................... 640
(b)Inapplicability......................................................................................... 640
(2)Additionalrequirements................................................................................... 640
(3)Concurrentautomaticchange.............................................................................. 640
(4) Designated automatic accounting method change number..................................................... 640
(5)Contactinformation...................................................................................... 641
SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)............................................. 641
.01Certainuniformcapitalization(UNICAP)methodsusedbyresellersandreseller-producers........................... 641
(1)Descriptionofchange..................................................................................... 641
(a)Applicability.......................................................................................... 641
(b)Inapplicability......................................................................................... 641
(i)Self-constructedassets............................................................................... 641
(ii)Historicabsorptionratio............................................................................. 641
(c)Scopelimitationsinapplicable........................................................................... 641
(2)Definitions.............................................................................................. 641
(3)Section481(a)adjustmentperiod........................................................................... 641
(4)Multiplechanges......................................................................................... 641
(5) Designated automatic accounting method change number..................................................... 642
(6)Example ................................................................................................ 642
(7)Contactinformation...................................................................................... 644
.02Certainuniformcapitalization(UNICAP)methodsusedbyproducersandreseller-producers ......................... 644
(1)Descriptionofchange..................................................................................... 644
(a)Applicability.......................................................................................... 644
(b)Inapplicability......................................................................................... 644
2008–36 I.R.B.595September 8, 2008

(2)Definition............................................................................................... 644
(3)Multiplechanges......................................................................................... 644
(4) Designated automatic accounting method change number..................................................... 644
(5)Contactinformation...................................................................................... 644
.03Changetonolongercapitalizeresearchandexperimentalexpendituresunder§263A................................ 645
(1)Descriptionofchange..................................................................................... 645
(2)Mannerofmakingchange................................................................................. 645
(3)Noauditprotection....................................................................................... 645
(4) Designated automatic accounting method change number..................................................... 645
(5)Contactinformation...................................................................................... 645
.04Impactfees................................................................................................. 645
(1)Descriptionofchange..................................................................................... 645
(2) Designated automatic accounting method change number..................................................... 645
(3)Contactinformation...................................................................................... 645
.05Changetocapitalizingenvironmentalremediationcostsunder§263A............................................. 645
(1)Descriptionofchange..................................................................................... 645
(2)Concurrentautomaticchanges............................................................................. 645
(3) Designated automatic accounting method change number..................................................... 645
(4)Contactinformation...................................................................................... 645
.06Changeinallocatingenvironmentalremediationcostsunder§263A............................................... 645
(1)Descriptionofchange..................................................................................... 645
(2)Concurrentautomaticchanges............................................................................. 645
(3) Designated automatic accounting method change number..................................................... 645
(4)Contactinformation...................................................................................... 645
SECTION 12. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)
.......................................................................... 645
.01Changetocomplywith§267................................................................................. 645
(1)Descriptionofchange..................................................................................... 645
(2) Designated automatic accounting method change number..................................................... 645
(3)Contactinformation...................................................................................... 645
.02Reserved................................................................................................... 645
SECTION 13. DEFERRED COMPENSATION (§ 404)................................................................... 645
.01Changetocomplywith§404(a)(11)........................................................................... 645
(1)Descriptionofchange..................................................................................... 646
(2)Scopelimitationsinapplicable ............................................................................. 646
(3)Section481(a)adjustmentperiod........................................................................... 646
(4)Noauditprotection....................................................................................... 646
(5) Designated automatic accounting method change number..................................................... 646
(6)Contactinformation...................................................................................... 646
.02Deferredcompensation....................................................................................... 646
(1)Descriptionofchange..................................................................................... 646
(a)Applicability.......................................................................................... 646
(i)Bonuses............................................................................................ 646
(A)Bonusesnotsubjecttocapitalizationunder§263A .................................................. 646
(B)Bonusesthataresubjecttocapitalizationunder§263A............................................... 646
(ii)Vacationpay....................................................................................... 646
(A) Vacation pay not subject tocapitalization under § 263A.............................................. 646
(B) Vacation pay that is subject to capitalization under § 263
A..........................
.................. 646
(b)Inapplicability......................................................................................... 646
(2) Designated automatic accounting method change number..................................................... 646
(3)Contactinformation...................................................................................... 646
.03Graceperiodcontributions.................................................................................... 646
(1)Descriptionofchange..................................................................................... 646
(2) Designated automatic accounting method change number
...................................
.................. 646
(3)Contactinformation...................................................................................... 646
SECTION 14. METHODS OF ACCOUNTING (§ 446)................................................................... 647
September 8, 20085962008–36 I.R.B.

.01 Change in overall method from the cash method to an accrual method............................................. 647
(1)Descriptionofchange..................................................................................... 647
(a)Applicability.......................................................................................... 647
(b)Inapplicability......................................................................................... 647
(2)Scopelimitationsinapplicable ............................................................................. 647
(3)Definitions.............................................................................................. 647
(4)Mannerofmakingchange................................................................................. 648
(a)Section481(a)adjustment .............................................................................. 648
(b) Concurrent change to a special method of accounting not permitted to be made under this
revenueprocedure........................................................................................ 648
(c)Adoptionofrecurringitemexception .................................................................... 648
(5)Coordinationwithsection33.01ofthisAPPENDIXforshort-termobligations .................................. 648
(6)Concurrentautomaticchangetothedeferralmethodforadvancepayments...................................... 648
(7) Designated automatic accounting method change number..................................................... 648
(8)Contactinformation...................................................................................... 648
.02Multi-yearinsurancepoliciesformulti-yearservicewarrantycontracts............................................. 648
(1)Descriptionofchange..................................................................................... 648
(a)Applicability.......................................................................................... 648
(b)Inapplicability......................................................................................... 648
(2)Descriptionofmethod.................................................................................... 648
(3) Designated automatic accounting method change number..................................................... 648
(4)Contactinformation...................................................................................... 648
.03Taxpayerschangingtooverallcashmethod..................................................................... 649
(1)Descriptionofchange..................................................................................... 649
(2)Scopelimitationsapplicable............................................................................... 649
(3)Mannerofmakingchange................................................................................. 649
(4) Concurrent automatic change totreat inventoriable items as nonincidental materials and supplies
underRev.Proc.2001–10orRev.Proc.2002–28............................................................ 649
(5)Bankschangingtooverallcash/hybridmethod............................................................... 649
(6) Designated automatic accounting method change number..................................................... 649
(7)Contactinformation...................................................................................... 649
.04 Nonaccrual-experience method................................................................................ 649
(1)Descriptionofchange..................................................................................... 649
(a)Applicability.......................................................................................... 649
(b)Inapplicability......................................................................................... 649
(2)Scopelimitationsinapplicable ............................................................................. 649
(3)Mannerofmakingthechange.............................................................................. 649
(4) Concurrent change to overall accrual method and a NAE method of accounting.................................. 649
(a)First§448year........................................................................................ 649
(b) Concurrent automatic change to overall accrual method.................................................... 649
(5) Designated automatic accounting method change number..................................................... 649
(6)Contactinformation...................................................................................... 650
.05 Interest accruals on short-termconsumer loans–Rule of 78’s method............................................... 650
(1)Descriptionofchange..................................................................................... 650
(2)Background ............................................................................................. 650
(3) Designated automatic accounting method change number..................................................... 650
(4)Contactinformation...................................................................................... 650
.06Filmproducer’streatmentofcertaincreativepropertycosts....................................................... 650
(1)Descriptionofchange..................................................................................... 650
(2) Designated automatic accounting method change number..................................................... 650
(3)Contactinformation...................................................................................... 650
.07Deductionofincentivepaymentstohealthcareproviders......................................................... 650
(1)Descriptionofchange..................................................................................... 650
(2)Scope................................................................................................... 650
(3) Designated automatic accounting method change number..................................................... 650
(4)Contactinformation...................................................................................... 650
.08Changebybankforuncollectedinterest........................................................................ 650
(1)Descriptionofchange..................................................................................... 651
2008–36 I.R.B.597September 8, 2008

(2)Recoverypercentage...................................................................................... 651
(3)Scopelimitationsinapplicable ............................................................................. 651
(4) Designated automatic accounting method change number..................................................... 651
(5)Contactinformation...................................................................................... 651
.09 Change from the cash method to an accrual method for specific items.............................................. 651
(1)Descriptionofchange..................................................................................... 651
(a)Applicability.......................................................................................... 651
(b)Inapplicability......................................................................................... 651
(2)Definitions.............................................................................................. 651
(3)Additionalrequirements................................................................................... 651
(4) Designated automatic accounting method change number..................................................... 652
(5)Contactinformation...................................................................................... 652
.10Multi-yearservicewarrantycontracts.......................................................................... 652
(1)Descriptionofchange..................................................................................... 652
(a)Applicability.......................................................................................... 652
(b)Inapplicability......................................................................................... 652
(2) Manner of making change and designatedautomatic accounting method change number.......................... 652
(3)Additionalrequirement ................................................................................... 652
(4)Contactinformation...................................................................................... 652
.11Overallcashmethodforspecifiedtransportationindustrytaxpayers................................................ 652
(1)Descriptionofchange..................................................................................... 652
(2)Definitions.............................................................................................. 652
(a)Specifiedtransportationindustrytaxpayer ................................................................ 652
(b)Business.............................................................................................. 652
(c) Average annual gross receipts........................................................................... 652
(d) Gross receipts......................................................................................... 653
(e) Aggregation of gross receipts........................................................................... 653
(f)Treatmentofshorttaxableyear.......................................................................... 653
(g)Treatmentofpredecessors.............................................................................. 653
(h)Cashmethod.......................................................................................... 653
(3) Designated automatic accounting method change number..................................................... 653
(4)Example ................................................................................................ 653
(5)Contactinformation...................................................................................... 653
.12Changetooverallcash/hybridmethodforcertainbanks.......................................................... 653
(1)Descriptionofchange..................................................................................... 653
(a)Applicability.......................................................................................... 653
(b)Inapplicability......................................................................................... 653
(2)Definitions.............................................................................................. 653
(a)Bank................................................................................................. 653
(b)Overallcash/hybridmethod............................................................................. 653
(i)Cashmethod........................................................................................ 653
(ii)Specialmethods.................................................................................... 653
(3)Additionalconditionofchange............................................................................. 653
(4)Additionalfilingrequirement.............................................................................. 654
(5) Computation of average annual gross receipts................................................................ 654
(a) Average annual gross receipts........................................................................... 654
(b) Gross receipts......................................................................................... 654
(c) Aggregation of gross receipts........................................................................... 654
(d)Treatmentofshorttaxableyear.......................................................................... 654
(e) Treatment of predecessors.............................................................................. 654
(6) Designated automatic accounting method change number..................................................... 654
(7)Contactinformation...................................................................................... 654
.13Changetooverallcashmethodforfarmers ..................................................................... 654
(1)Descriptionofchange..................................................................................... 654
(a)Applicability.......................................................................................... 654
(b)Inapplicability......................................................................................... 654
(2)Definitions.............................................................................................. 654
(3)Mannerofmakingchange................................................................................. 654
September 8, 20085982008–36 I.R.B.

(4) Designated automatic accounting method change number..................................................... 654
(5)Contactinformation...................................................................................... 654
.14Nonshareholdercontributionstocapitalunder§118............................................................. 654
(1)Descriptionofchange..................................................................................... 654
(2) Designated automatic accounting method change number..................................................... 654
(3)Contactinformation...................................................................................... 654
SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451)................................................................ 655
.01Accrualofinterestonnonperformingloans..................................................................... 655
(1)Descriptionofchange..................................................................................... 655
(2)Section481(a)adjustment................................................................................. 655
(3) Designated automatic accounting method change number..................................................... 655
(4)Contactinformation...................................................................................... 655
.02Advancerentals............................................................................................. 655
(1)Descriptionofchange..................................................................................... 655
(2) Designated automatic accounting method change number..................................................... 655
(3)Contactinformation...................................................................................... 655
.03Stateorlocalincomeorfranchisetaxrefunds................................................................... 655
(1)Descriptionofchange..................................................................................... 655
(2) Designated automatic accounting method change number..................................................... 655
(3)Contactinformation...................................................................................... 655
.04Capitalcostreductionpayments............................................................................... 655
(1)Descriptionofchange..................................................................................... 655
(2)Auditprotection.......................................................................................... 655
(3) Designated automatic accounting method change number..................................................... 655
(4)Contactinformation...................................................................................... 655
.05Creditcardannualfees....................................................................................... 655
(1)Descriptionofchange..................................................................................... 655
(2)Mannerofmakingchange................................................................................. 656
(3) Designated automatic accounting method change number..................................................... 656
(4)Contactinformation...................................................................................... 656
.06Creditcardlatefees.......................................................................................... 656
(1)Descriptionofchange..................................................................................... 656
(2)Additionalrequirements................................................................................... 656
(3)Auditprotection.......................................................................................... 656
(4) Designated automatic accounting method change number..................................................... 656
(5)Contactinformation...................................................................................... 656
.07Advancepayments........................................................................................... 656
(1)Descriptionofchange..................................................................................... 656
(2)Mannerofmakingchange................................................................................. 656
(3) Concurrent automatic change to an overall accrual method.................................................... 656
(4) Designated automatic accounting method change number..................................................... 656
(5)Contactinformation...................................................................................... 656
.08Creditcardcashadvancefees................................................................................. 656
(1)Descriptionofchange..................................................................................... 656
(2)Otherrequirements....................................................................................... 656
(3)Auditprotection.......................................................................................... 657
(4) Designated automatic accounting method change number..................................................... 657
(5)Contactinformation...................................................................................... 657
.09 Sales or dispositions to implement Federal Energy Regulatory Commission or state electric
restructuringpolicy.......................................................................................... 657
(1)Descriptionofchange..................................................................................... 657
(2)Scope................................................................................................... 657
(a)Applicability.......................................................................................... 657
(b)Inapplicability......................................................................................... 657
(3)Scopelimitationsinapplicable ............................................................................. 657
(4)Additionalrequirements................................................................................... 657
(5) Designated automatic accounting method change number..................................................... 657
2008–36 I.R.B.599September 8, 2008

(6)Contactinformation...................................................................................... 657
.10Retainages.................................................................................................. 657
(1)Descriptionofchange. ................................................................................... 657
(a)Applicability.......................................................................................... 657
(b)Inapplicability......................................................................................... 657
(2) Designated automatic accounting method change number..................................................... 657
(3)Contactinformation...................................................................................... 657
SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)........................................................... 657
.01SeriesE,EEorIU.S.savingsbonds........................................................................... 657
(1)Descriptionofchange..................................................................................... 657
(2) Manner of making change and designated automatic accounting method change nu
mber........
.................. 657
(3)Contactinformation...................................................................................... 657
.02Reserved. .................................................................................................. 657
SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455)............................................................. 657
.01Prepaidsubscriptionincome.................................................................................. 657
(1)Descriptionofchange..................................................................................... 658
(2) Manner of making change and designatedautomatic accounting method change number.......................... 658
(3)Contactinformation...................................................................................... 658
.02Reserved................................................................................................... 658
SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)................................................ 658
.01Changefromexempt-contractmethodtopercentage-of-completionmethod......................................... 658
(1)Descriptionofchange..................................................................................... 658
(2)Mannerofmakingchange................................................................................. 658
(3) Designated automatic accounting method change number..................................................... 658
(4)Contactinformation...................................................................................... 658
.02Reserved................................................................................................... 658
SECTION 19. TAXABLE YEAR OF DEDUCTION (§ 461)............................................................... 658
.01Timingofincurringliabilitiesforemployeecompensation........................................................ 658
(1)Self-insuredemployeemedicalbenefits..................................................................... 658
(a)Descriptionofchange.................................................................................. 658
(i)Applicability........................................................................................ 658
(ii)Inapplicability...................................................................................... 658
(b) Amounts taken into account............................................................................. 658
(c)Concurrentautomaticchange............................................................................ 658
(d) Designated automatic accounting method change number................................................... 658
(2)Bonuses................................................................................................. 659
(a)Descriptionofchange.................................................................................. 659
(i)Applicability........................................................................................ 659
(ii)Inapplicability...................................................................................... 659
(b)Concurrentautomaticchange ........................................................................... 659
(c)Designatedautomaticaccountingmethodchangenumber................................................... 659
(3) Vacation pay............................................................................................. 659
(a)Descriptionofchange.................................................................................. 659
(i)Applicability........................................................................................ 659
(ii)Inapplicability...................................................................................... 659
(b)Concurrentautomaticchange ........................................................................... 659
(c)Designatedautomaticaccountingmethodchangenumber................................................... 659
(4)Contactinformation...................................................................................... 659
.02 Timing of incurring liabilities for real propertytaxes, personal property taxes, state income taxes,
andstatefranchisetaxes...................................................................................... 659
(1)Background ............................................................................................. 659
(2)Descriptionofchange..................................................................................... 659
(a)Applicability.......................................................................................... 659
(b)Inapplicability......................................................................................... 659
(3) Amounts taken into account............................................................................... 659
September 8, 20086002008–36 I.R.B.

(4)Concurrentautomaticchange.............................................................................. 660
(5) Designated automatic accounting method change number..................................................... 660
(6)Contactinformation...................................................................................... 660
.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or
violationoflaw.............................................................................................. 660
(1)Descriptionofchange. ................................................................................... 660
(a)Applicability.......................................................................................... 660
(b)Inapplicability......................................................................................... 660
(2) Amounts taken into account............................................................................... 660
(3)Concurrentautomaticchange.............................................................................. 660
(4) Designated automatic accounting method change number..................................................... 660
(5)Contactinformation...................................................................................... 660
.04Timingofincurringcertainliabilitiesforpayrolltaxes ........................................................... 660
(1)Descriptionofchange..................................................................................... 660
(a)Applicability.......................................................................................... 660
(b)Inapplicability......................................................................................... 660
(2)Recurringitemexception.................................................................................. 661
(3)Scopelimitationsinapplicable ............................................................................. 661
(4) Amounts taken into account............................................................................... 661
(5)Concurrentautomaticchange.............................................................................. 661
(6) Designated automatic accounting method change number..................................................... 661
(7)Contactinformation...................................................................................... 661
.05Cooperativeadvertising...................................................................................... 661
(1)Descriptionofchange..................................................................................... 661
(2) Designated automatic accounting method change number..................................................... 661
(3)Contactinformation...................................................................................... 661
.06Timingofincurringcertainliabilitiesforservicesorinsurance.................................................... 661
(1)Descriptionofchange..................................................................................... 661
(2) Designated automatic accounting method change number..................................................... 661
(3)Contactinformation...................................................................................... 661
.07Rebatesandallowances...................................................................................... 661
(1)Descriptionofchange..................................................................................... 661
(a)Applicability.......................................................................................... 661
(b)Inapplicability......................................................................................... 661
(2) Designated automatic accounting method change number..................................................... 661
(3)Contactinformation...................................................................................... 661
SECTION 20. RENT (§ 467)......................................................................................... 661
.01 Change from a ratable inclusion of rental income or expense to inclusion in accordance with the rent
allocation................................................................................................... 661
(1)Descriptionofchange..................................................................................... 661
(a)Applicability.......................................................................................... 661
(b)Inapplicability......................................................................................... 661
(2)Additionalrequirements................................................................................... 661
(3)Auditprotection.......................................................................................... 662
(4) Designated automatic accounting method change number..................................................... 662
(5)Contactinformation...................................................................................... 662
.02Reserved................................................................................................... 662
SECTION 21. INVENTORIES (§ 471)................................................................................. 662
.01Cashdiscounts. ............................................................................................. 662
(1)Descriptionofchange..................................................................................... 662
(2)Computationof§481(a)adjustmentforchangestonetinvoicemethod......................................... 662
(3)Computationof§481(a)adjustmentforchangestogrossinvoicemethod....................................... 662
(4) Designated automatic accounting method change number..................................................... 662
(5)Contactinformation...................................................................................... 662
.02Estimatinginventory“shrinkage”.............................................................................. 662
(1)Descriptionofchange..................................................................................... 662
2008–36 I.R.B.601September 8, 2008

(2)Scopelimitationsinapplicable ............................................................................. 662
(3)Additionalrequirements................................................................................... 662
(4)Auditprotection.......................................................................................... 662
(5)Futurechange............................................................................................ 663
(6) Designated automatic accounting method change number..................................................... 663
(7)Contactinformation...................................................................................... 663
.03 Small taxpayer exception from requirement to account for inventories under § 471.................................. 663
(1)Descriptionofchange..................................................................................... 663
(2)Scopelimitationsinapplicable ............................................................................. 663
(3)Mannerofmakingchange................................................................................. 663
(4) Concurrent automatic change to the overall cash method under Rev. Proc. 2001–10 or Rev. Proc.
2002–28 ................................................................................................ 663
(5) Designated automatic accounting method change number..................................................... 663
(6)Contactinformation...................................................................................... 663
.04Qualifyingvolume-relatedtradediscounts...................................................................... 663
(1)Descriptionofchange..................................................................................... 663
(2)Section481(a)adjustment................................................................................. 663
(3) Designated automatic accounting method change number..................................................... 663
(4)Contactinformation...................................................................................... 663
.05Impermissiblemethodsofidentificationandvaluation ........................................................... 663
(1)Descriptionofchange..................................................................................... 663
(2)Applicability ............................................................................................ 663
(3) Designated automatic accounting method change number..................................................... 664
(4)Contactinformation...................................................................................... 664
.06CoreAlternativeValuationMethod............................................................................ 664
(1)Descriptionofchange..................................................................................... 664
(a)Applicability.......................................................................................... 664
(b)Inapplicability......................................................................................... 664
(2)Concurrentautomaticchange.............................................................................. 664
(3) Designated automatic accounting method change number..................................................... 664
(4)Contactinformation...................................................................................... 664
.07 Replacement cost for automobile dealers’ parts inventory......................................................... 664
(1)Descriptionofchange..................................................................................... 664
(2)Mannerofmakingchange................................................................................. 664
(3) Designated automatic accounting method change number..................................................... 664
(4)Contactinformation...................................................................................... 664
.08 Replacement cost for heavy equipment dealers’ parts inventory................................................... 664
(1)Descriptionofchange..................................................................................... 664
(2)Scopelimitationsinapplicable ............................................................................. 664
(3)Mannerofmakingthechange.............................................................................. 664
(4)Concurrentautomaticchange.............................................................................. 664
(5) Designated automatic accounting method change number..................................................... 664
(6)Contactinformation...................................................................................... 664
.09Rotablespareparts .......................................................................................... 664
(1)Descriptionofchange..................................................................................... 664
(2)Scopelimitationsinapplicable ............................................................................. 664
(3) Designated automatic accounting method change number..................................................... 665
(4)Contactinformation...................................................................................... 665
.10AdvanceTradeDiscountMethod.............................................................................. 665
(1)Descriptionofchange..................................................................................... 665
(2)Scope................................................................................................... 665
(3)Scopelimitationsinapplicable ............................................................................. 665
(4) Designated automatic accounting method change number..................................................... 665
(5)Contactinformation...................................................................................... 665
.11Permissiblemethodsofidentificationandvaluation.............................................................. 665
(1)Descriptionofchange..................................................................................... 665
(a)Applicability.......................................................................................... 665
(b)Permissiblemethoddefined............................................................................. 665
September 8, 20086022008–36 I.R.B.

(2) Designated automatic accounting method change number..................................................... 665
(3)Contactinformation...................................................................................... 665
.12Changeintheofficialusedvehicleguideutilizedinvaluingusedvehicles.......................................... 665
(1)Descriptionofchange..................................................................................... 665
(2) Designated automatic accounting method change number..................................................... 665
(3)Contactinformation...................................................................................... 665
.13Invoicedadvertisingassociationcostsfornewvehicleretaildealerships............................................ 665
(1)Descriptionofchange..................................................................................... 665
(2) Designated automatic accounting method change number..................................................... 665
(3)Contactinformation...................................................................................... 665
.14 Rolling-average method of accounting for inventories............................................................ 665
(1)Descriptionofchange..................................................................................... 665
(2)Certainscopelimitationinapplicable ....................................................................... 665
(3)Mannerofmakingchange................................................................................. 665
(4) Designated automatic accounting method change number..................................................... 666
(5)Contactinformation...................................................................................... 666
SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)...................................................... 666
.01ChangefromtheLIFOinventorymethod....................................................................... 666
(1)Descriptionofchange..................................................................................... 666
(a)Ingeneral............................................................................................. 666
(b)Methodtobeused..................................................................................... 666
(i)Determiningthepermittedmethodtobeused........................................................... 666
(ii)Permittedmethoddefined............................................................................ 666
(iii)Determiningpermittedmethod....................................................................... 666
(2)Certainscopelimitationinapplicable ....................................................................... 666
(3)LimitationonLIFOelection............................................................................... 666
(4)EffectofsubchapterSelectionbycorporation ............................................................... 666
(a)SelectioneffectiveforyearofLIFOdiscontinuance....................................................... 666
(b)SelectioneffectiveforayearafterLIFOdiscontinuance ................................................... 666
(5)Additionalrequirements................................................................................... 666
(6) Designated automatic accounting method change number..................................................... 666
(7)Contactinformation...................................................................................... 666
.02Determiningcurrent-yearcostundertheLIFOinventorymethod.................................................. 667
(1)Descriptionofchange..................................................................................... 667
(a)Applicability.......................................................................................... 667
(b)Inapplicability......................................................................................... 667
(2)Certainscopelimitationinapplicable ....................................................................... 667
(3)Mannerofmakingchange................................................................................. 667
(4)Concurrentchangetoarolling-averagemethod.............................................................. 667
(5) Designated automatic accounting method change number..................................................... 667
(6)Contactinformation...................................................................................... 667
.03AlternativeLIFOinventorymethodforretailautomobiledealers.................................................. 667
(1)Descriptionofchange..................................................................................... 667
(a)Applicability.......................................................................................... 667
(b)Inapplicability......................................................................................... 667
(2)Mannerofmakingchange................................................................................. 667
(a)Cut-offbasis.......................................................................................... 667
(b)ConcurrentchangefromIPICmethod.................................................................... 667
(c)Additionalrequirements................................................................................ 667
(3)ConcurrentchangetotheVehicle-PoolMethod .............................................................. 667
(4) Designated automatic accounting method change number..................................................... 667
(5)Contactinformation...................................................................................... 667
.04UsedvehiclealternativeLIFOmethod ......................................................................... 667
(1)Descriptionofchange..................................................................................... 667
(2)Additionalrequirements................................................................................... 668
(3)Mannerofmakingchange................................................................................. 668
(a)Cut-offbasis.......................................................................................... 668
2008–36 I.R.B.603September 8, 2008

(b)Bargainpurchase...................................................................................... 668
(c)Newbaseyear......................................................................................... 668
(d)Application........................................................................................... 668
(4)ConcurrentchangefromIPICmethod....................................................................... 668
(5)ConcurrentchangetotheVehicle-PoolMethod .............................................................. 668
(6) Designated automatic accounting method change number..................................................... 668
(7)Contactinformation...................................................................................... 668
.05Determiningthecostofusedvehiclespurchasedortakenasatrade-in............................................. 668
(1)Descriptionofchangeandscope........................................................................... 668
(a)Applicability.......................................................................................... 668
(b)Inapplicability......................................................................................... 668
(2)Mannerofmakingchange................................................................................. 668
(3) Designated automatic accounting method change number..................................................... 668
(4)Contactinformation...................................................................................... 668
.06Changetotheinventorypriceindexcomputation(IPIC)method .................................................. 669
(1)Descriptionofchange..................................................................................... 669
(2)Mannerofmakingchange................................................................................. 669
(3)Bargainpurchase......................................................................................... 669
(4)Concurrentautomaticchanges............................................................................. 669
(5) Designated automatic accounting method change number..................................................... 669
(6)Contactinformation...................................................................................... 669
.07Changeswithintheinventorypriceindexcomputation(IPIC)method.............................................. 669
(1)Descriptionofchange..................................................................................... 669
(2)Mannerofmakingchange................................................................................. 670
(3) Designated automatic accounting method change number..................................................... 670
(4)Contactinformation...................................................................................... 670
.08ChangestotheVehicle-PoolMethod........................................................................... 670
(1)Descriptionofchange..................................................................................... 670
(2)Mannerofmakingchange................................................................................. 670
(3)Scopelimitationsinapplicable ............................................................................. 670
(4) Concurrent change to the Alternative LIFO Method or the Used Vehicle Alternative LIFO
Method................................................................................................. 670
(5) Designated automatic accounting method change number..................................................... 670
(6)Contactinformation...................................................................................... 670
.09ChangeswithintheusedvehiclealternativeLIFOmethod........................................................ 670
(1)Descriptionofchange..................................................................................... 670
(2)Mannerofmakingchange................................................................................. 670
(3) Designated automatic accounting method change number..................................................... 670
(4)Contactinformation...................................................................................... 670
.10Changestodollar-valuepoolsofmanufacturers................................................................. 670
(1)Descriptionofchange..................................................................................... 670
(2)Mannerofmakingchange................................................................................. 670
(3) Designated automatic accounting method change number..................................................... 670
(4)Contactinformation...................................................................................... 671
SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES (§ 475)..................... 671
.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market
methodofaccountingunder§475(e)or(f) ..................................................................... 671
(1)Descriptionofchange..................................................................................... 671
(2)Scope................................................................................................... 671
(3)Scopelimitationsinapplicable ............................................................................. 671
(4)ElectionunderRev.Proc.99–17........................................................................... 671
(5) Designated automatic accounting method change number..................................................... 671
(6)Contactinformation...................................................................................... 671
.02Reserved................................................................................................... 671
SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585)............................................................. 671
.01Changingfromthe§585reservemethodtothe§166specificcharge-offmethod ................................... 671
September 8, 20086042008–36 I.R.B.

(1)Descriptionofchange..................................................................................... 671
(a)Applicability.......................................................................................... 671
(b)Inapplicability......................................................................................... 671
(2)Certainscopelimitationsinapplicable....................................................................... 671
(3)Section481(a)adjustment................................................................................. 671
(4)Changefrom§585requiredwhenelectingScorporationstatus................................................ 671
(5) Designated automatic accounting method change number..................................................... 672
(6)Contactinformation...................................................................................... 672
.02Reserved................................................................................................... 672
SECTION 25. INSURANCE COMPANY PREMIUM ACQUISITION EXPENSES (§ 832).................................... 672
.01 Safe harbor method of accounting for premium acquisition expenses............................................... 672
(1)Descriptionofchange..................................................................................... 672
(2)Scope................................................................................................... 672
(3) Designated automatic accounting method change number..................................................... 672
(4)Contactinformation...................................................................................... 673
.02Reserved................................................................................................... 673
SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846)................................................................. 673
.01Compositemethodfordiscountingunpaidlosses................................................................ 673
(1)Descriptionofchange..................................................................................... 673
(2) Designated automatic accounting method change number..................................................... 673
(3)Contactinformation...................................................................................... 673
.02Reserved................................................................................................... 673
SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A–860G)............................ 673
.01REMICinducementfees ..................................................................................... 673
(1)Descriptionofchange..................................................................................... 673
(2)Mannerofmakingchange................................................................................. 673
(3) Designated automatic accounting method change number..................................................... 673
(4)Contactinformation...................................................................................... 673
.02Reserved................................................................................................... 673
SECTION 28. INCOME FROM SOURCES WITHIN THE UNITED STATES (§ 861)........................................ 673
.01Transactionsinvolvingcomputerprograms..................................................................... 673
(1)Descriptionofchange..................................................................................... 673
(2) Designated automatic accounting method change number..................................................... 673
(3)Contactinformation...................................................................................... 673
.02Reserved................................................................................................... 673
SECTION 29. FUNCTIONAL CURRENCY (§ 985)..................................................................... 673
.01Changeinfunctionalcurrency. ............................................................................... 673
(1)Descriptionofchange..................................................................................... 673
(2)Mannerofmakingchange................................................................................. 673
(3) Designated automatic accounting method change number..................................................... 673
(4)Contactinformation...................................................................................... 673
.02Reserved................................................................................................... 673
SECTION 30. BASIS OF CERTAIN SECURITIES SOLD OR TRANSFERRED (§ 1012)..................................... 673
.01Changetocomplywith§1.1012–1(c)(1)–(4). ................................................................. 673
(1)Descriptionofchange..................................................................................... 673
(a)Applicability.......................................................................................... 673
(b)Inapplicability......................................................................................... 674
(2) Manner of making change and designatedautomatic accounting method change number.......................... 674
(a)Section481(a)adjustment .............................................................................. 674
(b)Cut-offbasis.......................................................................................... 674
(c)Designatedautomaticaccountingmethodchangenumber................................................... 674
(d)Contactinformation.................................................................................... 674
.02Reserved................................................................................................... 674
2008–36 I.R.B.605September 8, 2008

SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)............................................................ 674
.01De minimisoriginalissuediscount(OID)....................................................................... 674
(1)Descriptionofchange..................................................................................... 674
(2)Scopelimitationsinapplicable ............................................................................. 674
(3)Description.............................................................................................. 674
(4)Mannerofmakingchange................................................................................. 674
(5)Additionalrequirements................................................................................... 674
(6)Noauditprotection....................................................................................... 674
(7) Designated automatic accounting method change number..................................................... 674
(8)Contactinformation...................................................................................... 674
.02Reserved. .................................................................................................. 674
SECTION 32. MARKET DISCOUNT BONDS (§ 1278).................................................................. 674
.01Revocationof§1278(b)election.............................................................................. 674
(1)Descriptionofchange..................................................................................... 674
(2)Revocationofelection.................................................................................... 674
(3)Mannerofmakingchange................................................................................. 675
(4)Additionalrequirements................................................................................... 675
(5)Auditprotection.......................................................................................... 675
(6) Designated automatic accounting method change number..................................................... 675
(7)Contactinformation...................................................................................... 675
.02Reserved................................................................................................... 675
SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281).................................................................. 675
.01Interestincomeonshortobligations............................................................................ 675
(1)Descriptionofchange..................................................................................... 675
(2)Section481(a)adjustmentperiod........................................................................... 675
(3) Designated automatic accounting method change number..................................................... 675
(4)Contactinformation...................................................................................... 675
.02Statedinterestonshort-termloansofcashmethodbanks......................................................... 675
(1)Descriptionofchange..................................................................................... 675
(2)Scopelimitationsinapplicable ............................................................................. 675
(3)Section481(a)adjustmentperiod........................................................................... 675
(4) Designated automatic accounting method change number..................................................... 675
(5)Contactinformation...................................................................................... 675
APPENDIX CONTACT LIST........................................................................................ 675
SECTION 1. PURPOSE
This revenue procedure provides the
procedures by which a taxpayer may ob-
tain automatic consent for a change in
method of accounting described in the
APPENDIX of this revenue procedure.
This revenue procedure clarifies, modi-
fies, amplifies, and supersedes Rev. Proc.
2002–9, 2002–1 C.B. 327, as modified
and clarified by Announcement 2002–17,
2002–1 C.B. 561, modified and amplified
by Rev. Proc. 2002–19, 2002–1 C.B. 696,
and amplified, clarified and modified by
Rev. Proc. 2002–54, 2002–2 C.B. 432. It
also consolidates automatic consent pro-
cedures for changes in several methods
of accounting that were published sub-
sequent to the publication of Rev. Proc.
2002–9. Lastly, this revenue procedure
provides additional changes in methods
of accounting for which a taxpayer may
obtain automatic consent. See section 15
of this revenue procedure for a list of sig-
nificant changes.
A taxpayer complying with all the ap-
plicable provisions of this revenue proce-
dure obtains the consent of the Commis-
sioner to change its method of account-
ing under § 446(e) of the Internal Rev-
enue Code and the Income Tax Regula-
tions thereunder.
SECTION 2. BACKGROUND
.01Change in method of accounting
defined.
(1) Section 1.446–1(e)(2)(ii)(a)pro-
vides that a change in method of account-
ing includes a change in the overall plan
of accounting for gross income or deduc-
tions, or a change in the treatment of any
material item. A material item is any item
that involves the proper time for the inclu-
sion 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 re-
ported, it involves timing and is therefore
a method of accounting.SeeRev. 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 treat-
ment. The treatment of a material item
September 8, 20086062008–36 I.R.B.

in the same way in determining the gross
income or deductions in two or more con-
secutively filed federal income tax returns
(without regard to any change in status of
the method as permissible or impermissi-
ble) represents consistent treatment of that
item for purposes of § 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 con-
secutive 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).
SeeRev. Rul. 90–38, 1990–1 C.B. 57.
(3) A change in method of accounting
does not include correction of mathe-
matical or posting errors, or errors in
the computation of tax liability (such
as errors in computation of the foreign
tax credit, net operating loss, percent-
age depletion, or investment credit).See
§ 1.446–1(e)(2)(ii)(b).
.02Securing permission to make a
method change. Section 446(e) and
§ 1.446–1(e)(2)(i) state that, except as
otherwise provided, a taxpayer must se-
cure 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 general,
in order to obtain the Commissioner’s con-
sent to a method change, a taxpayer must
fileaForm3115,Application for Change
in Accounting Method, during the taxable
year in which the taxpayer wants to make
the proposed change.
.03Terms and conditions of a method
change. Section 1.446–1(e)(3)(ii) pro-
vides that the Commissioner may pre-
scribe administrative procedures setting
forth the limitations, terms, and conditions
deemed necessary to permit a taxpayer to
obtain consent to change a method of ac-
counting in accordance with § 446(e). The
terms and conditions the Commissioner
may prescribe include the year of change,
whether the change is to be made with a
§ 481(a) adjustment or on a cut-off basis,
and the § 481(a) adjustment period.
.04No retroactive method change.Un-
less specifically authorized by the Com-
missioner, 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 gener-
allyRev. Rul. 90–38.But seesection
6.02(3)(c)(i) of this revenue procedure.
.05Method change with a § 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 ac-
counting to which § 481(a) is applied,
income for the taxable year preceding the
year of change must be determined under
the method of accounting that was then
employed, and income for the year of
change and the following taxable years
must be determined under the new method
of accounting as if the new method had
always been used. The § 481(a) adjust-
ment is computed notwithstanding that the
period of limitations on assessment and
collection of tax may have closed on the
years (closed years) in which the events
giving rise to the need for an adjustment
occurred.See Superior Coach of Fla., Inc.
v. Commissioner, 80 T.C. 895, 912 (1983).
Example. A taxpayer that is not required to
use inventories uses the overall cash receipts and
disbursements method and changes to an overall ac-
crual method. The taxpayer has $120,000 of income
earned but not yet received (accounts receivable)
and $100,000 of expenses incurred but not yet paid
(accounts payable) as of the end of the taxable year
preceding the year of change. A positive § 481(a)
adjustment of $20,000 ($120,000 accounts receiv-
able less $100,000 accounts payable) is required as a
result of the change.
(2)Adjustment period. Section 481(c)
and §§ 1.446–1(e)(3)(ii) and 1.481–4
provide that the adjustment required by
§ 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 agree-
ment, the § 481(a) adjustment is taken
into account completely in the year of
change, subject to § 481(b), which lim-
its the amount of tax where the § 481(a)
adjustment is substantial. However,
under the Commissioner’s authority in
§ 1.446–1(e)(3)(ii) toprescribe terms and
conditions for changes in methods of ac-
counting, this revenue procedure provides
specific adjustment periods that are in-
tended 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.
.06Method change using a cut-off ba-
sis. The Commissioner may determine
that certain changes in methods of ac-
counting will be made without a § 481(a)
adjustment, using a cut-off basis. When a
change in method of accounting is made
on a cut-off basis, in general, 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 2.01, 10.04 and
22.02 of the APPENDIX of this revenue
procedure. Becauseno amounts are dupli-
cated or omitted when a change in method
of accounting is made on a cut-off basis,
no § 481(a) adjustment is necessary.
.07Consistency and clear reflection of
income. Methods of accounting should
clearly reflect income on a continuing ba-
sis, and the Commissioner exercises dis-
cretion under §§ 446(e) and 481(c) in a
manner that generally minimizes distor-
tions of income across taxable years and
on an annual basis.
.08Separate trades or businesses.
(1) Sections 1.446–1(d)(1) and (2) pro-
vide 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 over-
all 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 meth-
ods 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 in-
come of the taxpayer is not clearly re-
flected, the trades or businesses of the tax-
payer are not separate and distinct.
2008–36 I.R.B.607September 8, 2008

.09Penalties. Any otherwise applica-
ble penalty, addition to the tax, or addi-
tional amount for the failure of a taxpayer
to change its method of accounting (for ex-
ample, the accuracy-related penalty under
§ 6662 or the fraud penalty under § 6663)
may be imposed if the taxpayer does not
timely file a request to change a method of
accounting.See§ 446(f). Additionally, the
taxpayer’s return preparer may also be sub-
ject to the preparer penalty under § 6694.
However, penalties, additions to the tax,
or additional amounts will not be imposed
when a taxpayer changes from an imper-
missible method of accounting to a permis-
sible one by complying with all applicable
provisions of this revenue procedure.
.10Change made as part of an
examination.Section 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 ac-
counting under this revenue procedure,
the change may be made by the director.
A change resulting in a positive § 481(a)
adjustment will ordinarily be made in the
earliest taxable year under examination
with a one-year § 481(a) adjustment pe-
riod.SeeRev. Proc. 2002–18, 2002–1
C.B. 678.
SECTION 3. DEFINITIONS
.01Application. The term “applica-
tion” includes a Form 3115 or any state-
ment that is authorized in the APPENDIX
of this revenue procedure to be filed in lieu
of a Form 3115, and any attachments.
.02Applicable provisions.Theterm
“applicable provisions” means all provi-
sions of this revenue procedure pertinent
to the taxpayer or its requested change, in-
cluding but not limited to:
(1) the scope requirements and limita-
tions in section 4 of this revenue proce-
dure;
(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)thefilingrequirementsinsection6
of this revenue procedure, including (but
not limited to) the timely duplicate filing
requirement of section 6.02(3)(a); and
(5) the APPENDIX of this revenue pro-
cedure, including:
(a) the available changes in method of
accounting;
(b) any restrictions on the availability of
a requested change that is applicable to the
taxpayer (including provisions that render
the change inapplicable to the taxpayer);
and
(c) any special terms and conditions ap-
plicable to a change, such as the use of a
cut-off basis or a § 481(a) adjustment, the
spread period for any § 481(a) adjustment,
and the year of change.
.03Taxpayer.
(1)In general. The term “taxpayer”
has the same meaning as the term “person”
defined in § 7701(a)(1) (rather than the
meaning of the term “taxpayer” defined in
§ 7701(a)(14)).
(2)Consolidated group. For pur-
poses of (a) sections 3.08(1), 3.09(1),
and 4.02(1) of this revenue procedure
(taxpayer under examination), (b) section
3.09(2) of this revenue procedure (tax-
payer before an appeals office), or (c)
section 3.09(3) of this revenue procedure
(taxpayer before a federal court), the term
“taxpayer” includes a consolidated group.
.04Timely mailing as timely filing.
Under the provisions of § 7502, any ap-
plication, statement, or other document
requiredtobefiledunderthisrevenue
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 de-
livery). 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 deliv-
ery service.SeeNotice 2004–83, 2004–2
C.B. 1030. If the requirements of § 7502
are not met, the application, statement, or
other document is considered filed on the
date it is delivered to the Service.
.05Timely performance of acts.The
rules of § 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.
.06Year 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.
.07Section 481(a) adjustment period.
The § 481(a) adjustment period is the ap-
plicable number of taxable years for taking
into account the § 481(a) adjustment re-
quired 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 § 481(a) adjustment is taken into
account ratably over the number of taxable
years in the adjustment period. The ap-
plicable adjustment periods are set forth in
section 5.04 of this revenue procedure.
.08Under examination.
(1)In general.
(a) Except as provided in sections
3.08(2) and (3) of this revenue procedure,
an examination of a taxpayer with respect
to a federal income tax return begins on
the date the taxpayer is contacted in any
manner by a representative of the Internal
Revenue Service (Service) for the purpose
of scheduling any type of examination of
the return. An examination ends:
(i) in a case in which the Service ac-
cepts the return as filed, on the date the “no
change” letter is sent to the taxpayer;
(ii) in a fully agreedcase, on the earliest
of the date the taxpayer executes a waiver
of restrictions on assessment or acceptance
of overassessment (for example, Form
870,Waiver of Restrictions on Assess-
ment and Collection of Deficiency in Tax
and Acceptance of Overassessment,Form
4549,Income Tax Examination Changes,
or Form 4605,Examination Changes —
Partnerships, Fiduciaries, S Corporations,
and Interest Charge Domestic Interna-
tional Sales Corporations),thedatethe
taxpayer makes a payment of tax that
equals or exceeds the proposed deficiency,
or the date of the “closing” letter (for ex-
ample, Letter 987 —Agreed Income Tax
Change) 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 Ap-
peals that the case has been referred by the
examining agent(s) to Appeals, the date the
taxpayer files a petition in the Tax Court,
September 8, 20086082008–36 I.R.B.

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)Anexaminationdoesnotendasa
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 noti-
fied by Appeals (or otherwise) that the case
has been referred to the examining agent(s)
for reconsideration.
(2)Partnerships subject to TEFRA.For
an entity (including a limited liability com-
pany) treated as a partnership for federal
income tax purposes that is subject to the
TEFRA unified audit and litigation provi-
sions for partnerships, an examination be-
gins on the date of the notice of the begin-
ning of an administrative proceeding sent
to the Tax Matters Partner (TMP). An ex-
amination ends:
(a) in a case in which the Service ac-
cepts the partnership 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 or members execute a Form
870–P,Agreement to Assessment and Col-
lection of Deficiency in Tax for Partnership
Adjustments, 870–L, Agreement to Assess-
ment and Collection of Deficiencies in Tax
for Partnership Adjustments, Additions to
Tax, and Affected Items;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 ex-
amining agent(s) to Appeals, the date the
TMP (or a partner or member) requests ju-
dicial review, or the date on which the pe-
riod for requesting judicial review expires.
But see section 4.02(3) of this revenue pro-
cedure for certain rules that preclude an en-
tity from requesting a change in account-
ing method.
(3) S corporations subject to TEFRA
The rules of section 3.08(2) of this rev-
enue procedure apply to an S corporation
that is subject to the TEFRA unified au-
dit and litigation provisions for S corpo-
rations for any taxable year ending on or
before December 31, 1996, except in sec-
tion 3.08(2)(b) of this revenue procedure, a
fully agreed case is when all shareholders
execute a Form 870–S,Agreement to As-
sessment and Collection of Deficiency in
Tax for S Corporation Adjustments.
.09Issue 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 re-
ceives written notification (for example,
by examination plan, information docu-
ment request (IDR), or notification of pro-
posed adjustments or income tax examina-
tion changes) from the examining agent(s)
specifically citing the treatment of the item
as an issue under consideration. For exam-
ple, a taxpayer’s method of pooling under
the dollar-value, last-in, first-out (LIFO)
inventory method is an issue under consid-
eration as a result of an examination plan
that identifies LIFOpooling as a matter to
be examined, but it is not an issue under
consideration as a result of an examina-
tion plan that merely identifies LIFO in-
ventories as a matter to be examined. Sim-
ilarly, a taxpayer’s method of determin-
ing inventoriable costs under § 263A is
an issue under consideration as a result of
an IDR that requests documentation sup-
porting the costs included in inventoriable
costs, but it is not an issue under considera-
tion as a result of an IDR that requests doc-
umentation supporting the amount of costs
of goods sold reported on the return. The
question of whether a method of account-
ing is an issue under consideration may be
referred to the national office as a request
for technical advice under the provisions
of Rev. Proc. 2008–2, 2008–1 I.R.B. 90
(or any successor).
(2)Before an appeals office.Atax-
payer’s method of accounting for an item
is an issue under consideration for the tax-
able years before an appeals office if the
treatment of the item is included as an item
of adjustment in the examination report re-
ferred to Appeals or is specifically identi-
fied 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 treat-
ment of the item is included in the statutory
notice of deficiency, the notice of claim
disallowance, the notice of final adminis-
trative adjustment, the pleadings (for ex-
ample, the petition, complaint, or answer)
or amendments thereto, or is specifically
identified in writing to the taxpayer by the
counsel for the government.
.10Change within the LIFO inventory
method. A change within the LIFO inven-
tory method is a change from one LIFO in-
ventory 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 tax-
payer that does not use the LIFO inventory
method (for example, a method governed
by § 471 or § 263A).
.11Director. The term “director” has
the same meaning as this term has in Rev.
Proc. 2008–1, 2008–1 I.R.B. 1 (or any
successor).
SECTION 4. SCOPE
.01Applicability. This revenue proce-
dure applies to a taxpayer requesting the
Commissioner’s consent to change to a
method of accounting described in the AP-
PENDIX of this revenue procedure. This
revenue procedure is the exclusive proce-
dure for a taxpayer within its scope to ob-
tain the Commissioner’s consent.
.02Inapplicability. Except as other-
wise provided in the APPENDIX of this
revenue procedure (see, for example, sec-
tion 2.01 of the APPENDIX of this rev-
enue procedure), this revenue procedure
does not apply in the following situations:
(1)Under examination.If,onthedate
the taxpayer would otherwise file a copy
of the application with the national of-
fice, 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) (consent of direc-
tor), 6.03(5) (changes lacking audit protec-
tion), and 6.03(6) (issue pending) of this
revenue procedure;
(2)Consolidated group member.Acor-
poration that is (or was formerly) a mem-
ber of a consolidated group is under exam-
ination (for purposes of section 4.02(1) of
this revenue procedure) if the consolidated
group is under examination for a taxable
year(s) that the corporation was a member
of the group;
(3)Partnerships and S corporations.
For an entity (including a limited liabil-
ity company) treated as a partnership or an
S corporation for federal income tax pur-
2008–36 I.R.B.609September 8, 2008

poses, if, on the date the entity would oth-
erwise 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 part-
ner, member, or shareholder’s federal in-
come tax return;
(4)Section 381(a) transaction.Ex-
cept as otherwise provided in this section
4.02(4), if the taxpayer engages in a trans-
action to which § 381(a) applies within
the proposed taxable year of change (de-
termined without regard to any potential
closing of the year under § 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 corpo-
ration would be permitted to continue to
use its prior method of accounting under
the rules of §§ 1.381(c)(4)–1(b)(1) and
(3)(i) (taking into account the third sen-
tence of § 1.381(c)(4)–1(b)(4) relating to
nopriormethodestablishedbyapartyto
the transaction) or §§ 1.381(c)(5)–1(b)(1)
and (3)(i) (taking into account the sec-
ond sentence of § 1.381(c)(5)–1(b)(4)(i)
relating to no prior inventory method es-
tablishedbyapartytothetransaction)
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 § 1.381(c)(5)–1(b),
and thus §§ 1.381(c)(4)–1(b)(3)(ii) and (c)
and §§ 1.381(c)(5)–1(b)(3)(ii) and (c) will
not apply.
(b)Separate trades or businesses.
An acquiring corporation may change pur-
suant 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 con-
tinue to use its prior method of accounting
under the rules of § 1.381(c)(4)–1(b)(2)
or § 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
§ 1.381(c)(4)–1(b) or § 1.381(c)(5)–1(b),
and thus §§ 1.381(c)(4)–1(b)(3) and (c)
and §§ 1.381(c)(5)–1(b)(3) and (c) will
not apply.
(5)Final year of trade or business.If,in
the year of change, a taxpayer requesting a
change in method of accounting ceases to
engage in the trade or business to which the
change in accounting method relates or ter-
minates its existence, as described in sec-
tion 5.04(3)(c) of this revenue procedure.
For purposes of this section 4.02(5), a tax-
payer is treated as ceasing to engage in the
trade or business or terminating its exis-
tence without regard to whether the tax-
payer’s change in method of accounting re-
quest would result in either a positive or
negative § 481(a) adjustment or be made
on a cut-off basis.
(6)Prior five-year overall method
change. Except as provided in the AP-
PENDIX of this revenue procedure, if
a taxpayer changed its overall method
of accounting, or applied for consent to
change its overall method of accounting,
regardless of whether it implemented that
change, during any of the five taxable
years ending with the year of change, the
taxpayer may not obtain automatic consent
to change its overall method of accounting
under this revenue procedure. However, a
taxpayer that changed its overall method
of accounting during thefive taxable years
ending with the year of change may obtain
automatic consent to change a method of
accounting for an item when that change
may otherwise be implemented under the
provisions of this revenue procedure. For
purposes of this section 4.02(6), a change
in overall method of accounting does
not include the use of an overall method
of accounting when computing taxable
income for the taxable year that the tax-
payer first files a federal income tax return
(“adopts an overall method of account-
ing”) or a change in method of accounting
imposedbytheServicepursuanttoRev.
Proc. 2002–18 (or any successor). The
five-year change prohibition in this sec-
tion 4.02(6) applies regardless of whether
the taxpayer’s current or prior method is a
permissible method or clearly reflects the
taxpayer’s income and regardless of the
administrative guidance used to request
consent or to change the prior method of
accounting.
Example.A,anattorney,beganbusinessin2000
and adopted the overall cash method of accounting.
In 2005,Achanged to an overall accrual method of
accounting using the then appropriate administrative
guidance.Amay not use the provisions of this rev-
enue procedure for 2007 to change to the overall cash
method because of the five-year change prohibition
contained in this section 4.02(6). However,Amay
still be able to use the provisions of this revenue pro-
cedure to change the method of accounting the tax-
payer will use to treat advances made on behalf of
clients in 2007.Seesection3.01oftheAPPENDIX
of this revenue procedure.
(7)Prior five-year item change.
(a)In general. Except as provided
in section 4.02(7)(b) or the APPENDIX
of this revenue procedure, if a taxpayer
changed its method of accounting for
a specific item, or applied for consent
to change a method of accounting for a
specific item regardless of whether it im-
plemented that change, during any of the
five taxable years ending with the year
of change, the taxpayer may not obtain
automatic consent to change its method of
accounting for that same item. For pur-
poses of this section 4.02(7)(a), a change in
method of accounting for an item does not
include the use of a method of accounting
for the first taxable year that the taxpayer
accounts for the item (for example, in-
clude in income, deduct, or capitalize) to
which the method of accounting relates,
or a change in method of accounting im-
posed by the Service pursuant to Rev.
Proc. 2002–18 (or any successor). The
five-year change prohibition in this sec-
tion 4.02(7) applies regardless of whether
the taxpayer’s current or prior method is a
permissible method or clearly reflects the
taxpayer’s income and regardless of the
administrative guidance used to request
consent or to change the prior method of
accounting.
(b)Exceptions. Nothwithstanding sec-
tion 4.02(7)(a) of this revenue procedure,
a taxpayer may obtain automatic consent
to change its method of accounting for an
item when that change is required as part
of another change in method of account-
ing that the taxpayer may otherwise im-
plement under the provisions of this rev-
enue procedure. In addition, a taxpayer
is not prohibited from changing a last-in,
first-out (LIFO) inventory sub-method (for
example, the method of determining cur-
rent-year cost or the method of comput-
ing a dollar-value pool index) within five
years of adopting or changing to the LIFO
inventory method or another LIFO inven-
tory sub-method. However, a taxpayer
that changes a LIFO inventory sub-method
September 8, 20086102008–36 I.R.B.

within five years of adopting or changing
to the LIFO inventory method does not re-
ceive audit protection under section 7 of
this revenue procedure.
(c)Examples.
Example 1.Auses the LIFO inventory method.
In 2004,Achanged a LIFO inventory sub-method.
Specifically,Achanged from the average-cost
method of determining the current-year cost of in-
ventories to the earliest-acquisitions cost method.
In 2007,Aseeks to change to the IPIC method of
computing the index and value of its dollar-value
pools, a method thatAhas never used. As part of
this change,Aseeks to change its method of deter-
mining the current-year cost of inventories from the
earliest-acquisitions cost method to the most-recent
acquisitions cost method.Ais eligible to change
its method of computing the index and value of its
dollar-value pools to the IPIC method under this
revenue procedure. However,Ais not eligible to
change its method of determining the current-year
costs of inventories under this revenue procedure
becauseAchanged this LIFO inventory sub-method
within the proscribed five-year period.
Example 2.Buses the dollar-value LIFO in-
ventory method and maintains separate dollar-value
pools for its inventory of (1) new cars; (2) new
trucks; (3) used cars; and (4) used trucks. In 2004,
Bterminated its use of the LIFO inventory method
for its used cars and used trucks under Rev. Proc.
2002–9. In 2007,Bseeks to terminate its use of
the LIFO inventory method for its new cars and
new trucks.Bis eligible to change its method of
accounting for new cars and new trucks under this
revenue procedure because it has not changed the in-
ventory-identification method for those pools within
the proscribed five-year period.
Example 3.C, a driving instruction school, uses
an overall accrual method of accounting.Cobtains
payment in full from its students at the beginning
of each session of classes. In 2006,Cproperly
elected the deferral method for advance payments
as described in Rev. Proc. 2004–34, 2004–1 C.B.
991. In 2007,Cseeks to change its overall method
of accounting to the cash method as described in
Rev. Proc. 2001–10, 2001–1 C.B. 272, which it
qualifies to use.Cis eligible to change its method
of accounting for advance payments even though
it made a prior change in its method of accounting
for advance payments within the previous 5 taxable
years ending with 2007 becauseCis required to
change its treatment of advance payments as part of
its change to the overall cash method of accounting.
.03Nonautomatic changes.Ifatax-
payer is precluded other than by sections
4.02(1) through 4.02(3) of this revenue
procedure from using this revenue proce-
dure to make a change in method of ac-
counting, the taxpayer requesting such a
change must file a Form 3115 with the
Commissioner in accordance with the re-
quirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27, 1997–1 C.B. 680, as modi-
fiedandamplifiedbyRev. Proc. 2002–19,
2002–1 C.B. 696, as amplified and clar-
ified by Rev. Proc. 2002–54, 2002–2
C.B. 432, and modified by Rev. Proc.
2007–67, 2007–48 I.R.B. 1072 (or any
other applicable Code, regulation, or guid-
ance published in the Internal Revenue
Bulletin (IRB)).
SECTION 5. TERMS AND
CONDITIONS OF CHANGE
.01In general. An accounting method
change filed under this revenue procedure
must be made pursuant to the terms and
conditions provided in this revenue proce-
dure.
.02Year of change. The year of change
is the taxable year designated on the ap-
plication and for which the application is
timely filed under section 6.02(3) of this
revenue procedure.
.03Section 481(a) adjustment.Unless
otherwise provided in this revenue pro-
cedure, a taxpayer making a change in
method of accounting under this revenue
procedure must apply § 481(a) and take
into account a § 481(a) adjustment in the
manner provided in section 5.04 of this
revenue procedure.
.04Section 481(a) adjustment period.
(1)In general. Except as otherwise pro-
vided in section 5.04(3), the APPENDIX
of this revenue procedure, or in other guid-
ance published in the IRB, the § 481(a) ad-
justment period is four taxable years for a
net positive § 481(a) adjustment for an ac-
counting method change, and one taxable
year for a net negative § 481(a) adjustment
for an accounting method change.
(2)Short period as a separate taxable
year. If the year of change or any other
taxable year during the § 481(a) adjust-
ment period is a short taxable year, the
§ 481(a) adjustment must be included in
income as if that short taxable year were a
full 12-month taxable year.SeeRev. Rul.
78–165, 1978–1 C.B. 276.
Example 1. A calendar year taxpayer changed
its method of accounting under this revenue proce-
dure beginning with the 2007 calendar year. The
net § 481(a) adjustment for this method change is a
positive adjustment of $30,000 and the adjustment
period is four taxable years. The taxpayer subse-
quently receives permission to change its annual ac-
counting period to September 30, effective for the
taxable year ending September 30, 2008. The tax-
payer must include $7,500 of the § 481(a) adjustment
in gross income for the short period from January 1,
2008, through September 30, 2008.
Example 2. CorporationX, a calendar year tax-
payer, changed its method of accounting under this
revenue procedure beginning with the 2007 calendar
year. The net § 481(a) adjustment for this method
change is a positive adjustment of $30,000 and the
adjustment period is four taxable years. On July
1, 2009, CorporationZacquires CorporationXin
a transaction to which § 381(a) applies. Corpo-
rationZis a calendar year taxpayer that uses the
same method of accounting to which CorporationX
changed in 2007. CorporationXmust include $7,500
of the § 481(a) adjustment in gross income for its
short period income tax return for January 1, 2009,
through June 30, 2009. In addition, CorporationZ
must include $7,500 of the § 481(a) adjustment in
gross income in its income tax return for calendar
year 2009.
(3)Shortened or accelerated § 481(a)
adjustment periods. The § 481(a) adjust-
ment period provided in section 5.04(1) or
the APPENDIX of this revenue procedure
will be shortened or accelerated in the fol-
lowing situations.
(a)De minimis rule. A taxpayer may
elect to use a one-year § 481(a) adjustment
period in lieu of the § 481(a) adjustment
period otherwise provided by this revenue
procedure for a positive § 481(a) adjust-
ment if the net § 481(a) adjustment for
the change is less than $25,000. The tax-
payer must complete the appropriate line
on Form 3115 to elect thisde minimisrule.
(b)Cooperatives. A cooperative within
the meaning of § 1381(a) generally must
take the entire amount of a § 481(a) adjust-
ment into account in computing taxable in-
come for the year of change.SeeRev. 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 termi-
nates its existence must take the remaining
balance of any § 481(a) adjustment relat-
ing to the trade or business into account in
computing taxable income in the taxable
year of the cessation or termination. Ex-
cept as provided in sections 5.04(3)(c)(iv)
and (v) of this revenue procedure, a tax-
payer 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 busi-
2008–36 I.R.B.611September 8, 2008

ness. The following is a nonexclusive list
of transactions that are treated as the ces-
sation of a trade or business for purposes
of accelerating the § 481(a) adjustment un-
der section 5.04(3)(c) of this revenue pro-
cedure:
(A) the trade or business to which the
§ 481(a) adjustment relates is incorpo-
rated;
(B) the trade or business to which the
§ 481(a) adjustment relates is purchased by
another taxpayer in a transaction to which
§1060applies;
(C) the trade or business to which the
§ 481(a) adjustment relates is terminated
or transferred pursuant to a taxable liqui-
dation;
(D) a division of a corporation ceases to
operate the trade or business to which the
§ 481(a) adjustment relates; or
(E) the assets of a trade or business to
which the § 481(a) adjustment relates are
contributed to a partnership.
(iii)Conversion to or from S corpo-
ration status. Except as provided in
section 22.01 of the APPENDIX of this
revenue procedure, no acceleration of a
§ 481(a) adjustment is required under sec-
tion 5.04(3)(c) of this revenue procedure
when a C corporation elects to be treated
as an S corporation or an S corporation
terminates its S election and is then treated
as a C corporation.
(iv)Certain transfers to which § 381(a)
applies. No acceleration of the § 481(a)
adjustment is required under section
5.04(3)(c) of this revenue procedure when
a taxpayer transfers substantially all the
assets of the trade or business that gave
rise to the § 481(a) adjustment to another
taxpayer in a transfer to which § 381(a)
applies and the accounting method (the
change to which gave rise to the § 481(a)
adjustment) is a tax attribute that is carried
over and used by the acquiring corporation
immediately after the transfer pursuant
to § 381(c). The acquiring corporation
is subject to any terms and conditions
imposed on the transferor (or any prede-
cessor of the transferor) as a result of its
change in method of accounting.
(v)Certain transfers pursuant to § 351
within a consolidated group.
(A)In general. No acceleration of
the § 481(a) adjustment is required under
section 5.04(3)(c) of this revenue proce-
dure when one member of an affiliated
group filing a consolidated return trans-
fers substantially all the assets of the trade
or business that gave rise to the § 481(a)
adjustment to another member of the
same consolidated group in an exchange
qualifying under § 351 and the transferee
member adopts and uses the same method
of accounting (the change to which gave
rise to the § 481(a) adjustment) used by
the transferor member. The transferor
member must continue to take the § 481(a)
adjustment into account pursuant to the
terms and conditions set forth in this rev-
enue procedure. The transferor member
must take into account activities of the
transferee member (or any successor) in
determining whether acceleration of the
§ 481(a) adjustment is required. For ex-
ample, except as provided in the following
sentence, the transferor member must take
any remaining § 481(a) adjustment into
account in computing taxable income in
the taxable year in which the transferee
member ceases to engage in the trade or
business to which the § 481(a) adjustment
relates. The § 481(a) adjustment is not
accelerated when the transferee mem-
ber engages in a transaction described
in section 5.04(3)(c)(iv) or this section
5.04(3)(c)(v)(A).
(B)Exception. The provisions of sec-
tion 5.04(3)(c)(v)(A) of this revenue pro-
cedure cease to apply and the transferor
member must take any remaining balance
of the § 481(a) adjustment into account
in the taxable year immediately preced-
ing any of the following: (1) the taxable
year the transferor member ceases to be
a member of the group; (2) the taxable
year any transferee member owning sub-
stantially all the assets of the trade or busi-
ness that gave rise to the § 481(a) ad-
justment ceases to be a member of the
group; or (3) a separate return year of the
common parent of the group. In apply-
ing the preceding sentence, the rules of
§§ 1.1502–13(j)(2), (j)(5) and (j)(6) apply,
but only if the method of accounting to
which the transferor member changed and
to which the § 481(a) adjustment relates
is adopted, carried over, or used by any
transferee member acquiring the assets of
the trade or business that gave rise to the
§ 481(a) adjustment immediately after ac-
quisition of such assets. For example, the
transferor member is not required to accel-
erate the § 481(a) adjustment if a transferee
member ceases to be a member of a consol-
idated group by reasonof an acquisition to
which § 381(a) applies and the acquiring
corporation (1) is a member of the same
group as the transferor member, and (2)
continues, under §381(c)(4) and the regu-
lations thereunder, to use the same method
of accounting as that used by the transferor
member with respect to the assets of the
trade or business to which the § 481(a) ad-
justment relates.
.05NOL carryback limitation for tax-
payer subject to criminal investigation.No
portion of any net operating loss that is
attributable to a negative § 481(a) adjust-
ment may be carried back to a taxable year
prior to the year of change that is the sub-
ject of any pending or future criminal in-
vestigation or proceeding concerning (1)
directly or indirectly, any issue relating to
the taxpayer’s federal tax liability, or (2)
the possibility of false or fraudulent state-
ments made by the taxpayer with respect to
any issue relating to its federal tax liability.
.06Certain foreign corporations.If
the change in method of accounting is on
behalf of a controlled foreign corporation
(CFC) as defined in § 953(c)(1)(B) or
§ 957 or a noncontrolled section 902 cor-
poration as defined in § 904(d)(2)(E), the
following additional terms and conditions
apply:
(1) If the functional currency of the for-
eign corporation is not the U.S. dollar, the
§ 481(a) adjustment must be stated in the
functional currency ofthe foreign corpora-
tion and not in U.S. dollars;
(2) A positive § 481(a) adjustment
necessary to prevent the duplication of
amounts of an expense item will have the
same source, separate limitation classifica-
tion, character, and treatment for purposes
of subpart F as the foreign corporation’s
gross income that was offset by the ex-
pense in the prior year or years. A positive
§ 481(a) adjustment necessary to prevent
the omission of amounts of an income
item will have the same source, separate
limitation classification, character, and
treatment for purposes of subpart F as the
foreign corporation’s income would have
had in the prior year or years. A negative
§ 481(a) adjustment necessary to prevent
the omission of amounts of an expense
item will be allocated to the class of gross
income that has the same source, separate
limitation classification, character, and
September 8, 20086122008–36 I.R.B.

treatment for purposes of subpart F as the
foreign corporation’s income that would
have been offset by the expense in the
prior year or years. A negative § 481(a)
adjustment necessary to prevent the dupli-
cation of amounts of an income item will
be treated as an offset to gross income that
has the same source, separate limitation
classification, character, and treatment for
purposes of subpart F as the foreign corpo-
ration’s income in the prior year or years;
(3) For each taxable year of the ad-
justment period beginning with the year
of change, the appropriate amount of the
§ 481(a) adjustment must be taken into ac-
count in computing the foreign corpora-
tion’s subpart F income under § 951 and
its earnings and profits under §§ 964 and
986(b) for all federal income tax purposes;
(4) The written statement required by
§ 1.964–1T(c)(3)(i) and (ii) must be filed
by each controlling domestic shareholder
(or its common parent) with its tax re-
turn for its taxable year with or within
which ends the foreign corporation’s year
of change;
(5) The shareholders of the foreign cor-
poration must maintain records and ac-
counts with respect tothe foreign corpo-
ration, for the year of change and for sub-
sequent taxable years, in conformity with
the requirements of § 905(b) and § 964(c);
(6) If a foreign corporation loses its sta-
tus as a CFC or noncontrolled section 902
corporation at any time prior to the expira-
tion of the adjustment period, the foreign
corporation must take into account in com-
puting its subpart F income and earnings
and profits, on the final day on which it is
a CFC or noncontrolled section 902 corpo-
ration, the balance of the § 481(a) adjust-
ment not previously taken into account;
(7) Each U.S. shareholder of a CFC
must comply with its obligations to report
changes in the shareholder’s ownership of
the CFC on Form 5471,Information Re-
turn of U.S. Persons With Respect To Cer-
tain Foreign Corporations,duringthead-
justment period; and
(8) In the case of any disposition of
stock of the foreign corporation that is
owned directly or indirectly by a United
States person if the disposition (i) rep-
resents ten percent or more of the total
value of the stock of the corporation, or
(ii) results in the person no longer meet-
ing the stock ownership requirements of
§ 6046(a)(2) with respect to the foreign
corporation, then the foreign corporation
must include, prior to the disposition, in
its income and earnings and profits the bal-
ance of the § 481(a) adjustment not previ-
ously taken into account. This condition
does not apply to any change in ownership
of the foreign corporation if the stock dis-
posed of continues to be owned, directly
or indirectly, by a member of the U.S. con-
solidated group of which the former share-
holder is a member.
.07Change treated as initiated by the
taxpayer. For purposes of § 481, a change
in method of accounting made under this
revenue procedure is a change in method
of accounting initiated by the taxpayer.
SECTION 6. GENERAL APPLICATION
PROCEDURES
.01Consent. Pursuant to § 1.446–
1(e)(2)(i), the consent of the
Commissioner is hereby granted to any
taxpayer within the scope of this revenue
procedure to change its method(s) of
accounting as described in the APPENDIX
to this revenue procedure. Such consent
is granted only for the change(s) of
accounting method and the affected
item(s) that are clearly and expressly
identified in the taxpayer’s application.
Seesection 6.02(1)(c) of this revenue
procedure. Such consent is granted only
to the extent that the taxpayer complies
with all the applicable provisions of this
revenue procedure and implements the
change in method of accounting for the
requested year of change.
.02Filing requirements.
(1)Applications.
(a)Form. Ordinarily, a taxpayer applies
for consent to change a method of account-
ing pursuant to this revenue procedure or
other guidance published in the IRB by
completing and filing a current Form 3115.
In some cases, however, the provisions of
this revenue procedure applicable to a par-
ticular change may require or allow a tax-
payer to file a statement in lieu of a Form
3115 as an application for consent to make
such change. See, for example, section
14.10 of the APPENDIX of this revenue
procedure.
(b)Separate applications. Ordinarily,
a taxpayer must submit a separate applica-
tion for each change in method of account-
ing. In some cases, however, the provi-
sionsofthisrevenueprocedure applicable
to particular changes may require or allow
a taxpayer to file a single application with
respect to two or more changes. See, for
example, section 14.03 of the APPENDIX
of this revenue procedure.
(c)Contents. The taxpayer must submit
an application that is accurate and com-
plete as to all information required by this
revenue procedure. Further, unless this
revenue procedure provides that a Form
3115 is not required for the requested
change in method of accounting, the tax-
payer must submit a current Form 3115
that contains all information required by
the applicable portions of the Form 3115
and its instructions.
For example, an application must iden-
tify the taxpayer making the change; the
year of change (both the beginning and
ending dates); the designated automatic
accounting method change number(s)
for the requested change(s) in method of
accounting; and the amount of the adjust-
ment under § 481(a), unless the change is
required to be made using a cut-off basis.
Also, the application must fully describe
the item(s) being changed; the present
method(s) of accounting from which the
taxpayer is changing and the proposed
method(s) of accounting to which the tax-
payer is changing. Further, unless a Form
3115 is not required for the requested
change in method of accounting, the tax-
payer must provide all other information
required by Parts I, II, and IV, and any
applicable schedule(s) on the Form 3115.
(2)Waiver of taxable year filing
requirement. The requirement under
§ 1.446–1(e)(3)(i) to file a Form 3115
within the taxable year for which the
change is requested is waived for any
application for a change in method of
accounting filed pursuant to this revenue
procedure.See§ 1.446–1(e)(3)(ii).
(3)Timely duplicate filing requirement.
(a)In general. A taxpayer changing a
method of accounting pursuant to this rev-
enue procedure must complete and file an
application in duplicate. The original must
be attached to the taxpayer’s timely filed
(including any extension) original federal
income tax return for the year of change,
and a copy (with signature) of the appli-
cation must be filed with the national of-
fice (see section 6.02(7) of this revenue
procedure for the address) no earlier than
2008–36 I.R.B.613September 8, 2008

the first day of the year of change and no
later than when the original is filed with
the federal income tax return for the year
of change. For the national office copy of
Form 3115, the taxpayer need only include
the pages containing Parts I through IV,
any applicable schedule(s), and required
attachments.
(b)Certain foreign corporations.In
the case of a controlled foreign corpora-
tion as defined in section 953(c)(1)(B) or
957(a) (“CFC”) or a noncontrolled sec-
tion 902 corporation as defined in section
904(d)(2)(E) that is not required to file
a federal income tax return, the control-
ling domestic shareholders (as defined
in § 1.964–1T(c)(5)) that want to change
the foreign corporation’s method of ac-
counting pursuant to the provisions of this
revenue procedure must satisfy the re-
quirements set forth in § 1.964–1T(c)(3).
The designated shareholder who retains
the jointly executed consent described in
§ 1.964–1T(c)(3)(ii) must complete and
file an application in duplicate on behalf of
the foreign corporation. An original appli-
cation must be attached to the designated
shareholder’s (or its common parent’s)
timely filed (including any extension)
original federal income tax return for its
taxable year with or within which ends
the year of change of the foreign corpo-
ration, and a copy (with signature) of the
application must be filed with the national
office (see section 6.02(7) of this revenue
procedure for the address) no earlier than
the first day of the year of change and no
later than when the original is filed with
the designated shareholder’s (or its com-
mon parent’s) federal income tax return
for its taxable year with or within which
ends the year of change of the foreign cor-
poration. Each other controlling domestic
shareholder (or its common parent) must
also attach a copy of the application to
its federal income tax return filed for its
taxable year with or within which ends
such year of change.
(c)Limited relief for late application.
(i)Automatic extension. An automatic
extension of 6 months from the due date
of the return for the year of change (ex-
cluding any extension) is granted to file
an application, provided the taxpayer (or
if section 6.02(3)(b) of this revenue proce-
dure applies, the designated shareholder)
(A) timely filed (including any extension)
its federal income tax return for the year of
change, (B) files an amended return within
the 6-month extension period in a manner
that is consistent with the new method of
accounting, (C) attaches the original appli-
cation to the amended return, (D) files a
copy of the application with the national
office no later than when the original is
filed with the amended return, and (E) at-
taches a statement to the application that
the application is being filed pursuant to
§ 301.9100–2 of the Procedure and Ad-
ministration Regulations.
(ii)Other extensions. A taxpayer (or if
section 6.02(3)(b) of this revenue proce-
dure applies, the designated shareholder)
that fails to file the application for the
year of change as provided in section
6.02(3)(a), (b), or (c)(i) of this revenue
procedure will not be granted an extension
of time to file under § 301.9100, except
in unusual and compelling circumstances.
See§ 301.9100–3(c)(2) and Rev. Proc.
2008–1 (or successor).
(4)Designated automatic accounting
method change number. The taxpayer
(orifsection6.02(3)(b)ofthisrevenue
procedure applies, the designated share-
holder) must type or clearly print the
designated automatic accounting method
change number for the requested change in
method of accounting on the application.
When the requested change in method of
accounting is made using Form 3115, the
taxpayer must enter the designated auto-
matic accounting method change number
for the requested change on the appropri-
ate line on the Form 3115. For example, a
taxpayer requesting the change in method
of accounting identified in section 1.01 of
the APPENDIX of this revenue procedure
for the year ending December 31, 2008,
must enter the number “91” on Line 1(a)
of Form 3115. When the requested change
in method of accounting is made using a
statement in lieu of Form 3115 the tax-
payer must enter the designated automatic
accounting method change number for the
requested change in method of accounting
at the top of the first page of the statement,
directly above the taxpayer’s name and
employer identification number (or social
security number in the case of an individ-
ual). For example, enter the number “125”
for the change in method of accounting
identified in section 14.10 of the APPEN-
DIX of this revenue procedure at the top
of the first page of the statement, directly
above the taxpayer’s name and employer
identification number (or social security
number in the case of an individual).
In general, a taxpayer may enter only
one designated automatic accounting
method change number on an application.
However, where this revenue procedure
or other guidance published in the IRB
specifically permits two or more partic-
ular changes in method of accounting to
be made on a single application, a tax-
payer must enter the designated automatic
change number for each such particular
change being requested on the application.
The designated automatic accounting
method change numbers are provided in
the APPENDIX of this revenue procedure
and in other guidance published in the IRB.
See alsoInstructions for Form 3115.
(5)Signature requirements.Thecopy
of the application filed with the national
office must be signed by, or on behalf
of, the taxpayer requesting the change by
an individual with authority to bind the
taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) in such matters. For exam-
ple, an officer must sign on behalf of a cor-
poration, a general partner on behalf of a
state law partnership, a member-manager
on behalf of a limited liability company,
a trustee on behalf of a trust, or an indi-
vidual taxpayer on behalf of a sole propri-
etorship. If the taxpayer (or the designated
shareholder) is a member of a consolidated
group, an application submitted on behalf
of the taxpayer must be signed by a duly
authorized officer of the common parent.
See the signature requirements set forth in
the current Instructions for Form 3115 re-
gardingthosewhoaretosign.
(6)Authorized representative.Ifan
agent is authorized to represent the tax-
payer before the Service, receive a copy
of the correspondence concerning the ap-
plication, or perform any other act(s) re-
garding the application filed on behalf of
the taxpayer, a power of attorney reflect-
ing such authorization(s) must be attached
to the copy of the application. It is pre-
ferred that Form 2848,Power of Attor-
ney and Declaration of Representative,be
used to provide the representative’s author-
ity and qualification. A taxpayer’s repre-
sentative without a power of attorney to
represent the taxpayer as required in this
September 8, 20086142008–36 I.R.B.

section 6.01(6) will not be given any in-
formation regarding the application.
(7)Where to file copy.
(a) For a taxpayer other than an ex-
empt organization, the copy of the applica-
tion must be addressed to the Internal Rev-
enue Service, Attn: CC:ITA — Automatic
Rulings Branch, P.O. Box 7604, Benjamin
Franklin Station, Washington, D.C. 20044
(or, in the case of a designated private
delivery service: Internal Revenue Ser-
vice, Attn: CC:ITA — Automatic Rulings
Branch, 1111 Constitution Avenue, NW,
Room 5336, Washington, D.C. 20224).
(b) For an exempt organization, the
copy of the application must be addressed
to the Internal Revenue Service, Tax
Exempt & Government Entities, Attn:
TEGE:EO, P.O. Box 27720, McPherson
Station, Washington, D.C. 20038 (or, in
the case of a designated private delivery
service: Internal Revenue Service, Tax
Exempt & Government Entities, Attn:
TEGE:EO, 1750 Pennsylvania Ave., NW,
Washington, D.C. 20038).
(c) For a taxpayer other than an exempt
organization, the copy of the application
may also be hand delivered between the
hours of 8:00 a.m. and 4:00 p.m. to the
courier’s desk at the loading dock (located
behind the 12
th
Street security station) of
1111 Constitution Avenue, NW, Washing-
ton, D.C. A receipt will be given at the
courier’s desk. The copy of the applica-
tion must be addressed to the Courier’s
Desk, Internal Revenue Service, Attn:
CC:PA:LPD:DRU, Room 5336, 1111
Constitution Avenue, NW, Washington,
D.C. 20224.
(8)No acknowledgement of receipt.Ex-
cept as provided in section 6.02(7)(c) of
this revenue procedure, the Service does
not send an acknowledgement of the re-
ceipt of an application (original or copy)
filed under this revenue procedure.
(9)No user fee. A user fee is not re-
quired for an application filed under this
revenue procedure.
(10)Single application for certain tax-
payers. Certain taxpayers (or if section
6.02(3)(b) of this revenue procedure ap-
plies, certain designated shareholders)
may file a single application to change
an identical method of accounting on be-
half of two or more of its separate and
distinct trades or businesses, two or more
members of a consolidated group, or two
or more controlled foreign corporations
(CFCs).Seesections 9.02 and 15.07(4) of
Rev. Proc. 2008–1 (or any successor).
(11)Additional copies required.
(a)Scope restrictions waived for tax-
payer under examination.If(i)oneor
more of the scope limitation provisions
of section 4.02 of this revenue procedure
would otherwise preclude a taxpayer from
making a change under this revenue pro-
cedure, but (ii) the scope limitation provi-
sions of section 4.02 of this revenue proce-
dure do not apply to the change sought by
the taxpayer (see, for example section 2.01
of the APPENDIX of this revenue proce-
dure), and (iii) the taxpayer (or if section
6.02(3)(b) of this revenue procedure ap-
plies, the designated shareholder) is under
examination (as provided in section 3.08
of this revenue procedure) on the date it
files the copy of its application with the na-
tional office, then the taxpayer (or desig-
nated shareholder) must provide a copy of
the application to the examining agent(s)
at the same time that it files a copy of
the application with the national office.
The application must contain the name(s)
and telephone number(s) of the examining
agent(s).
(b)Taxpayer before an appeals office or
a federal court and issue not under con-
sideration. Ifataxpayer(orifsection
6.02(3)(b) of this revenue procedure ap-
plies, the designated shareholder) that is
otherwise within the scope of this revenue
procedure is before an appeals office or
a federal court and the present method to
be changed is not an issue under consid-
eration by the appeals office or the fed-
eral court on the date the taxpayer files
the copy of its application with the na-
tional office, then the taxpayer (or desig-
nated shareholder) must provide a copy of
the application to the appeals officer(s) or
counsel(s) for the government, as applica-
ble, at the same time that it files a copy
of the application with the national office.
The application must contain the name(s)
and telephone number(s) of the appeals of-
ficer(s) or counsel(s) for the government,
as applicable.
.03Taxpayer under examination.
(1)In general. Except as otherwise pro-
vided in the APPENDIX of this revenue
procedure (see, for example, section 2.01
of the APPENDIX of this revenue proce-
dure), a taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) that is under exami-
nation may file an application to change
a method of accounting under section 6
of this revenue procedure only if the tax-
payer is within the provisions of section
6.03(2) (90-day window), 6.03(3) (120-
day window), 6.03(4) (consent of direc-
tor), 6.03(5) (changes lacking audit pro-
tection), or 6.03(6) (issue pending) of this
revenue procedure. A taxpayer (or desig-
nated shareholder) that files an application
beyond the time periods provided in the
90-day and 120-day windows is not eligi-
ble for the automatic extension of time and
will not be granted an extension of time to
file under § 301.9100, except in unusual
and compelling circumstances.
(2)90-day window period.
(a) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) may file a copy of
the application with the national office to
change a method ofaccounting under this
revenue procedure during the first 90-days
of any taxable year (the 90-day window) if
the taxpayer has been under examination
for at least 12 consecutive months as of the
first day of the taxable year. This 90-day
window is not available if the method of
accounting the taxpayer is changing is an
issue under consideration at the time the
taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) would otherwise file the copy
of the application or an issue the examin-
ing agent(s) has placed in suspense at the
time the taxpayer would otherwise file the
copy of the application.
(b) A taxpayer changing a method of ac-
counting under this 90-day window must
provide a copy of the application to the ex-
amining agent(s) at the same time it (or if
section 6.02(3)(b) of this revenue proce-
dure applies, the designated shareholder)
files the copy of the application with the
national office. The application must con-
tain the name(s) and telephone number(s)
of the examining agent(s).
(3)120-day window period.
(a) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) may file a copy of
the application with the national office
to change a method of accounting under
this revenue procedure during the 120-day
period following the date an examination
2008–36 I.R.B.615September 8, 2008

ends (the 120-day window), regardless
of whether a subsequent examination has
commenced. This 120-day window is not
available if the method of accounting the
taxpayer is changing is an issue under con-
sideration at the time the taxpayer would
otherwise file a copy of the application or
an issue the examining agent(s) has placed
in suspense at the time the taxpayer would
otherwise file a copy of the application.
(b) A taxpayer changing a method of ac-
counting under this 120-day window must
provide a copy of the application to the ex-
amining agent(s) for any examination that
is in process at the same time it (or if sec-
tion 6.02(3)(b) of this revenue procedure
applies, the designated shareholder) files
the copy of the application with the na-
tional office. The application must con-
tain the name(s) and telephone number(s)
of the examining agent(s).
(4)Consent of director.
(a) A taxpayer under examination may
change its method of accounting under this
revenue procedure if the director consents
to the filing of the application. The direc-
tor will consent to the filing of the applica-
tion unless, in the opinion of the director,
the method of accounting to be changed
would ordinarily be included as an item
of adjustment in the year(s) for which the
taxpayer is under examination. For ex-
ample, the director will consent to the fil-
ing of an application to change from a
clearly permissible method of accounting,
or from an impermissible method of ac-
counting where the impermissible method
was adopted subsequent to the years un-
der examination. The director’s consent is
limited to the director’s consent to file the
application and does not constitute the di-
rector’s agreement to, or approval of, the
requested change in method of account-
ing. The question of whether the method
of accounting from which the taxpayer is
changing is permissible or was adopted
subsequent to the years under examination
may be referred to the national office as a
request for technicaladvice under the pro-
visions of Rev. Proc. 2008–2 (or any suc-
cessor).
(b) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) changing a method of
accounting under this revenue procedure
with the consent of the director must at-
tach to the copy of theapplication filed
with the national office a statement from
the director consenting to the filing of the
application. In addition, the taxpayer (or
designated shareholder) must attach to its
original application attached to its timely
filed original federal income tax return a
statement certifying thatithasobtainedthe
written consent of the director to the filing
of the application and that the taxpayer will
maintain a copy of such consent available
for inspection. The taxpayer (or desig-
nated shareholder) must provide a copy of
the application to the director at the same
time it files a copy of the application with
the national office. The application must
contain the name(s) and telephone num-
ber(s) of the examining agent(s).
(5)Changes lacking audit protection.
(a) A taxpayer under examination may
change its method ofaccounting under this
revenue procedure if the description of the
change in the APPENDIX of this revenue
procedure provides that the change is not
subject to the audit protection provisions
of section 7 of this revenue procedure.
(b) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) changing a method of
accounting under this section 6.03(5) must
provide a copy of the application to the ex-
amining agent(s) for any examination that
is in process at the same time it files the
copy of the application with the national
office. The application must contain the
name(s) and telephone number(s) of the
examining agent(s).
(6)Issue Pending.
(a) A taxpayer that is under examination
with respect to any income tax issue may
request to change a method of accounting
if the method of accounting to be changed
is an issue pending for any taxable year
under examination. However, the audit
protection provisions of section 7 of this
revenue procedure do not apply to a tax-
payer changing its method of accounting
under this section 6.03(6). For purposes
of this section 6.03(6), an issue is pend-
ing for a taxable year under examination
if the Service has given the taxpayer writ-
ten notification indicating an adjustment is
being made or will be proposed with re-
spect to the taxpayer’s method of account-
ing. This notification normally will occur
after the Service has gathered information
sufficient to determine that an adjustment
is appropriate and justified, although the
exact amount of the adjustment may not
yet be determined.
(b) A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the
designated shareholder) that requests to
change a method ofaccounting under this
section 6.03(6) must provide a copy of
the application to the examining agent(s)
atthesametimeitfilesacopyofthe
application with the national office. The
application must contain the name(s) and
telephone number(s) of the examining
agent(s).
.04Taxpayer before an appeals office.
A taxpayer otherwise within the scope of
this revenue procedure that is before an
appeals office with respect to any income
tax issue may request a change in account-
ing method. However, the audit protec-
tion provisions of section 7 of this rev-
enue procedure do not apply if the ac-
counting method to be changed is an is-
sue under consideration by the appeals of-
fice. A taxpayer (or if section 6.02(3)(b) of
this revenue procedure applies, the desig-
nated shareholder) that requests to change
a method of accounting under this section
6.04 must provide a copy of the application
to the appeals officer at the time it files a
copy of the application with the national
office. The application must contain the
name(s) and telephone number(s) of the
appeals officer(s).
.05Taxpayer before a federal court.A
taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) otherwise within the scope of
this revenue procedure that is before a fed-
eral court with respect to any income tax
issue may request a change in account-
ing method. However, the audit protec-
tion provisions of section 7 of this revenue
procedure do not apply if the accounting
method to be changed is an issue under
consideration by the federal court. A tax-
payer (or designated shareholder) that re-
quests to change a method of accounting
under this section 6.05 must provide a copy
of the application to the counsel(s) for the
government at the time it files a copy of
the original application with the national
office. The application must contain the
name(s) and telephone number(s) of the
counsel(s) for the government.
.06Compliance with provisions.Ifa
taxpayer to which this revenue procedure
applies changes to a method of account-
ing without complying with all the appli-
cable provisions of this revenue procedure
September 8, 20086162008–36 I.R.B.

(for example, the taxpayer changes to a
method of accounting that varies from the
applicable accounting method described in
this revenue procedure or the taxpayer is
outside the scope of this revenue proce-
dure), the taxpayer has initiated a change
in method of accounting without obtain-
ing the consent of the Commissioner as re-
quired by § 446(e).Seesections 9.02 and
10.03 of this revenue procedure.
SECTION 7. AUDIT PROTECTION
FOR TAXABLE YEARS PRIOR TO
YEAR OF CHANGE
.01In general. Except as provided in
sections 4.02(7)(b), 6.03(5), 6.03(6), 6.04,
6.05, 7.02 or the APPENDIX of this rev-
enue procedure or in any other guidance
published in the IRB, when a taxpayer
timely files a copy of the application with
the national office in compliance with all
the applicable provisions of this revenue
procedure, the Service will not require the
taxpayer to change its method of account-
ing for the same item for a taxable year
prior to the year of change.
.02Exceptions.
(1)Change not made or made improp-
erly. The Service may change a taxpayer’s
method of accounting for prior taxable
years if (a) the taxpayer fails to implement
the change, (b) the taxpayer implements
the change but does not comply with all
the applicable provisions of this revenue
procedure, or (c) the method of accounting
is changed or modified because there has
been a misstatement or omission of mate-
rial facts (see section 8.02 of this revenue
procedure).
(2)Change in sub-method.TheSer-
vice may change a taxpayer’s method of
accounting for prior taxable years if the
taxpayer is changing a sub-method of ac-
counting within the method. For exam-
ple, an examining agent may propose to
terminate the taxpayer’s use of the LIFO
inventory method during a prior taxable
year even though the taxpayer changes its
method of valuing increments in the cur-
rent year.
(3)Prior year Service-initiated change.
The Service may make adjustments to the
taxpayer’s returns for the same item for
taxable years prior to the requested year of
change to reflect a prior year Service-ini-
tiated change reported as an issue pending
or in a Revenue Agent’s Report.
(4)Criminal investigation.TheSer-
vice may change a taxpayer’s method of
accounting for the same item for taxable
years prior to the year of change if there
is any pending or future criminal inves-
tigation or proceeding concerning (a) di-
rectly or indirectly, any issue relating to the
taxpayer’s federal tax liability for any tax-
able year prior to the year of change, or (b)
the possibility of false or fraudulent state-
ments made by the taxpayer with respect
to any issue relating to its federal tax lia-
bility for any taxable year prior to the year
of change.
SECTION 8. EFFECT OF CONSENT
.01In general. A taxpayer that changes
to a method of accounting pursuant to
this revenue procedure may be required to
change or modify that method of account-
ing for the following reasons:
(1) the enactment of legislation;
(2) a decision of the United States
Supreme Court;
(3) the issuance of temporary or final
regulations;
(4) the issuance of a revenue ruling, rev-
enue procedure, notice, or other statement
published in the IRB;
(5) the issuance of written notice to the
taxpayer that the change in method of ac-
counting is not in accord with the current
views of the Service; or
(6) a change in the material facts on
which the consent was based.
.02Retroactive change or modification.
Except in rare or unusual circumstances, if
a taxpayer that changes its method of ac-
counting under this revenue procedure is
subsequently required under section 8.01
of this revenue procedure to change or
modify that method of accounting, the re-
quired change or modification will not be
applied retroactively, provided that:
(1) the taxpayer complied with all the
applicable provisions of this revenue pro-
cedure;
(2) there has been no misstatement or
omission of material facts;
(3) there has been no change in the
material facts on which the consent was
based;
(4) there has been no change in the ap-
plicable law; and
(5) the taxpayer to whom consent was
granted acted in good faith in relying on
the consent, and applying the change or
modification retroactively would be to the
taxpayer’s detriment.
SECTION 9. REVIEW BY DIRECTOR
.01In general. The director must apply
a change in method of accounting made
in compliance with all the applicable pro-
visions of this revenue procedure in de-
termining the taxpayer’s liability, unless
the director recommends that the change
in method of accounting should be modi-
fied or revoked. (See section 9.02 of this
revenue procedure if a change in method
of accounting is made without complying
with all the applicable provisions of this
revenue procedure.) The director will as-
certain if the change in method of account-
ing was made in compliance with all the
applicable provisions of this revenue pro-
cedure, including whether:
(1) the representations on which the
change was based reflect an accurate state-
ment of the material facts;
(2) the amount of the § 481(a) adjust-
ment was properly determined; and
(3) the change in method of accounting
was implemented in compliance with all
the applicable provisions of this revenue
procedure.
The director will also ascertain
whether:
(4) there has been any change in the ma-
terial facts on which the change was based
during the period the method of account-
ing was used; and
(5) there has been any change in the ap-
plicable law during the period the method
of accounting was used.
.02Changes not made in compliance
with all applicable provisions.Ifthedi-
rector determines that the taxpayer has not
complied with all of the applicable provi-
sions of this revenue procedure, the direc-
tor may:
(1) deny the change in method of ac-
counting and require the taxpayer to con-
tinue to use the prior method of account-
ing;
(2) deny the change in method of ac-
counting and place the taxpayer on a
proper method of accounting (seesection
2.10 of this revenue procedure); or
(3) make any adjustments (including
the amount of any § 481(a) adjustment)
2008–36 I.R.B.617September 8, 2008

that are necessary to bring the change in
method of accounting into compliance
with all applicable provisions of this rev-
enue procedure.
The director may impose any otherwise
applicable penalty, addition to tax, or ad-
ditional amount on the understatement of
tax attributable to the change in method of
accounting.
.03National office consideration.If
the director recommends that a change
in method of accounting (other than the
§ 481(a) adjustment) made in compliance
with all the applicable provisions of this
revenue procedure should be modified or
revoked, the director will forward the mat-
ter to the national office for consideration
before any further action is taken. Such
a referral to the national office will be
treated as a request for technical advice,
and the provisions of Rev. Proc. 2008–2
(or any successor) will be followed.
SECTION 10. REVIEW BY NATIONAL
OFFICE
.01In general. Any application filed
under this revenue procedure may be re-
viewed by the national office. If the appli-
cation is reviewed by the national office,
the procedures in sections 10.02 and 10.03
of this revenue procedure apply.
.02Incomplete application.
(1)30-day rule. If the national office
reviews an application and determines that
the application is not properly completed
(see section 6.02(1)(c) of this revenue pro-
cedure), or if supplemental information is
needed, the national office will notify the
taxpayer. The notification will specify the
information that the taxpayer needs to pro-
vide and permit the taxpayer 30 days from
the date of the notification to furnish the
information. The national office reserves
the right to impose shorter reply periods
if subsequent requests for additional in-
formation are made. An extension of the
30-day period to furnish information, not
to exceed 30 days, may be granted to a tax-
payer. A request for an extension of the
30-day period must be made in writing and
submitted within the initial 30-day period.
If the extension request is denied, there is
no right of appeal.
(2)Failure to provide additional infor-
mation. Ordinarily, if the taxpayer fails
to provide the additional information on a
timely basis, the application does not qual-
ify for the automatic consent procedures
of this revenue procedure. If the national
office determines that the application does
not qualify for the automatic consent pro-
cedures of this revenue procedure because
the taxpayer has failed to provide the ad-
ditional information on a timely basis, the
national office will notify the taxpayer that
consent to make the change in method of
accounting is not granted.
.03National office determination.
(1)Conference in the national office.
If the national office tentatively deter-
mines that the taxpayer has changed its
method of accounting without complying
with all the applicable provisions of this
revenue procedure (for example, the tax-
payer changed to a method of accounting
that varies from the applicable accounting
method described in this revenue proce-
dure or the taxpayer is outside the scope
of this revenue procedure), the national
office will notify the taxpayer of its tenta-
tive adverse determination and will offer
the taxpayer a conference of right, if the
taxpayer has requested a conference. For
conference procedures for taxpayers other
than exempt organizations, see section 10
of Rev. Proc. 2008–1 (or any successor).
For conference procedures for exempt or-
ganizations, see section 12 of Rev. Proc.
2008–4, 2008–1 I.R.B. 121 (or any suc-
cessor).
(2)Consent not granted. Except as pro-
vided in section 10.03(3) of this revenue
procedure, if the national office determines
that a taxpayer has changed its method of
accounting without complying with all the
applicable provisions of this revenue pro-
cedure, the national office will notify the
taxpayer that consent to make the change
in method of accounting is not granted. In
no event will an application under this rev-
enue procedure be treated as an application
under Rev. Proc. 97–27 (or any succes-
sor).
(3)Application changed.Ifthena-
tional office determines that a taxpayer
has changed its method of accounting
without complying with all the applica-
ble provisions of this revenue procedure,
the national office, in its discretion, may
allow the taxpayer to (a) make appropri-
ate adjustments to conform its change in
method of accounting to the applicable
provisions of this revenue procedure, and
(b) make conforming amendments to any
federal income tax returns filed for the
year of change and subsequent taxable
years. Any application changed under this
section 10.03(3) is subject to review by
the director as provided in section 9 of this
revenue procedure.
SECTION 11. APPLICABILITY OF
REV. PROCS. 2008–1 AND 2008–4
Rev. Procs. 2008–1 and 2008–4 (or
any successors) apply to applications
filed under this revenue procedure, un-
less specifically excluded or overridden
by other guidance published in the IRB
(including any specific procedures in this
document).
SECTION 12. EFFECTIVE DATE
.01In general. Except as provided
in section 12.02 of this revenue proce-
dure, this revenue procedure is effective
for applications filed on or after August 18,
2008, for a year of change ending on or af-
ter December 31, 2007. The Service will
return any application that is filed with the
national office after August 18, 2008, for
a year of change ending on or after De-
cember 31, 2007, if the application is filed
pursuant to the Code, regulations, or other
guidance published in the IRB other than
this revenue procedure and the change in
method of accounting appears to be within
the scope of this revenue procedure.
.02Transition rules. The following
transition rules apply.
(1)Forms 3115 filed under Rev. Proc.
97–27. If before August 18, 2008, a
taxpayer within the scope of Rev. Proc.
97–27 timely filed a Form 3115 under
Rev. Proc. 97–27 requesting consent for a
change in method ofaccounting described
in the APPENDIX of this revenue pro-
cedure for a year of change ending on or
after December 31, 2007, and the Form
3115 is pending with the national office on
August 18, 2008, the taxpayer may choose
to make the change under this revenue
procedure if the taxpayer is otherwise el-
igible under this revenue procedure. The
taxpayer must notify the national office of
its intent to make the change under this
revenue procedure prior to the later of
September 18, 2008, or the issuance of a
letter ruling granting or denying consent
for the change. If the taxpayer timely no-
September 8, 20086182008–36 I.R.B.

tifies the national office that it will make
the change under this revenue procedure,
the national office ordinarily will return
the Form 3115 to the taxpayer to make the
necessary modifications to comply with
the applicable provisions of this revenue
procedure and will refund the user fee
submitted with the Form 3115.
A Form 3115 that is returned to the tax-
payer for necessary modifications will be
converted to an application under this rev-
enue procedure if the taxpayer resubmits
the Form 3115 with the necessary modifi-
cations, along with a copy of the national
office letter sent with the returned Form
3115, to the national office within 30 cal-
endar days after the date of the Service’s
letter returning the Form 3115 to the tax-
payer.
(2)Application filed under Rev. Proc.
2002–9.
(a)General rule. If a taxpayer properly
files an application with the national office
under Rev. Proc. 2002–9 to make a change
in method of accounting described in the
APPENDIX of Rev. Proc. 2002–9 and the
application was either post-marked or re-
ceived by the national office before August
18, 2008, the taxpayer makes the change
under Rev. Proc. 2002–9.
(b)Option to file an amended applica-
tion. If before August 18, 2008, a taxpayer
properly filed an application under Rev.
Proc. 2002–9 for a year of change that is
the taxpayer’s first taxable year ending on
or after December 31, 2007, the taxpayer
may choose to file an amended applica-
tion for that year of change under this rev-
enue procedure if, within 6 months from
the due date of the federal income tax re-
turn for the year of change (excluding ex-
tension), the taxpayer (i) files an original
or amended return using the new method
of accounting pursuant to this revenue pro-
cedure, (ii) attaches the original amended
application filed under this revenue pro-
cedure to its original or amended return
for the year of change, (iii) writes on the
top of page 1 of the national office copy
of the amended application “FILED UN-
DER SECTION 12.02(2) OF REV. PROC.
2008–52”; and (iv) sends the national of-
fice copy of the amended application to
the following address no later than the date
the original amended application is filed
with the original or amended return: In-
ternal Revenue Service, P. O. Box 14095,
Benjamin Franklin Station, Washington,
DC 20044, Attention: CC:ITA:8.
(3)No application filed by August 18,
2008.
(a)General rule. If, prior to August 18,
2008, a taxpayer has not filed an applica-
tion requesting consent to change a par-
ticular method of accounting for its first
taxable year ending on or before July 31,
2008, the taxpayer may elect to apply the
provisions of Rev. Proc. 2002–9 with
respect to such method of accounting for
such taxable year. For taxpayers making
such election, the timely duplicate filing
requirement of section 6.02(3)(a) of Rev.
Proc. 2002–9 is modified to require the
copy of the application to be submitted to
the National Office on or before Septem-
ber 15, 2008.
(b)Exception for changes from a hybrid
method. As of August 18, 2008, a taxpayer
may not apply the provisions of Rev. Proc.
2002–9 with respect to a change described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 if such change is not also
described in either section 14.01 or 14.09
of the APPENDIX to this revenue proce-
dure. Notwithstanding section 5.01(1)(a)
of Rev. Proc. 97–27, the Service will treat
as timely filed under Rev. Proc. 97–27 any
Form 3115 requesting consent to a change
in method of accounting that is described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 but is not described in either
section 14.01 or 14.09 of the APPENDIX
to this revenue procedure for a taxpayer’s
first taxable year ending on or before July
31, 2008 if it is filed on or before Septem-
ber 15, 2008.
SECTION 13. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is clarified, modi-
fied, amplified, and superseded.
Section 6.02(1)(a) of Rev. Proc.
2001–10, 2001–1 C.B. 272, as modified
by Announcement 2004–16, 2004–1 C.B.
668, and section 7.02(1)(a) of Rev. Proc.
2002–28, 2002–1 C.B. 815, as modified
by Announcement 2004–16, are modified
and amplified to provide that the scope
limitations of section 4.02 of this revenue
procedure apply to a change to the cash
method.
Rev. Proc. 2007–14, 2007–4 I.R.B.
357, is superseded.
Rev. Proc. 2008–43, 2008–30 I.R.B.
186, is modified to require a taxpayer to
use a cut-off basis when changing to a
rolling-average method of determining the
current-year cost of LIFO inventory pur-
suant to section 22.02(1)(a)(v) of the AP-
PENDIX of this revenue procedure.
SECTION 14. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1551. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information un-
less the collection of information displays
a valid OMB control number.
The collections of information in this
revenue procedure are in sections 6, 10,
and 12 and sections 5, 6, 7, 8, 9, 10, 11,
14, 15, 16, 17, 20, 21, 22, 23, 24, 31, and
32 of the APPENDIX. This information is
necessary and will be used to determine
whether the taxpayer properly changed to
a permitted method of accounting. The
collections of information are required for
the taxpayer to obtain consent to change
its method of accounting. The likely re-
spondents are the following: individuals,
farms, business or other for-profit insti-
tutions, nonprofit institutions, and small
businesses or organizations.
The estimated total annual reporting
and/or recordkeeping burden is 13,976
hours.
The estimated annual burden per re-
spondent/recordkeeper varies from 1/6
hour to 8
1
/2hours, depending on individual
circumstances, with an estimated average
of 1
1
/2hours. The estimated number of re-
spondents is 13,250. The estimated annual
frequency of responses is on occasion.
SECTION 15. SIGNIFICANT
CHANGES
Significant changes to Rev. Proc.
2002–9 include:
(1) Section 4.02(5) of this revenue pro-
cedure clarifies that, for purposes of the fi-
nal year of a trade or business scope limi-
tation, a cessation or termination of a trade
2008–36 I.R.B.619September 8, 2008

or business is determined without regard to
whether the § 481(a) adjustment is positive
or negative or whether the change is made
on a cut-off method;
(2) Sections 4.02(6) and 4.02(7) of this
revenue procedure provide separate prior
five-year change scope limitations for an
overall method change and for a change
relating to a specific item;
(3) Section 5.06 of this revenue proce-
dure provides additional terms and condi-
tions applicable to certain foreign corpora-
tions;
(4) Section 6.02(1)(c) of this revenue
procedure amplifies the requirements for a
complete application (e.g., Form 3115);
(5) Section 6.02(3)(b) provides timely
duplicate filing requirements for certain
foreign corporations;
(6) The requirements regarding des-
ignated automatic accounting method
change numbers are incorporated.Seesec-
tion 6.02(4) of this revenue procedure. A
designated automatic accounting method
change number is assigned to each change
in the APPENDIX of this revenue proce-
dure;
(7) Explanations of how to implement
a change on a cut-off basis are added to
various sections of the APPENDIX that
require the use of the cut-off basis.See,
e.g., sections 2.01, 6.03, and 22.06 of the
APPENDIX of this revenue procedure;
(8) Section 6.03 of the APPENDIX of
this revenue procedure, relating to sale or
lease transactions, is modified to include
financing arrangements;
(9) The following sections of the AP-
PENDIX of this revenue procedure are
modified to include taxpayers not comply-
ing with the capitalization requirements of
§ 263A for the costs to which the change
applies if the change is made in conjunc-
tion with a change to a UNICAP method
under section 11.01 or 11.02 of the AP-
PENDIX of this revenue procedure:
(a) Section 6.01, relating to changes
from impermissible to permissible meth-
ods of accounting for depreciation or
amortization;
(b) Section 6.02, relating to changes
from permissible to permissible methods
of accounting for depreciation;
(c) Section 13.02, relating to changes
for certain deferred compensation
(bonuses and vacation pay);
(d) Section 19.01(1), relating to
changes for self-insured employee medi-
cal benefits;
(e) Section 19.02, relating to changes
involving the timing of incurring liabilities
for real property taxes, personal property
taxes, state income taxes, and state fran-
chise taxes;
(f) Section 19.03, relating to changes
involving the timing of incurring liabilities
under a workers’ compensation act, tort,
breach of contract, or violation of law; and
(g) Section 19.04, relating to changes
involving the timing of incurring certain
liabilities for payroll taxes;
(10) Section 11.01(1)(b)(ii) of the
APPENDIX of this revenue procedure,
relating to changes to certain UNICAP
methods used by resellers and reseller-pro-
ducers, is clarified to state that the change
applies to a small reseller changing from
the historic absorption ratio with the sim-
plified resale method to a permissible
non-UNICAP inventory capitalization
method under section 11.01(1)(a)(i) of the
APPENDIX of this revenue procedure;
(11) Section 11.02 of the APPENDIX of
this revenue procedure, relating to certain
UNICAP methods used by producers and
reseller-producers, is clarified to state that
the change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capital-
ization;
(12) Sections 14.01 and 14.09 of the
APPENDIX of this revenue procedure
provide separate changes for changes from
theoverallcashmethodtoanoverallac-
crual method and for changes from the
cash method to an accrual method for one
or more specific items. Sections 14.01 of
the APPENDIX of this revenue procedure
is modified to (a) eliminate changes from
a hybrid method, (b) include changes for a
taxpayer’s first § 448 year; and (c) permit
changes for farmers;
(13) Section 14.01(1)(b)(v)(A) of the
APPENDIX of this revenue procedure
clarifies that a taxpayer may change, as
well as adopt or continue to use, certain
inventory methods in conjunction with the
change to an overall accrual method;
(14) Section 14.03 of the APPENDIX
of this revenue procedure is modified to
state that the scope limitations in section
4.02 of this revenue procedure apply to
changes to the overall cash method pro-
vided in Rev. Proc. 2001–10 and Rev.
Proc. 2002–28, as modified by Announce-
ment 2004–16;
(15) Section 14.05 of the APPENDIX
of this revenue procedure, regarding inter-
est accruals on short-term consumer loans-
Rule of 78’s method, is modified by re-
moving the date limitations for the loans
to which the change relates;
(16) Section 18.01 of the APPENDIX
of this revenue procedure clarifies that the
change to the percentage-of-completion
method must be from an exempt-contract
method properly applied;
(17) Section 19.01(1) of the APPEN-
DIX of this revenue procedure, relating to
changes involving timing of incurring li-
abilities for self-insured employee medi-
cal benefits, is modified to include method
changes involving liabilities to pay a third
party service provider;
(18) Section 19.02 of the APPEN-
DIX of this revenue procedure, relating
to changes involving timing of incurring
liabilities for real property and personal
property taxes is modified to include
method changes for state franchise taxes;
(19) Section 19.03 of the APPEN-
DIX of this revenue procedure, relating
to changes involving timing of incurring
liabilities under a workers’ compensation
act, tort, breach of contract, or violation
of law, is modified to include method
changes involving payments made by a
third party;
(20) Section 19.04 of the APPEN-
DIX of this revenue procedure, relating
to changes involving timing of incurring
certain liabilities for payroll taxes imposed
with respect to year-end wages, is modi-
fied to include method changes for payroll
taxes imposed with respect to other forms
of compensation (including bonuses and
vacation pay) to the safe harbor method
provided in Rev. Proc. 2008–25, 2008–13
I.R.B. 686;
(21) Section 21.05 of the APPENDIX
of this revenue procedure is modified to
expand the types of impermissible inven-
tory methods from which a taxpayer may
change;
(22) Section 22.01 of the APPEN-
DIX of this revenue procedure, regarding
changes from the LIFO inventory method,
is modified to expand the permitted meth-
ods to which a taxpayer may change;
(23) Section 22.02 of the APPEN-
DIX of this revenue procedure, regarding
determining current-year cost under the
September 8, 20086202008–36 I.R.B.

LIFO inventory method, is modified to in-
clude changes to the specific identification
method;
(24) Section 22.05 of the APPENDIX
of this revenue procedure, relating to deter-
mining the cost of used vehicles purchased
or taken as a trade-in for a taxpayer using
the LIFO inventory method, is modified to
include changes to a different official used
vehicle guide;
(25) Section 22.06 of the APPEN-
DIX of this revenue procedure, relating
to changes to the IPIC method, is modi-
fied to include additional types of method
changes;
(26) Section 22.07 of the APPENDIX
of this revenue procedure, relating to
changes within the IPIC method, is modi-
fied to include additional types of method
changes;
(27) Section 23.01 of the APPENDIX
of this revenue procedure, relating to com-
modities dealers, securities traders, and
commodities traders electing to use the
mark-to-market method of accounting un-
der § 475(e) or (f), is modified by requir-
ing a taxpayer to include on the Form 3115
for the year of change a statement that the
taxpayer has complied with the election
requirements under Rev. Proc. 99–17,
1999–1 C.B. 503, for purposes of section
475(e) or (f);
(28) Section 24.01 of the APPEN-
DIX of this revenue procedure, relating
to banks changing from the § 585 reserve
method for bad debts to the § 166 specific
charge-off method, is modified to allow a
bank for which a QSub election is filed to
make a § 1361(g) election for the resulting
§ 481(a) adjustment, as provided in sec-
tion 24.01(4)(b) of the APPENDIX of this
revenue procedure;
(29) Section 29.01 of the APPENDIX
of this revenue procedure, relating to
changes for functional currency, is mod-
ified to state that the change does not
apply to a QBU of a taxpayer described in
§ 1.985–1(b)(1)(iii); and
(30) The following sections are added
to the APPENDIX of this revenue pro-
cedure to provide additional changes in
method of accounting;
(a) Section 6.19 of the APPENDIX, re-
lating to changes for lessor improvements
abandoned at termination of lease;
(b)Section6.20oftheAPPENDIX,
relating to changes for accounting for,
or identifying disposed, depreciable re-
pairable and reusable spare parts;
(c) Section 6.21 of the APPENDIX, re-
lating to changes from depreciating land
(or nondepreciable land improvement) to
not depreciating land (or nondepreciable
land improvement);
(d) Section 10.07 of the APPENDIX,
relating to changes to capitalize and depre-
ciate repairable and reusable spare parts;
(e) Section 14.09 of the APPENDIX,
relating to changes from the cash method
to an accrual method for specific items;
(f) Section 14.11 of the APPENDIX,
relating to changes to the overall cash
method for specifiedtransportation indus-
try taxpayers;
(g) Section 14.12 of the APPENDIX,
relating to changes to overall cash/hybrid
method for certain banks;
(h) Section 14.13 of the APPENDIX,
relating to changes to overall cash method
for farmers;
(i) Section 14.14 of the APPENDIX, re-
lating to changes for nonshareholder con-
tributions to capital under section 118;
(j) Section 15.10 of the APPENDIX,
relating to changes for retainages under
§451;
(k) Sections 19.01(2) and (3) of the AP-
PENDIX, relating to timing of incurring li-
abilities for employee bonuses and vaca-
tion pay under § 461;
(l) Section 19.07 of the APPENDIX,
relating to changes for rebates and al-
lowances under § 461;
(m) Section 20.01 of the APPENDIX,
relating to changes from a ratable inclusion
of rental income or expense to inclusion in
accordance with the rent allocation;
(n) Section 21.11 of the APPENDIX,
relating to changes from permissible meth-
ods of identifying and valuing inventories;
(o) Section 21.12 of the APPENDIX,
relating to changes in the official used ve-
hicle guide utilized in valuing used vehi-
cles;
(p) Section 21.13 of the APPENDIX,
relating to invoiced advertising association
costs for new vehicle retail dealerships;
(q) Section 22.10 of the APPENDIX,
relating to changes to dollar-value pools of
manufacturers; and
(r) Section 30.01 of the APPEN-
DIX, relating to changes to comply with
§ 1.1012–1(c)(1)–(4).
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Kari Fisher, Karla Meola,
and Cheryl Oseekey of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue procedure, contact
Ms. Fisher, Ms. Meola, or Ms. Oseekey
at (202) 622–4970 or (202) 622–4930 (not
a toll-free call).
For further information regarding a
specific change in method of account-
ing in the APPENDIX of this revenue
procedure, contact the appropriate indi-
vidual listed in the “Contact Person(s)”
section located at the end of each sec-
tion of the APPENDIX (calls are not
toll-free) or see the APPENDIX CON-
TACT LIST immediately following the
APPENDIX. The contact person is with
one of the following Offices of Associate
Chief Counsel: Corporate (CORP), Fi-
nancial Institutions and Products (FI&P),
Income Tax & Accounting (IT&A), Inter-
national (INTL), Passthroughs and Special
Industries (P&SI), or Tax Exempt and
Government Entities (TEGE).
APPENDIX
CHANGES IN METHODS OF
ACCOUNTING TO WHICH THIS
REVENUE PROCEDURE APPLIES
SECTION 1. GROSS INCOME (§ 61)
.01Up-front Payments for Network Up-
grades received by Utilities.
(1)Description of change. This change
applies to a Utility that wants to change
its method of accounting for Up-front
Payments to the “safe harbor method”
described in Rev. Proc. 2005–35, 2005–2
C.B. 76. In general, this change applies
to a Utility that receives an Up-front Pay-
ment from a Generator to finance Network
Upgrades to the Utility’s Transmission
System. For federal income tax purposes,
if an Up-front Payment is made pursuant
to an Interconnection Agreement that sat-
isfies all of the conditions of section 5.02
of Rev. Proc. 2005–35, a Utility may
treat that Up-front Payment as not being
taxable income under § 61 when received
(the “safe harbor method”). In addition,
a Utility that uses the safe harbor method
2008–36 I.R.B.621September 8, 2008

is not entitled to any deduction for its re-
imbursements of the Up-front Payment.
To the extent that Federal Energy Reg-
ulatory Commission(FERC) interest is
deductible, it must be properly allocated to
the periods in which it accrues. A Utility
using the safe harbor method must comply
with all other applicable provisions of Rev.
Proc. 2005–35. See Rev. Proc. 2005–35
for the definitions of certain terms for pur-
posesofthischange.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 1.01
of this APPENDIX is “91.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact David Silber at
202–622–3930 (not a toll-free call).
.02Reserved.
SECTION 2. COMMODITY CREDIT
LOANS (§ 77)
.01Treating amounts received as loans.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for loans received
from the Commodity Credit Corporation
from including the loan amount in gross
income for the taxable year in which the
loan is received to treating the loan amount
as a loan.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to loans received from the Com-
modity Credit Corporation on or after the
beginning of the year of change. See sec-
tion 2.06 of this revenue procedure for
more information regarding a cut-off ba-
sis. Accordingly, a § 481(a) adjustment is
neither permitted nor required.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 2.01
of this APPENDIX is “1.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02Reserved.
SECTION 3. TRADE OR BUSINESS
EXPENSES (§ 162)
.01Advances made by a lawyer on be-
half of clients.
(1)Description of change. This change
applies to a lawyer handling cases on a
contingent fee basis that advances money
to pay for costs of litigation or for other
expenses on behalf of clients and that
wants to change the method of accounting
for such advances from treating them as
deductible business expenses to treating
them as loans.See Boccardo v. United
States, 12 Cl. Ct. 184 (1987);Canelo v.
Commissioner, 53 T.C. 217 (1969),aff’d
per curiam, 447 F.2d 484 (9th Cir. 1971).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.01
of this APPENDIX is “2.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.02ISO 9000 costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for costs incurred
to obtain, maintain and renew ISO 9000
certification to conform with Rev. Rul.
2000–4, 2000–1 C.B. 331.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)
Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.02
of this APPENDIX is “3.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.03Restaurant or tavern smallwares
packages.
(1)Description of change. This change
applies to a taxpayer engaged in the trade
or business of operating a restaurant or tav-
ern (within the meaning of section 4.01
of Rev. Proc. 2002–12, 2002–1 C.B.
374) that wants to change its method of
accounting for the costs of smallwares to
the smallwares method described in Rev.
Proc. 2002–12.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Section 481(a) adjustment period.
A taxpayer changing its method of ac-
counting for restaurant smallwares under
this section 3.03 of the APPENDIX must
take the entire § 481(a) adjustment into ac-
count in computing taxable income in the
year of change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.03
of this APPENDIX is “4.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.04Timber grower fertilization costs.
(1)Description of change. This change
applies to a timber grower that wants to
change its method of accounting to treat
post-establishment fertilization costs of an
established timber stand as ordinary and
necessary business expenses deductible
under § 162.SeeRev. Rul. 2004–62,
2004–1 C.B. 1072.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.04
of this APPENDIX is “86.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
September 8, 20086222008–36 I.R.B.

SECTION 4. BAD DEBTS (§ 166)
.01Change from reserve method to spe-
cific charge-off method.
(1)Description of change. This change
applies to a taxpayer (other than a bank
as defined in § 585(a)(2)) that wants to
change its method of accounting for bad
debts from a reserve method (or other im-
proper method) to a specific charge-off
method that complies with § 166. For pro-
cedures applicable to banks, see § 585(c)
and the regulations thereunder and section
24 of this APPENDIX.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 4.01
of this APPENDIX is “5.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Sean Dwyer at
202–622–5020 (not a toll-free call).
.02Reserved.
SECTION 5. AMORTIZABLE BOND
PREMIUM (§ 171)
.01Revocation of § 171(c) election.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for amortizable
bond premium by revoking its § 171(c)
election. Under § 171(c), a taxpayer that
holds certain taxable bonds may elect
to amortize any bond premium on the
bonds in accordance with regulations pre-
scribed by the Secretary. Sections 1.171–1
through 1.171–5 provide rules relating to
the amortization of bond premium by a
taxpayer. Section 1.171–4 provides the
procedures to make a § 171(c) election to
amortize bond premium.
(2)Revocation of election. The revo-
cation of a § 171(c) election applies to all
taxable bonds that are held by the taxpayer
on the first day of the first taxable year for
which the revocation is effective (year of
change), and to all taxable bonds that are
subsequently acquired by the taxpayer.
(3)Manner of making change.This
change is made using a cut-off basis and
applies only to taxable bonds held on or
after the beginning of the year of change.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. Accordingly, a § 481(a) adjustment
is neither permitted nor required.
Under the cut-off basis, for taxable
bonds held at the beginning of the year of
change, the taxpayer may not amortize any
remaining bond premium on the bonds.
Because the cut-off basis is prescribed for
this change, the basis of any bond, ad-
justed for amounts previously amortized
during the period of the election, is not
affected by the revocation.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 5.01
of this APPENDIX is “16.”Seesection
6.02(4) of this revenue procedure.
(5)Additional requirements. On a state-
ment attached to the Form 3115, the tax-
payer must provide:
(a) the reason(s) for revoking the elec-
tion; and
(b) a description of the method by
which, and the date on which, the taxpayer
made the § 171(c) election that is proposed
to be revoked.
(6)Audit protection. A taxpayer re-
ceives audit protection under section 7 of
this revenue procedure in connection with
this change. However, the audit protec-
tion applicable to this change does not pre-
clude the Commissioner from examining
the method used by the taxpayer to deter-
mine the amount of amortizable bond pre-
mium under § 171(b) for a taxable year
prior to the year of change.
(7)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 6. DEPRECIATION
OR AMORTIZATION (§ 56(a)(1),
56(g)(4)(A), 167, 168, 197, 280F(a),
1400I, 1400L, or 1400N(d), OR FORMER
§168)
.01Impermissible to permissible
method of accounting for depreciation or
amortization.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from
an impermissible to a permissible method
of accounting for depreciation or amortiza-
tion (depreciation) for any item of depre-
ciable or amortizable property:
(i) for which the taxpayer used the im-
permissible method of accounting in at
least two taxable years immediately pre-
ceding the year of change (but see section
6.01(1)(b) of this APPENDIX for property
placed in service in the taxable year imme-
diately preceding the year of change);
(ii) for which the taxpayer is making
a change in method of accounting under
§ 1.446–1(e)(2)(ii)(d);
(iii) for which depreciation is deter-
mined under § 56(a)(1), § 56(g)(4)(A),
§ 167, §168, §197, §1400I, or §1400L(c),
under § 168 prior to its amendment in 1986
(former § 168), or under any additional
first year depreciation deduction provi-
sion of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)); and
(iv) that is owned by the taxpayer at the
beginning of the year of change (but see
section 6.17 of this APPENDIX for prop-
erty disposed of before the year of change).
(b)Taxpayer has not adopted a method
of accounting for the item of property.
If a taxpayer does not satisfy section
6.01(1)(a)(i) of this APPENDIX for an
item of depreciable or amortizable prop-
erty because this item of property is placed
in service by the taxpayer in the taxable
year immediately preceding the year of
change (“1-year depreciable property”),
the taxpayer may change from the im-
permissible method of determining de-
preciation to the permissible method of
determining depreciation for the 1-year
depreciable property by filing a Form 3115
for this change, provided the § 481(a)
adjustment reported on the Form 3115 in-
cludes the amount of any adjustment that
is attributable to all property (including
the 1-year depreciable property) subject
to the Form 3115. Alternatively, the tax-
payer may change from the impermissible
method of determining depreciation to the
permissible method of determining depre-
ciation for a 1-year depreciable property
by filing an amended federal tax return for
the property’s placed-in-service year prior
to the date the taxpayer files its federal tax
return for the taxable year succeeding the
placed-in-service year.
(c)Inapplicability. This change does
not apply to:
2008–36 I.R.B.623September 8, 2008

(i) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 6.01 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
(iii) any property for which a taxpayer
is making a change in depreciation under
§ 1.446–1(e)(2)(ii)(d)(2)(vi)or(vii);
(iv) any property subject to § 167(g)
regarding property depreciated under the
income forecast method;
(v) any § 1250 property that a taxpayer
is reclassifying to an asset class of Rev.
Proc. 87–56, 1987–2 C.B. 674 (as clari-
fied and modified by Rev. Proc. 88–22,
1988–1 C.B. 785), or Rev. Proc. 83–35,
1983–1 C.B. 745, as appropriate, that does
not explicitly include § 1250 property (for
example, asset class 57.0, Distributive
Trades and Services);
(vi) any property for which a tax-
payer is revoking a timely valid election,
or making a late election, under § 167,
§ 168, § 179, §1400I, § 1400L(c), for-
mer § 168, § 13261(g)(2) or (3) of the
Revenue Reconciliation Act of 1993
(1993 Act), 1993–3 C.B. 1, 128 (relat-
ing to amortizable § 197 intangibles),
or any additional first year depreciation
deduction provision of the Code (for ex-
ample, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d)). A taxpayer may request
consent to revoke or make the election
by submitting a request for a letter ruling
under Rev. Proc. 2008–1, 2008–1 I.R.B. 1
(or any successor). However, if a taxpayer
is revoking or making an election under
§ 179, see § 179(c) and § 1.179–5.See
§ 1.446–1(e)(2)(ii)(d)(3)(iii);
(vii) any property for which deprecia-
tion is determined under § 56(g)(4)(A) or
§ 167 (other than under § 168, § 1400I,
§ 1400L(c), former § 168, or any ad-
ditional first year depreciation deduc-
tion provision of the Code (for exam-
ple, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d))) and a taxpayer is chang-
ing the useful life of the property. A
change in the useful life of property
is corrected by adjustments in the ap-
plicable taxable year provided under
§ 1.446–1(e)(2)(ii)(d)(5)(iv).How-
ever, this section 6.01(1)(c)(vii) of the
APPENDIX does not apply if the tax-
payer is changing to or from a useful
life, recovery period, or amortization
period that is specifically assigned by
the Code (for example, § 167(f)(1),
§ 168(c)), the regulations thereunder,
or other guidance published in the IRB
and, therefore, this change is a change
in method of accounting (unless section
6.01(1)(c)(xv) of this APPENDIX ap-
plies).See§ 1.446–1(e)(2)(ii)(d)(3)(i);
(viii) any depreciable property
for which the use changes in the
hands of the same taxpayer.See
§ 1.446–1(e)(2)(ii)(d)(3)(ii);
(ix) any property for which depre-
ciation is determined in accordance
with § 1.167(a)–11 (regarding the Class
Life Asset Depreciation Range System
(ADR));
(x) any change in method of account-
ing involving a change from deducting the
cost or other basis of any property as an ex-
pense to capitalizing and depreciating the
cost or other basis, orvice versa;
(xi) any change in method of account-
ing involving a change from one permissi-
ble method of accounting for the property
to another permissible method of account-
ing for the property. For example:
(A) a change from the straight-line
method of depreciation to the income
forecast method of depreciating for video-
cassettes.SeeRev. Rul. 89–62, 1989–1
C.B. 78; or
(B) a change from charging the depre-
ciation reserve with costs of removal and
crediting the depreciation reserve with sal-
vage proceeds to deducting costs of re-
moval as an expense (provided the costs
of removal are not required to be capital-
ized under any provision of the Code, such
as § 263(a)) and including salvage pro-
ceeds in taxable income (see section 6.02
of this APPENDIX for making this change
for property for which depreciation is de-
termined under § 167);
(xii) any change in method of account-
ing involving both a change from treat-
ing the cost or other basis of the prop-
erty as nondepreciableor nonamortizable
property to treating the cost or other basis
of the property as depreciable or amortiz-
able property and the adoption of a method
of accounting for depreciation requiring
an election under § 167, § 168, §1400I,
§ 1400L(c), former § 168, § 13261(g)(2) or
(3) of the 1993 Act, or any additional first
year depreciation deduction provision of
the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d)) (for example,
a change in the treatment of the space con-
sumed in landfills placed in service in 2006
from nondepreciable to depreciable prop-
erty (assuming section 6.01(1)(c)(xiii) of
the APPENDIX does not apply) and the
making of an election under §168(f)(1) to
depreciate this property under the unit of
production method of depreciation under
§ 167);
(xiii) any change in method of account-
ing for any item of income or deduction
other than depreciation, even if the change
results in a change in computing deprecia-
tion under § 1.446–1(e)(2)(ii)(d)(2)(i), (ii),
(iii), (iv), (v), (vi), (vii), or (
viii). For ex-
ample, a change in method of accounting
involving:
(A) a change in inventory costs (for ex-
ample, when property is reclassified from
inventory property to depreciable prop-
erty, orvice versa) (but see section 10.02
of this APPENDIX for making a change
in method of accounting from inventory
property to depreciable property for unre-
coverable line pack gas or unrecoverable
cushion gas, and section 10.06 of this AP-
PENDIX for making a change in method
of accounting from inventory property
to depreciable property for rotable spare
parts); or
(B) a change in the character of a trans-
action from sale to lease, orvice versa(but
seesection6.03ofthisAPPENDIXfor
making this change);
(xiv) a change from determining de-
preciation under § 168 to determining
depreciation under former § 168 for any
property subject to the transition rules in
§ 203(b) or § 204(a) of the Tax Reform Act
of 1986, 1986–3 (Vol. 1) C.B. 1, 60–80;
(xv) any change in the placed-in-service
date of a depreciable or amortizable prop-
erty. This change is corrected by adjust-
ments in the applicable taxable year pro-
vided under § 1.446–1(e)(2)(ii)(d)(5)(v);
or
(xvi) any property for which the reha-
bilitation credit under § 47 was claimed
and that a taxpayer is reclassifying to
3-year property, 5-year property, 7-year
property, 10-year property, 15-year prop-
September 8, 20086242008–36 I.R.B.

erty, 20-year property, or water utility
property (other thanreal property with a
class life of more than 12.5 years).
(2)Certain scope limitations inappli-
cable. The scope limitations in sections
4.02(4) and 4.02(5) of this revenue proce-
dure are not applicable to this change.
(3)Additional requirements.Atax-
payer also must comply with the follow-
ing:
(a)Permissible method of accounting
for depreciation. A taxpayer must change
to a permissible method of accounting for
depreciation for the item of depreciable
or amortizable property. The permissible
method of accounting is the same method
that determines the depreciation allowable
for the item of property (as provided in sec-
tion 6.01(6) of this APPENDIX.
(b)Statements required. A taxpayer
must provide the following statements, if
applicable, and attach them to the com-
pleted application:
(i) a detailed description of the former
and new methods of accounting. A general
description of these methods of account-
ing is unacceptable (for example, MACRS
to MACRS, erroneous method to proper
method, claiming less than the deprecia-
tion allowable to claiming the depreciation
allowable);
(ii) to the extent not provided elsewhere
on the application, a statement describing
the taxpayer’s business or income-produc-
ing activities. Also, if the taxpayer has
more than one business or income-produc-
ing activity, a statement describing the tax-
payer’s business or income-producing ac-
tivity in which the item of property at issue
is primarily used by the taxpayer;
(iii) to the extent not provided else-
where on the application, a statement of the
facts and law supporting the new method
of accounting, new classification of the
item of property, and new asset class in,
as appropriate, Rev. Proc. 87–56 or Rev.
Proc. 83–35. If the taxpayer is the owner
and lessor of the item of property at issue,
the statement of the facts and law support-
ing the new asset class also must describe
the business or income-producing activity
in which that item of property is primarily
used by the lessee;
(iv) to the extent not provided else-
where on the application, a statement
identifying the year in which the item of
property was placed in service by the tax-
payer;
(v) if any item of property is public
utility property within the meaning of
§ 168(i)(10) or former § 167(I)(3)(A), as
applicable, a statement providing that the
taxpayer agrees to the following additional
terms and conditions:
(A) a normalization method of ac-
counting (within the meaning of former
§ 167(I)(3)(G), former § 168(e)(3)(B), or
§ 168(i)(9), as applicable) will be used for
the public utility property subject to the
application;
(B) as of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar re-
serve account in the taxpayer’s regulatory
books of account by the amount of the de-
ferral of federal income tax liability asso-
ciated with the § 481(a) adjustment appli-
cable to the public utility property subject
to the application; and
(C) within 30 calendar days of filing the
federal income tax return for the year of
change, the taxpayer will provide a copy
of the completed application to any reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation;
(vi) if the taxpayer is changing the
classification of an item of § 1250 prop-
erty placed in service after August 19,
1996, to a retail motor fuels outlet under
§ 168(e)(3)(E)(iii), a statement containing
the following representation: “For pur-
posesof§168(e)(3)(E)(iii)oftheInternal
Revenue Code, the taxpayer represents
that (A) 50 percent or more of the gross
revenue generated from the item of § 1250
property is from the sale of petroleum
products (not including gross revenue
from related services, such as the labor
cost of oil changes and gross revenue from
the sale of nonpetroleum products such as
tires and oil filters), (B) 50 percent or more
of the floor space in the item of property
is devoted to the sale of petroleum prod-
ucts (not including floor space devoted
to related services, such as oil changes
and floor space devoted to nonpetroleum
products such as tires and oil filters), or
(C) the item of § 1250 property is 1,400
square feet or less.”; and
(vii) if the taxpayer is changing the
classification of an item of property from
§ 1250 property to § 1245 property under
§ 168 or former § 168, a statement of the
facts and law supporting the new § 1245
property classification, and a statement
containing the following representation:
“Each item of depreciable property that is
the subject of the application filed under
section6.01oftheAPPENDIXofRev.
Proc. 2008–52 for the year of change
beginning [Insert the date], and that is
reclassified from [Insert, as appropriate:
nonresidential real property, residential
rental property, qualified leasehold im-
provement property, qualified restaurant
property, 19-year real property, 18-year
real property, or 15-year real property]
to an asset class of [Insert, as appropri-
ate, either: Rev. Proc. 87–56, 1987–2
C.B. 674, or Rev, Proc, 83–35, 1983–1
C.B. 745] that does not explicitly include
§ 1250 property, is § 1245 property for
depreciation purposes.”
(4)Section 481(a) adjustment.Be-
cause the adjusted basis of the property is
changed as a result of a method change
made under section 6.01 of the APPEN-
DIX (seesection 6.01(5) of this APPEN-
DIX), items are duplicated or omitted.
Accordingly, this change is made with a
§ 481(a) adjustment. This adjustment may
result in either a negative § 481(a) adjust-
ment (a decrease in taxable income) or a
positive § 481(a) adjustment (an increase
in taxable income) and may be a differ-
ent amount for regular tax, alternative
minimum tax, and adjusted current earn-
ings purposes. This § 481(a) adjustment
equals the difference between the total
amount of depreciation taken into account
in computing taxable income for the prop-
erty under the taxpayer’s former method
of accounting (including the amount at-
tributable to any property described in
section 6.01(1)(b) of this APPENDIX
that is included in the taxpayer’s Form
3115), and the total amount of deprecia-
tion allowable for the property under the
taxpayer’s new method of accounting (as
determined under section 6.01(6) of this
APPENDIX, and including the amount
attributable to any property described in
section 6.01(1)(b) of this APPENDIX that
is included in the taxpayer’s Form 3115),
for open and closed years prior to the
year of change. However, the amount of
the § 481(a) adjustment must be adjusted
to account for the proper amount of the
depreciation allowable that is required to
be capitalized under any provision of the
2008–36 I.R.B.625September 8, 2008

Code (for example, § 263A) at the begin-
ning of the year of change.
(5)Basis adjustment. As of the begin-
ning of the year of change, the basis of de-
preciable property to which section 6.01 of
this APPENDIX applies must reflect the
reductions required by § 1016(a)(2) for the
depreciation allowable for the property (as
determined under section 6.01(6) of this
APPENDIX).
(6)Meaning of depreciation allowable.
(a)In general. Section 6.01(6) of this
APPENDIX provides the amount of the
depreciation allowable determined under
§ 56(a)(1), § 56(g)(4)(A), § 167, § 168,
§ 197, §1400I, or § 1400L(c), or former
§ 168. This amount, however, may be
limited by other provisions of the Code
(for example, § 280F).
(b)Section 56(a)(1) property. The de-
preciation allowable for any taxable year
for property for which depreciation is de-
termined under § 56(a)(1) is determined by
using the depreciation method, recovery
period, and convention provided for under
§ 56(a)(1) that applies for the property’s
placed-in-service date.
(c)Section 56(g)(4)(A) property.The
depreciation allowable for any taxable
year for property for which depreciation is
determined under § 56(g)(4)(A) is deter-
mined by using the depreciation method,
recovery period or useful life, as appli-
cable, and convention provided for under
§ 56(g)(4)(A) that applies for the prop-
erty’s placed-in-service date.
(d)Section 167 property. Generally, for
any taxable year, the depreciation allow-
able for property for which depreciation is
determined under § 167, is determined ei-
ther:
(i) under the depreciation method
adopted by the taxpayer for the property;
or
(ii) if that depreciation method does not
result in a reasonable allowance for depre-
ciation or the taxpayer has not adopted a
depreciation method for the property, un-
der the straight-line depreciation method.
For determining the estimated useful
life and salvage value of the property, see
§ 1.167(a)–1(b) and (c) respectively.
The depreciation allowable for any tax-
able year for propertysubjectto§167(f)
(regarding certain property excluded from
§ 197) is determined by using the de-
preciation method and useful life pre-
scribed in § 167(f). If computer soft-
ware is depreciated under § 167(f)(1)
and is qualified property (as defined in
§ 168(k)(2) and § 1.168(k)–1), 50-percent
bonus depreciation property (as defined in
§ 168(k)(4) and § 1.168(k)–1), qualified
New York Liberty Zone (Liberty Zone)
property (as defined in § 1400L(b)(2) and
§ 1.1400L(b)–1), qualified Gulf Opportu-
nity Zone (GO Zone) property (as defined
in § 1400N(d)(2) and sections 2.02 and
2.03 of Notice 2006–77, 2006–2 C.B.
590, as clarified, modified, and ampli-
fied by Notice 2007–36, 2007–17 I.R.B.
1000), or specified Gulf Opportunity Zone
extension property (GO Zone extension
property) (as defined in § 1400N(d)(6) and
section 4 of Notice 2007–36), the depreci-
ation allowable for that computer software
under § 167(f)(1) is also determined by
taking into account the additional first
year depreciation deduction provided by
§ 168(k), § 1400L(b), or § 1400N(d), as
applicable, unless the taxpayer made a
timely valid election not to deduct any
additional first year depreciation for the
computer software.
(e)Section 168 property. The depre-
ciation allowable for any taxable year for
property for which depreciation is deter-
mined under § 168, is determined as fol-
lows:
(i) by using either:
(A) the general depreciation system in
§ 168(a); or
(B) the alternative depreciation system
in § 168(g) if the property is required to
be depreciated under the alternative depre-
ciation system pursuant to § 168(g)(1) or
other provisions of the Code (for exam-
ple, property described in § 263A(e)(2)(A)
or § 280F(b)(1)). Property required to be
depreciated under the alternative depreci-
ation system pursuant to § 168(g)(1) in-
cludes property in a class (as set out in
§ 168(e)) for which the taxpayer made a
timely valid election under § 168(g)(7);
(ii) if the property is qualified property,
50-percent bonus depreciation property,
Liberty Zone property, GO Zone prop-
erty, or GO Zone extension property, by
also taking into account the additional
first year depreciation deduction provided
by § 168(k), § 1400L(b), or § 1400N(d),
as applicable, unless the taxpayer made
a timely valid election not to deduct the
additional first year depreciation (or made
a deemed election not to deduct the ad-
ditional first year depreciation; for fur-
ther guidance, see Rev. Proc. 2002–33,
2002–1 C.B. 963, Rev. Proc. 2003–50,
2003–2 C.B. 119, or Notice 2006–77)
for the class of property (as defined in
§ 1.168(k)–1(e)(2), § 1.1400L(b)–1(e)(2),
or section 4.02 of Notice 2006–77, as
applicable) in which that property is in-
cluded; and
(iii) if the property is qualified cellu-
losic biomass ethanol property (as defined
in § 168(l)(2)), by also taking into account
the additional first year depreciation de-
duction provided by § 168(l)(1), unless the
taxpayer made a timely valid election not
to deduct the additional first year depreci-
ation for the property.
(f)Section 197 property. The depre-
ciation allowable for any taxable year for
an amortizable § 197 intangible (including
any property for which a timely election
under § 13261(g)(2) of the 1993 Act was
made) is determined in accordance with
§ 1.197–2(f).
(g)Former § 168 property. The depre-
ciation allowable for any taxable year for
property subject to former § 168 is deter-
mined by using either:
(i) the accelerated method of cost re-
covery applicable to the property (for ex-
ample, for 5-year property, the recovery
method under former § 168(b)(1)); or
(ii) the straight-line method appli-
cable to the property if the property is
required to be depreciated under the
straight-line method (for example, prop-
erty described in former § 168(f)(2) or
former § 280F(b)(2)) or if the taxpayer
elected to determine the depreciation al-
lowance under the optional straight-line
percentage (for example, the straight-line
method in former § 168(b)(3)).
(h)Qualified revitalization building.
The depreciation allowable for any tax-
able year for any qualified revitalization
building (as defined in § 1400I(b)(1)) for
which the taxpayer has made a timely valid
election under § 1400I(a) is determined as
follows:
(i) if the taxpayer elected to deduct one-
half of any qualified revitalization expen-
ditures (as defined in § 1400I(b)(2) and as
limited by § 1400I(c)) chargeable to a cap-
ital account with respect to the qualified
revitalization building for the taxable year
September 8, 20086262008–36 I.R.B.

in which the building is placed in service
by the taxpayer, the depreciation allowable
for the qualified revitalization building’s
placed-in-service year is equal to one-half
of the qualified revitalization expenditures
for the building and the depreciation al-
lowable for the remaining depreciable ba-
sis of the qualified revitalization building
for its placed-in-service year and subse-
quent taxable years is determined using the
general depreciation system of § 168(a)
or the alternative depreciation system of
§ 168(g), as applicable; or
(ii) if the taxpayer elected to amortize
all of the qualified revitalization expen-
ditures chargeable to a capital account
with respect to the qualified revitalization
building ratably over the 120-month pe-
riod beginning with the month in which
the building is placed in service, the de-
preciation allowable for the qualified
revitalization expenditures is determined
in accordance with this election and the
depreciation allowable for the remaining
depreciable basis of the qualified revital-
ization building is determined using the
general depreciation system of § 168(a)
or the alternative depreciation system of
§ 168(g), as applicable.
(i)Qualified New York Liberty Zone
leasehold improvement property.The
depreciation allowable for any taxable
year for qualified New York Liberty Zone
leasehold improvement property (as de-
fined in § 1400L(c)(2)) is determined by
using the depreciation method and recov-
ery period prescribed in § 1400L(c) unless
the taxpayer made a timely valid election
under § 1400L(c)(5) not to use that recov-
ery period.
(7)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(8)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.01
of this APPENDIX is “7.”Seesection
6.02(4) of this revenue procedure.
(9)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02Permissible to permissible method
of accounting for depreciation.
(1)Description of change. This change
applies to a taxpayer that wants to change
from a permissible method of accounting
for depreciation under § 56(g)(4)(A)(iv)
or § 167 to another permissible method
of accounting for depreciation under
§ 56(g)(4)(A)(iv) or § 167. Pursuant to
§ 1.167(a)–7(a) and (c), a taxpayer may
account for depreciable property either
by treating each individual asset as an ac-
count or by combining two or more assets
in a single account and, for each account,
depreciation allowances are computed
separately.
(2)Scope.
(a)Applicability. This change applies
to any taxpayer wanting to make a change
in method of accounting for depreciation
specified in section 6.02(4) of this AP-
PENDIX for the property in an account:
(i) for which the present and proposed
methods of accounting for depreciation
specified in section 6.02(4) of this AP-
PENDIX are permissible methods for the
property under § 56(g)(4)(A)(iv) or § 167;
and
(ii) that is owned by the taxpayer at the
beginning of the year of change.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method
of accounting under this section 6.02 of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (as
applicable);
(ii) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;
(iii) any property described in § 167(f)
(regarding certain property excluded from
§197);
(iv) any property subject to § 167(g)
(regarding property depreciated under the
income forecast method);
(v) any property for which depreci-
ation is determined under § 56(a)(1),
§ 56(g)(4)(A)(i), (ii), (iii), or (v), § 168,
§ 1400I, § 1400L(c), § 168 prior to its
amendment in 1986 (former § 168), or
any additional first year depreciation
deduction provision of the Code (for ex-
ample, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d));
(vi) any property that the taxpayer
elected under § 168(f)(1) or former
§ 168(e)(2) to exclude from the application
of, respectively, § 168 or former § 168;
(vii) any property for which depreci-
ation is determined in accordance with
§ 1.167(a)–11 (ADR);
(viii) any depreciable property for
which the taxpayer is changing the depre-
ciation method pursuant to § 1.167(e)–1(b)
(change from declining-balance method
to straight-line method), § 1.167(e)–1(c)
(certain changes for § 1245 property),
or § 1.167(e)–1(d) (certain changes for
§ 1250 property). These changes must be
made prospectively and are not permitted
under the cited regulations for property
for which the depreciation is determined
under § 168, § 1400I, § 1400L(c), former
§ 168, or any additional first year depreci-
ation deduction provision of the Code (for
example, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d)); or
(ix) any distributor commissions (as de-
fined by section 2 of Rev. Proc. 2000–38,
2000–2 C.B. 310, as modified by Rev.
Proc. 2007–16, 2007–4 I.R.B. 358) for
which the taxpayer is changing the use-
ful life under the distribution fee period
method or the useful life method (both de-
scribed in Rev. Proc. 2000–38). A change
in this useful life is corrected by adjust-
ments in the applicable taxable year pro-
vided under § 1.446–1(e)(2)(ii)(d)(5)(iv).
(3)Certain scope limitations inappli-
cable. The scope limitations in sections
4.02(4) and 4.02(5) of this revenue proce-
dure are not applicable to this change.
(4)Changes covered. Section6.02of
this APPENDIX only applies to the fol-
lowing changes in methods of accounting
for depreciation:
(a) a change from the straight-line
method to the sum-of-the-year-digits
method, the sinking fund method, the
2008–36 I.R.B.627September 8, 2008

unit-of-production method, or the de-
clining-balance method using any proper
percentage of the straight-line rate;
(b) a change from the declining-bal-
ance method using any percentage of the
straight-lineratetothe sum-of-the-years-
digits method, the sinking fund method,
or the declining-balance method using a
different proper percentage of the straight-
line rate;
(c) a change from the sum-of-the-years-
digits method to the sinking fund method,
the declining-balance method using any
proper percentage of the straight-line rate,
or the straight-line method;
(d) a change from the unit-of-produc-
tion method to the straight-line method;
(e) a change from the sinking fund
method to the straight-line method,
the unit-of-production method, the
sum-of-the-years-digits method, or the de-
clining-balance method using any proper
percentage of the straight-line rate;
(f) a change in the interest factor used
in connection with a compound interest
method or sinking fund method;
(g) a change in averaging convention as
set forth in § 1.167(a)–10(b). However, as
specifically provided in § 1.167(a)–10(b),
in any taxable year in which an averaging
convention substantially distorts the de-
preciation allowance for the taxable year,
it may not be used (seeRev. Rul. 73–202,
1973–1 C.B. 81);
(h) a change from charging the depre-
ciation reserve with costs of removal and
crediting the depreciation reserve with sal-
vage proceeds to deducting costs of re-
moval as an expense and including salvage
proceeds in taxable income as set forth in
§ 1.167(a)–8(e)(2).SeeRev. Rul. 74–455,
1974–2 C.B. 63. This change, however,
may be made under this revenue procedure
only if:
(i) the change is applied to all items in
the account for which the change is being
made; and
(ii) the removal costs are not required
to be capitalized under any provision of
the Code (for example, § 263(a), 263A, or
280B);
(i) a change from crediting the depreci-
ation reserve with the salvage proceeds re-
alized on normal retirement sales to com-
puting and recognizing gains and losses on
the sales (seeRev. Rul. 70–165, 1970–1
C.B. 43);
(j) a change from crediting ordinary in-
come (including the combination method
of crediting the lesser of estimated sal-
vage value or actual salvage proceeds to
the depreciation reserve, with any excess
of salvage proceeds over estimated salvage
value credited to ordinary income) with the
salvage proceeds realized on normal retire-
ment sales, to computing and recognizing
gains and losses on the sales (seeRev. Rul.
70–166, 1970–1 C.B. 44);
(k) a change from item accounting for
specific assets to multiple asset accounting
(pooling) for the same assets, orvice versa;
(l) a change from one type of multiple
asset accounting (pooling) for specific as-
sets to a different type of multiple asset ac-
counting (pooling) for the same assets;
(m) a change from one method de-
scribed in Rev. Proc. 2000–38 for amor-
tizing distributor commissions (as defined
by section 2 of Rev. Proc. 2000–38) to
another method described in Rev. Proc.
2000–38 for amortizing distributor com-
missions; or
(n) a change from pooling to a single as-
set, orvice versa, for distributor commis-
sions (as defined by section 2 of Rev. Proc.
2000–38) for which the taxpayer is using
the distribution fee period method or the
useful life method (both described in Rev.
Proc. 2000–38).
(5)Additional requirements.Atax-
payer also must comply with the follow-
ing:
(a)Basis for depreciation.Atthebe-
ginning of the year of change, the basis
for depreciation of property to which this
change applies is the adjusted basis of the
property as provided in § 1011 at the end
of the taxable year immediately preced-
ing the year of change (determined under
taxpayer’s present method of accounting
for depreciation). If applicable under the
taxpayer’s proposed method of accounting
for depreciation, this adjusted basis is re-
duced by the estimated salvage value of
the property (for example, a change to the
straight-line method).
(b)Rate of depreciation. The rate of
depreciation for property changed to:
(i) the straight-line or the sum-of-the-
year-digits method of depreciation must be
basedontheremainingusefullifeofthe
property as of the beginning of the year of
change; or
(ii) the declining-balance method of de-
preciation must be based on the useful life
of the property measured from the placed-
in-service date, and not the expected re-
maining life from the date the change be-
comes effective.
(c)Regulatory requirements.For
changes in method of depreciation to
the sum-of-the-year-digits or declin-
ing-balance method, the property must
meet the requirements of §1.167(b)–0 or
1.167(c)–1, as appropriate.
(d)Public utility property. If any item
of property is public utility property within
the meaning of former § 167(l)(3)(A), the
taxpayer must attach to the application
a statement providing that the taxpayer
agrees to the following additional terms
and conditions:
(i) a normalization method of ac-
counting within the meaning of former
§ 167(l)(3)(G) will be used for the public
utility property subject to the application;
and
(ii) within 30 calendar days of filing the
federal income tax return for the year of
change, the taxpayer will provide a copy
of the completed application to any reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation.
(6)Section 481(a) adjustment. Because
the adjusted basis of the property is not
changed as a result of a method change
made under section 6.02 of this APPEN-
DIX, no items are being duplicated or
omitted. Accordingly, a § 481(a) adjust-
ment is neither required nor necessary.
(7)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(8)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.02
of this APPENDIX is “8.”Seesection
6.02(4) of this revenue procedure.
(9)Contact information. For further
information regarding a change under
September 8, 20086282008–36 I.R.B.

this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.03Sale, lease, or financing transac-
tions.
(1)Description of change and scope.
(a)Applicability. This change applies
to a taxpayer that wants to change its
method of accounting from:
(i)improperlytreatingpropertyassold
by the taxpayer to properly treating prop-
erty as leased or financed by the taxpayer;
(ii) improperly treating property as
leased by the taxpayer to properly treating
property as sold or financed by the tax-
payer;
(iii) improperly treating property as fi-
nanced by the taxpayer to properly treating
property as sold or leased by the taxpayer;
(iv) improperly treating property as pur-
chased by the taxpayer to properly treating
property as leased by the taxpayer; and
(v) improperly treating property as
leased by the taxpayer to properly treating
property as purchased by the taxpayer.
(b)Inapplicability. This change does
not apply to:
(i) a rent-to-own dealer that wants to
change its method of accounting for rent-
to-own contracts described in section 3 of
Rev. Proc. 95–38, 1995–2 C.B. 397; or
(ii) a taxpayer that holds assets for sale
or lease, if any asset so held is not the
subject of a sale or lease transaction as of
the beginning of the year of change.
(2)Manner of making change.
(a) The change in method of account-
ing under section 6.03 of this APPENDIX
is made using a cut-off method and applies
to transactions entered into on or after the
beginning of the year of change.Seesec-
tion 2.06 of this revenue procedure.
(b) If a taxpayer wants to change its
method of accounting for existing sale,
lease or financing transactions, the tax-
payer must file an application with the
Commissioner in accordance with the re-
quirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27. A change involving existing
sale, lease, or financing transactions will
require a § 481(a) adjustment. Consent to
change a method of accounting for an ex-
isting sale, lease, or financing transaction
is granted only in unusual and compelling
circumstances.
(3)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.03
of this APPENDIX is “10.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Edward Schwartz at
202–622–4960 (not a toll-free call).
.04Modern golf course greens.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the cost of
modern golf course greens owned by the
taxpayer at the beginning of the year of
change to conform with the holding in
Rev. Rul. 2001–60, 2001–2 C.B. 587.
Rev. Rul. 2001–60 holds that the costs
of land preparation undertakenbyatax-
payer in the original construction or recon-
struction of modern greens (as described in
Rev. Rul. 2001–60) that is so closely as-
sociated with depreciable assets, such as a
network of underground drainage tiles or
pipes, that the land preparation will be re-
tired, abandoned, or replaced contempora-
neously with those depreciable assets are
to be capitalized and depreciated over the
recovery period of the depreciable assets
with which the land preparation is asso-
ciated. However, the general earthmov-
ing, grading, and initial shaping of the
area surrounding and underneath the mod-
ern green that occur before the construc-
tion are inextricably associated with the
land and, therefore, the costs attributable to
this land preparation are added to the tax-
payer’s cost basis in the land and are not
depreciable.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for the cost of modern golf course
greens under section 6.04 of this APPEN-
DIX must change to a permissible method
of accounting for depreciation of modern
greens. For purposes of § 168, the mod-
ern green is includible in asset class 00.3,
Land Improvements, of Rev. Proc. 87–56,
1987–2 C.B. 674, as clarified and modified
by Rev. Proc. 88–22, 1988–1 C.B. 785.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.04
of this APPENDIX is “11.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.05Original and replacement tire costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for the cost of
original and replacement tires for all of
the taxpayer’s qualifying vehicles in which
the taxpayer has a depreciable interest at
the beginning of the year of change to
the original tire capitalization method pro-
vided by section 5 of Rev. Proc. 2002–27,
2002–1 C.B. 802. The terms “qualify-
ing vehicle,” “original tires,” and “replace-
ment tires” are defined in section 3 of Rev.
Proc. 2002–27. For further details, see
Rev. Proc. 2002–27.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.05
of this APPENDIX is “12.”See
section
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.06Depreciation of gas pump canopies.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for the cost of
stand-alone gasoline pump canopies or
their supporting concrete footings owned
by the taxpayer at the beginning of the
year of change to conform with the hold-
ing in Rev. Rul. 2003–54, 2003–1 C.B.
982. Rev. Rul. 2003–54 holds that the
stand-alone gasoline pump canopies (as
described in Rev. Rul. 2003–54) are not
inherently permanent structures and are
classified as tangiblepersonal property for
depreciation purposes, while the support-
ing concrete footings (as described in Rev.
Rul. 2003–54) are inherently permanent
structures classifiedas land improvements
for depreciation purposes.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for the cost of stand-alone gasoline
pump canopies or their supporting con-
crete footings under section 6.06 of this
2008–36 I.R.B.629September 8, 2008

APPENDIX must change to a permissible
method of accounting for depreciation of
the cost of the gasoline pump canopies or
the supporting concrete footings. For pur-
poses of § 168, the stand-alone gasoline
pump canopies are includible in asset class
57.0, Distributive Trades and Services, of
Rev. Proc. 87–56, 1987–2 C.B. 674,
as clarified and modified by Rev. Proc.
88–22, 1988–1 C.B. 785, and their sup-
porting concrete footings are includible in
asset class 57.1, Distributive Trades and
Services-Billboard, Service Station Build-
ings and Petroleum Marketing Land Im-
provements, of Rev. Proc. 87–56.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.06
of this APPENDIX is “13.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.07Depreciation of utility assets.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciable
assets that are owned by a utility at the
beginning of the year of change and used
in the general business operations of the
utility to conform with Rev. Rul. 2003–81,
2003–2 C.B. 126.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.07
of this APPENDIX is “14.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.08Depreciation of cable TV fiber op-
tics.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciation
of fiber optic node and trunk line con-
sisting of fiber optic cable used in a ca-
ble television distribution system owned
by the taxpayer at the beginning of the
year of change to the safe harbor method
of accounting provided by section 4 of
Rev. Proc. 2003–63, 2003–2 C.B. 304.
The taxpayer must operate a cable televi-
sion distribution system designed to pro-
vide one-way and two-way communica-
tion services to subscribers (as described
in section 3.02 of Rev. Proc. 2003–63).
The safe harbor method of accounting pro-
vided by section 4 of Rev. Proc. 2003–63
determines the unit of property for calcu-
lating depreciation under §§ 167 and 168,
and the primary use and placed-in-service
date of that unit of property.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.08
of this APPENDIX is “15.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.09Change in general asset account
treatment due to a change in the use of
MACRS property.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for general
asset account treatment of MACRS prop-
erty (as defined in § 1.168(b)–1(a)(2))
to the method of accounting pro-
videdin§§1.168(i)–1(c)(2)(ii)(E)and
1.168(i)–1(h)(2), which applies when
there is a change in the use of MACRS
property pursuant to § 1.168(i)–4(d).See
§ 1.168(i)–1(l)(2)(ii).
(2)Manner of making change.
Thechangeismadeonamod-
ified cut-off basis (as defined in
§ 1.446–1(e)(2)(ii)(d)(5)(iii)) and, thus,
the adjusted depreciable basis of the
MACRS property as of the beginning of
the year of change is recovered using the
new method of accounting for general
asset account treatment. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required. See § 1.168(i)–1(h)(2)(ii)
and (iii) for more information regarding
how to establish the general asset account
when a change in the use of MACRS prop-
erty occurs pursuant to § 1.168(i)–4(d).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.09
of this APPENDIX is “87.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.10Change in method of accounting for
depreciation due to a change in the use of
MACRS property.
(1)
Description of change. This change
applies to a taxpayer that wants to (a)
change the method of accounting for de-
preciation of MACRS property (as defined
in § 1.168(b)–1(a)(2)) to the method of
accounting for depreciation provided in
§ 1.168(i)–4, which applies when there
is a change in the use of MACRS prop-
erty, or (b) revoke the election provided
in § 1.168(i)–4(d)(3)(ii) to disregard a
change in the use of MACRS property.
See§ 1.168(i)–4(g)(2).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.10
of this APPENDIX is “88.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.11Depreciation of qualified non-per-
sonal use vans and light trucks.
(1)Description of change.This
change applies to a taxpayer that wants
to change the method of accounting for
depreciation for certain vehicles in accor-
dance with § 1.280F–6(f)(2)(iv). Section
1.280F–6(f)(2)(iv) applies to a truck or
van that is a qualified nonpersonal use
vehicle as defined under § 1.274–5T(k),
was placed in service by the taxpayer be-
fore July 7, 2003, and was treated by the
taxpayer as a passenger automobile under
§ 1.280F–6T as in effect prior to July 7,
2003. If the taxpayer files Form 3115,
in accordance with § 1.280F–6(f)(2)(iv),
the treatment of the truck or van will be
changedfrompropertytowhich§280F(a)
appliestopropertytowhich§280F(a)
does not apply.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.11
of this APPENDIX is “89.”Seesection
6.02(4) of this revenue procedure.
September 8, 20086302008–36 I.R.B.

(3)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.12Depreciation of qualified revitaliza-
tion building in the expanded area of a re-
newal community.
(1)Description of change. This change
applies to a taxpayer that wants to elect the
commercial revitalization deduction under
§ 1400I(a) for a qualified revitalization
building (as defined in § 1400I(b)(1)) that
is placed in service by the taxpayer after
December 31, 2001, in the area of a re-
newal community that was expanded by
the U.S. Department of Housing and Ur-
ban Development and for which the tax-
payer receives a retroactive commercial
revitalization expenditure allocation made
in accordance with section 3 of Rev. Proc.
2006–16, 2006–1 C.B. 539. This change
applies only if the taxpayer filed the fed-
eral tax return for the placed-in-service
year of that building on or before the date
the taxpayer received the retroactive com-
mercial revitalization expenditure alloca-
tion. For further details, see Rev. Proc.
2006–16.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Time for making change.The
change in methodof accounting under
section6.12ofthisAPPENDIXmustbe
timely filed with the taxpayer’s federal tax
return for the taxable year that includes
the date on which the commercial revi-
talization agency makes the retroactive
commercial revitalization expenditure al-
location, or with the taxpayer’s federal tax
return for the first taxable year succeeding
the taxable year that included the date
on which the commercial revitalization
agency made the retroactive commercial
revitalization expenditure allocation.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.12
of this APPENDIX is “97.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.13Loss disallowance rule upon a dis-
position of an insurance contract acquired
in an assumption re-insurance transaction.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that chooses, on a transac-
tion-by-transaction basis, to change their
treatment of certain insurance contracts ac-
quired in an assumption reinsurance trans-
action under § 1.197–2(g)(5) for the first
taxable year ending after April 10, 2006.
(b)Inapplicability. This change does
not apply when the taxpayer’s treatment of
its property is an issue under consideration
for a taxable year under examination, be-
fore an Appeals office, or before a federal
court. See section 3.09 of this revenue pro-
cedure for the definition of these terms.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Additional requirements.The
change in accounting method results in
items being omitted or duplicated and
thus, an adjustment under § 481(a) must
be computed.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.13
of this APPENDIX is “98.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Mark Weiss at
202–622–7750 (not a toll-free call).
.14Income forecast method of depreci-
ation.
(1)Description of change. This change
applies to a taxpayer that under § 167(g)(7)
wants to either:
(a) include participations and residuals
expected to be paid before the end of the
tenth taxable year following the taxable
year in which the property is placed in ser-
vice in the adjusted basis of property for
which the income forecast method of de-
preciation is used; or
(b) exclude participations and residu-
als from the adjusted basis of property for
which the income forecast method of de-
preciation is used and deduct the participa-
tions and residuals inthe taxable year that
the participations and residuals are paid.
(2)Scope.
(a)Applicability. This change in ac-
counting method applies to a taxpayer that,
before June 15, 2006, filed its federal tax
return for a taxable year ending after Oc-
tober 22, 2004, and that wants to make a
§ 167(g)(7) election for income forecast
property placed in service during that tax-
able year.
(b)Inapplicability. This change does
not apply to:
(i) Property placed in service on or be-
fore October 22, 2004; or
(ii) A taxpayer that made the
§ 167(g)(7) election for income forecast
property placed in service during a taxable
year ending after October 22, 2004, by fil-
ing an amended federal tax return for the
taxable year in which the income forecast
property was placed in service, and all
subsequent affected taxable year(s), on or
before November 15, 2006.
(3)Time for making the change.The
change in method of accounting under
section 6.14 of this APPENDIX must be
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(5)Additional requirements.
(a) This change in accounting method
results in items being omitted or duplicated
and, thus, an adjustment under § 481(a)
must be computed.
(b) The statement required underIn-
terim Rulesin section B.1. of Notice
2006–47, 2006–1 C.B. 892, 894, must be
attached to the Form 3115.
(c) The method elected under section
6.14(1) of this APPENDIX for a given
property must be applied consistently.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.14
of this APPENDIX is “99.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.15GO Zone additional first year de-
preciation deduction.
2008–36 I.R.B.631September 8, 2008

(1)Description of change. This change
applies to a taxpayer that wants to make
thechangeinmethodofaccountingfor
depreciation for qualified GO Zone prop-
erty placed in service by the taxpayer on or
after August 28, 2005, during the taxable
year beginning in 2004 or 2005 (2004 or
2005 taxable year), to claim the GO Zone
additional first year depreciation deduc-
tion for a class of property for which the
taxpayer did not claim the GO Zone ad-
ditional first year depreciation deduction
on the taxpayer’s 2004 or 2005 federal
tax return. This change applies only if
the taxpayer filed its 2004 or 2005 federal
tax return before September 13, 2006, and
if the taxpayer did not make the election
not to deduct the GO Zone additional first
year depreciation for the class of prop-
erty within the time prescribed in section
4.03(1) of Notice 2006–77, 2006–2 C.B.
590, and in the manner prescribed in in-
structions for Form 4562,Depreciation
and Amortization. For further details,see
section 4.03(2) of Notice 2006–77.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Time for making the change.The
change in methodof accounting under
section6.15ofthisAPPENDIXmustbe
timely filed with the taxpayer’s federal tax
return for the first taxable year succeeding
the 2004 or 2005 taxable year, as applica-
ble.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.15
of this APPENDIX is “104.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.16Additional first year depreciation
deduction.
(1)Description of change.This
change applies to a taxpayer that wants
to make a change in method of account-
ing for depreciation under § 168(k) or
§ 1400L(b) to comply with § 1.168(k)–1
or § 1.1400L(b)–1 (the “final regula-
tions”) because of revisions made to
§ 1.168(k)–1T or § 1.1400L(b)–1T by the
final regulations. See section 3 of Rev.
Proc. 2006–43, 2006–2 C.B. 849, 850, for
the applicability and inapplicability of this
change.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change for the taxpayer’s first taxable year
ending on or after October 18, 2006, or,
if applicable, for the taxpayer’s last tax-
able year ending before October 1, 2006,
if the taxpayer timely files (including ex-
tensions) its federal income tax return af-
ter October 18, 2006, for that last taxable
year.
(3)Time for making the change.The
change in method ofaccounting under sec-
tion 6.16 of this APPENDIX must be made
for either: (i) the taxpayer’s last taxable
year ending before October 1, 2006, if
the taxpayer timely files (including exten-
sions) its federal income tax return after
October 18, 2006, for that last taxable year;
or (ii) the taxpayer’s first taxable year end-
ing on or after October 18, 2006.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.16
of this APPENDIX is “105.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.17Impermissible to permissible
method of accounting for depreciation or
amortization for disposed depreciable or
amortizable property.
(1)Description of change. This change
applies to a taxpayer that wants to make
the change in method of accounting for de-
preciation or amortization (depreciation)
provided under section 3 of Rev. Proc.
2007–16, 2007–4 I.R.B. 358, for an item
of depreciable or amortizable property that
has been disposed of by the taxpayer. Sec-
tion 3 of Rev. Proc. 2007–16 allows a tax-
payer to make a change in method of ac-
counting for depreciation for the disposed
property if the taxpayer used an impermis-
sible method of accounting for deprecia-
tion for the property under which the tax-
payer did not take into account any depre-
ciation allowance, ordid take into account
some depreciation but less than the depre-
ciation allowable, in the year of change (as
definedinsection6.17(4)ofthisAPPEN-
DIX) or any prior taxable year.
(2)Scope.
(a)Applicability. Except as provided in
section 6.17(2)(b) of this APPENDIX, sec-
tion 6.17 of this APPENDIX applies to a
taxpayer that is changing from an imper-
missible method of accounting for depreci-
ation to a permissible method of account-
ing for depreciation for any item of de-
preciable or amortizable property subject
to §§ 167, 168, 197, 1400I, or 1400L(c),
to former § 168, or to any additional first
year depreciation deduction provision of
the Code (for example, § 168(k), § 168(l),
§ 1400L(b), or § 1400N(d)):
(i) that has been disposed of by the tax-
payer during the year of change (as defined
in section 6.17(4) of this APPENDIX); and
(ii) for which the taxpayer did not take
into account any depreciation allowance,
or did take into account some deprecia-
tion but less than the depreciation allow-
able (hereinafter, both are referred to as
“claimed less than the depreciation allow-
able”), in the year of change (as defined in
section 6.17(4) of this APPENDIX) or any
prior taxable year.
(b)Inapplicability. Section 6.17 of this
APPENDIX does not apply to:
(i) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;
(ii) any property for which a taxpayer is
revoking a timely valid depreciation elec-
tion, or making a late depreciation elec-
tion, under the Code or regulations there-
under, or under other guidance published
in the IRB (including under § 13261(g)(2)
or (3) of the Revenue Reconciliation Act of
1993 (1993 Act), 1993–3 C.B. 1, 128 (re-
lating to amortizable § 197 intangibles));
(iii) any property for which the tax-
payer deducted the cost or other basis of
the property as an expense; or
(iv) any property disposed of by the
taxpayer in a transaction to which a non-
recognition section of the Code applies
(for example, § 1031, transactions subject
to § 168(i)(7)(B)). However, this section
6.17(2)(b)(iv) of the APPENDIX does
not apply to property disposed of by the
taxpayer in a § 1031 or § 1033 transaction
if the taxpayer elects under § 1.168(i)–6(i)
and (j) to treat the entire basis (that is,
both the exchanged and excess basis (as
September 8, 20086322008–36 I.R.B.

defined in § 1.168(i)–6(b)(7) and (8), re-
spectively) of the replacement MACRS
property (as defined in § 1.168(i)–6(b)(1))
as property placed in service by the tax-
payer at the time of replacement and treat
the adjusted depreciable basis of the relin-
quished MACRS property (as defined in
§ 1.168(i)–6(b)(2)) as being disposed of
by the taxpayer at the time of disposition.
(3)Manner of making the change.
(a)Change made on an original return
for the year of change. This change may be
made on a taxpayer’s timely filed (includ-
ing extensions) original federal tax return
for the year of change (as defined in sec-
tion 6.17(4) of this APPENDIX), provided
the taxpayer files the original Form 3115
in accordance with section 6.02(3) of this
revenue procedure.
(b)Change made on an amended return
for the year of change. This change may
also be made on an amended federal tax
return for the year of change (as defined in
section 6.17(4) of this APPENDIX), pro-
vided:
(i) the taxpayer files the original Form
3115 with the taxpayer’s amended fed-
eral tax return for the year of change (as
defined in section 6.17(4) of this AP-
PENDIX) prior to the expiration of the
period of limitation for assessment under
§ 6501(a) for the taxable year in which the
item of depreciable oramortizable prop-
erty was disposed of by the taxpayer; and
(ii) the taxpayer’s amended federal tax
return for the year of change (as defined
in section 6.17(4) of this APPENDIX) in-
cludes the adjustments to taxable income
and any collateral adjustments to taxable
income or tax liability (for example, ad-
justments to the amount or character of the
gain or loss of the disposed depreciable
or amortizable property) resulting from the
change in method of accounting for depre-
ciation made by the taxpayer under section
6.17 of this APPENDIX.
(4)Year of change. The year of change
for this change is the taxable year in which
the item of depreciable or amortizable
property was disposed of by the taxpayer.
(5)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(6)Filing requirements.Notwithstand-
ing section 6.02(3)(a) of this revenue
procedure, a taxpayer making this change
in accordance with section 6.17(3)(b) of
this APPENDIX must attach the original
Form 3115 to the taxpayer’s timely filed
amended federal tax return for the year
of change and must file the required copy
(with signature) of the Form 3115 with the
national office no later than when the orig-
inal Form 3115 is filed with the amended
federal tax return for the year of change.
If a taxpayer is making this change in
accordance with section 6.17(3)(a) of this
APPENDIX, the filing requirements in
section 6.02(3)(a) of this revenue proce-
dure apply.
(7)Section 481(a) adjustment period.
A taxpayer must take the § 481(a) adjust-
ment into account in the year of change.
(8)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.17
of this APPENDIX is “107.”Seesection
6.02(4) of this revenue procedure.
(9)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.18Depreciation of MACRS property
acquired in a like-kind exchange or as a
result of an involuntary conversion.
(1)Description of change. This change
applies to a taxpayer that wants to make a
change in method of accounting for depre-
ciation under § 168 to either:
(a) Apply the provisions of
§ 1.168(i)–6, or rely on prior guidance by
the Service for determining the deprecia-
tion deductions of replacement MACRS
property and relinquished MACRS
property, for a like-kind exchange or
an involuntary conversion of MACRS
property for which the time of disposition,
the time of replacement, or both occur on
or before February 27, 2004; or
(b) Apply § 1.168(i)–6(i)(2) to the re-
linquished property and the replacement
property for which the time of disposition,
the time of replacement, or both occur on
or before February 26, 2007, if the replace-
ment property replaces relinquished prop-
erty for which the taxpayer made a valid
election under § 168(f)(1) to exclude it
from the application of § 168.
(2)Applicability. The change in section
6.18(1)(a) of this APPENDIX applies only
if the taxpayer’s applicable federal tax re-
turn has been filed on or before February
27, 2004. The change in section 6.18(1)(b)
of this APPENDIX applies only if the tax-
payer wants to apply § 1.168(i)–6(i)(2)
and the taxpayer’s applicable federal tax
return has been filed on or before Feb-
ruary 26, 2007. For further details, see
§ 1.168(i)–6(k)(2) and (3).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.18
of this APPENDIX is “116.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.19Lessor improvements abandoned at
termination of lease.
(1)Description of change.
(a)
Applicability. This change applies
to a lessor that continued to depreciate
under § 168 an improvement described
in § 168(i)(8)(B)(i) and (ii) after the im-
provement was irrevocably disposed of or
abandoned by the lessor at the termination
of the applicable lease by the lessee and
now wants to comply with § 168(i)(8)(B)
by recognizing gain or loss upon the dis-
position or abandonment of the improve-
ment. To qualify for recognizing gain or
loss under § 168(i)(8)(B), the intent of the
lessor must be irrevocably to discard the
improvement so that it will neither be used
againbythelessornorretrievedbythe
lessor for resale, exchange, or other dispo-
sition.See§ 1.167(a)–8(a)(4).
(b)Inapplicability. This change does
not apply to:
(i) improvements disposed of or aban-
doned before June 13, 1996;
(ii) the extent § 280B applies to the de-
molition of a structure, a portion of which
may include leasehold improvements; or
(iii) improvements disposed of or aban-
doned before the termination of the appli-
cable lease.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.19
of this APPENDIX is “117.”Seesection
6.02(4) of this revenue procedure.
2008–36 I.R.B.633September 8, 2008

(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.20Repairable and reusable spare
parts.
(1)Description of change.
(a)Applicability. This change ap-
plies to a taxpayer that wants to change
from item accounting to multiple asset
accounting (pooling) for its repairable and
reusable spare parts in accordance with
section 6.20(2) of this APPENDIX or
that wants to change its method of iden-
tifying disposed repairable and reusable
spare parts to a method described in sec-
tion 6.20(3) of this APPENDIX. These
changes apply to repairable and reusable
spare parts that: are owned by the taxpayer
at the beginning of the year of change; are
used to repair equipment owned by the
taxpayer; are acquired by the taxpayer for
a specific type of equipment at the time
that the related equipment is acquired;
usually have the same useful life as the
related equipment; and have been placed
in service by the taxpayer after 1986.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that iscurrently capital-
izing and depreciating the cost of its re-
pairable and reusable spare parts and that
elected to establish general asset accounts
for the repairable and reusable spare parts;
(ii) a taxpayer that is not currently cap-
italizing and depreciating the cost of its
repairable and reusable spare parts under
§ 168 in accordance with the holdings
in Rev. Rul. 69–200, 1969–1 C.B. 60,
and Rev. Rul. 69–201, 1969–1 C.B. 60,
unless the taxpayer concurrently changes
its method to properly capitalize and de-
preciate these costs in conjunction with
a change under section 10.07 of this AP-
PENDIX. Rev. Rul. 69–200 and Rev. Rul.
69–201 hold that repairable and reusable
spare parts are tangible property for which
depreciation is allowable at the time that
the related equipment is placed in service
by the taxpayer and the method of com-
puting depreciation for the repairable and
reusable spare parts is the same method
of computing depreciation for the related
equipment;
(iii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 6.20 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
or
(iv) a taxpayer that is using an im-
permissible method of accounting for
depreciation for repairable and reusable
spare parts or for the related equipment for
which the repairable and reusable spare
parts are acquired, unless the taxpayer
concurrently changes its method to use
a permissible method of accounting for
depreciation under section 6.01 of this
APPENDIX.
(2)Establishment of pools. A taxpayer
may change from item accounting to pool-
ing for repairable and reusable spare parts
by establishing one or more pools for re-
pairable and reusable spare parts begin-
ning in the year of change. Each pool must
include only the repairable and reusable
spare parts that are placed in service by
the taxpayer in the same taxable year and
have the same: (a) asset class under Rev.
Proc. 87–56, 1987–2 C.B. 674, as clari-
fied and modified by Rev. Proc. 88–22,
1988–1 C.B. 785, (b) applicable depreci-
ation method, (c) applicable recovery pe-
riod, and (d) applicable convention. Ad-
ditionally, repairable and reusable spare
parts subject to the mid-quarter convention
may only be grouped into a pool with re-
pairable and reusable spare parts that are
placed in service in the same quarter of the
taxable year.
Further, each pool for repairable and
reusable spare parts placed in service by
the taxpayer after 1986 and before the year
of change must include a beginning bal-
ance for both the unadjusted depreciable
basis and the depreciation reserve. The be-
ginning balance for the unadjusted depre-
ciable basis of each pool is equal to the
sum of the unadjusted depreciable bases as
of the beginning of the year of change for
all repairable and reusable spare parts in-
cluded in that pool. The beginning balance
of the depreciation reserve of each pool is
equal to the sum of the greater of the de-
preciation allowed or allowable as of the
beginning of the year of change for all re-
pairable and reusable spare parts included
in that pool.
(3)Permissible methods of identifying
disposed repairable and reusable spare
parts. Beginning in the year of change,
a taxpayer may change to one of the fol-
lowing methods of accounting to identify
its disposed repairable and reusable spare
parts:
(a) Specific identification of each dis-
posed repairable and reusable spare part;
or
(b) A first-in, first-out method of ac-
counting if: (i) the taxpayer establishes
pools for repairable and reusable spare
parts in accordance with section 6.20(2)
of this APPENDIX, (ii) the repairable and
reusable spare parts are mass assets, and
(iii) the total repairable and reusable spare
parts dispositions during a particular tax-
able year are readily determined from the
taxpayer’s records but it is impracticable
for the taxpayer to maintain records from
which the taxpayer can determine the par-
ticular taxable year in which the disposed
repairable and reusable spare parts were
placed in service by the taxpayer. A tax-
payer using the first-in, first-out method of
accounting under this section 6.20(3) must
identify the repairable and reusable spare
parts disposed of in a taxable year from
the pool with the earliest placed in-service
year existing at the beginning of the tax-
able year of the disposition. For purposes
of this section 6.20(3), mass assets are a
mass or group of individual items of de-
preciable property:
(i) that are not necessarily homoge-
neous;
(ii) each of which is minor in value rela-
tive to the total value of the mass or group;
(iii) numerous in quantity;
(iv) usually accounted for only on a to-
tal dollar or quantity basis;
(v) with respect to which separate iden-
tification is impracticable; and
(vi) are placed in service by the tax-
payer in the same taxable year.
(4)Manner of making change.
(a)Establishment of pools. Because
the adjusted basis of the property is not
changed as a result of changing from
item accounting to pooling under section
6.20(2) of this APPENDIX, no items are
being duplicated or omitted. Accordingly,
a § 481(a) adjustment is neither required
nor necessary.
September 8, 20086342008–36 I.R.B.

(b)Identifying disposed repairable and
reusable spare parts. The change to a
method described in section 6.20(3) of this
APPENDIX for identifying disposed re-
pairable and reusable spare parts is made
on a cut-off basis and applies only to re-
pairable and reusable spare parts disposed
of by the taxpayer beginning in the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
(5)Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a capital-
ization and depreciation method under
section 10.07 of this APPENDIX for the
same year of change should file a single
Form 3115 for both changes and enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of
this APPENDIX (as applicable) for the
same year of change should file a single
Form 3115 for both changes and enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(c) A taxpayer that wants to make both
this change and a change to a permissible
method of accounting for depreciation
for repairable and reusable spare parts,
or for the related equipment for which
the repairable and reusable spare parts
are acquired, under section 6.01 of this
APPENDIX for the same year of change
should file a single Form 3115 for both
changes and enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line
on that Form 3115.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.20
of this APPENDIX is “118.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.21Land.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from de-
preciating land to notdepreciating land or
wants to change from depreciating a non-
depreciable land improvement to not de-
preciating a nondepreciable land improve-
ment. This change applies to any land or
nondepreciable land improvement that is
owned by the taxpayer at the beginning of
the year of change.
(b)Inapplicability. This change does
not apply to:
(i) any depreciable land improvement;
or
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 6.21 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
atelineonthatForm3115.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of account-
ingundersection6.21ofthisAPPENDIX
is “119.”Seesection 6.02(4) of this rev-
enue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.22Kansas additional first year depre-
ciation.
(1)Description of change.
(a)In general. This change applies to
a taxpayer that wants to make a change in
method of accounting for depreciation for
qualified Recovery Assistance (RA) prop-
erty placed in service by the taxpayer on or
after May 5, 2007, during the taxable year
that includes May 5, 2007, to claim the
Kansas additional first year depreciation
deduction for a class of property for which
the taxpayer did not claim the Kansas ad-
ditional first year depreciation deduction
on the taxpayer’s timely filed federal tax
return for the taxable year that includes
May 5, 2007, provided the taxpayer did not
make an election not to deduct the Kansas
additional first year depreciation for the
class of property pursuant to section 4.03
of Notice 2008–67, 2008–32 I.R.B 307.
For further details, see section 3.03 of No-
tice 2008–67
(b)Return for the first taxable year suc-
ceeding the taxable year that includes May
5, 2007, not filed on or before August 11,
2008. If, on or before August 11, 2008,
the taxpayer did not file its federal tax re-
turn for the first taxable year succeeding
the taxable year that includes May 5, 2007,
and the taxpayer owns the property as of
the first day of this taxable year, the tax-
payer may file Form 3115 to make the
change in method of accounting under sec-
tion 6.22 of this APPENDIX with the tax-
payer’s timely filed federal tax return for
the first taxable year succeeding the tax-
able year that includes May 5, 2007.
(c)Return for the first taxable year suc-
ceeding the taxable year that includes May
5, 2007, filed on or before August 11, 2008.
If on or before August 11, 2008, the tax-
payer filed its federal tax return for the
first taxable year succeeding the taxable
year that includes May 5, 2007, the tax-
payer may make the change in method of
accounting under section 6.22 of this AP-
PENDIX either by:
(i) Filing an amended federal tax return
(or a qualified amended return) on or be-
fore December 31, 2009, for the first tax-
able year succeeding the taxable year that
includes May 5, 2007, attaching a Form
3115 to the amended federal tax return,
and including the statement “Filed Pur-
suant to Notice 2008–67” at the top of any
amended return (or qualified amended re-
turn); or
(ii) Filing a Form 3115 with the tax-
payer’s timely filed federal tax return for
the second taxable year succeeding the tax-
able year that includes May 5, 2007, if the
taxpayer owns the property as of the first
day of this taxable year.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
2008–36 I.R.B.635September 8, 2008

revenue procedure do not apply to this
change.
(3)Designated automatic accounting
method change. The designated automatic
accounting method change number for a
change under section 6.22 of this APPEN-
DIX is “115.”Seesection 6.02(4) of this
revenue procedure.
(4)Contact Information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
SECTION 7. RESEARCH AND
EXPERIMENTAL EXPENDITURES
(§ 174)
.01Changes to a different method or
different amortization period.
(1)Description of change.
(a) This change applies to a taxpayer
that wants to change the treatment of ex-
penditures that qualify as research and ex-
perimental expenditures under § 174.
(b) Section 174 and the regulations
thereunder provide the specific rules for
changing a method of accounting un-
der § 174 for research and experimental
expenditures. Under § 174, a taxpayer
may treat research and experimental ex-
penditures that are paid or incurred by
the taxpayer during the taxable year in
connection with the taxpayer’s trade or
business as expenses under § 174(a) or
as deferred expenses amortizable ratably
over a period of not less than 60 months
under § 174(b). Pursuant to § 1.174–1,
research and experimental expenditures
that are not treated as expenses or deferred
expenses under § 174 must be treated as
capital expenditures. Further, § 1.174–1
provides that the expenditures to which
§ 174 applies may relate either to a general
research program or to a particular project.
(c) If a taxpayer has not treated re-
search and experimental expenditures as
expenses under § 174(a), § 174(a)(2)(B)
and § 1.174–3(b)(2) provide that the tax-
payer may, with consent, adopt the ex-
pense method at any time.
(d) If a taxpayer has treated research
and experimental expenditures as ex-
penses under § 174(a), § 174(a)(3) and
§ 1.174–3(b)(3) provide that the taxpayer
may, with consent, change to a different
method of treating research and experi-
mental expenditures.
(e) If a taxpayer has treated research
and experimental expendituresasdeferred
expenses under § 174(b), § 174(b)(2) and
§ 1.174–4(b)(2) provide that the taxpayer
may, with consent, change to a different
method of treating research or experimen-
tal expenditures or to adifferent period of
amortization for deferred expenses.
(2)Scope.
(a)Applicability. This change applies
to any taxpayer that is changing:
(i) from treating research and ex-
perimental expenditures for a particular
project or projects as expenses under
§ 174(a) to treating such expenditures as
deferred expenses under § 174(b), orvice
versa;
(ii) to a different period of amortiza-
tion for research and experimental expen-
ditures for a particular project or projects
that are being treated as deferred expenses
under § 174(b); or
(iii) from treating research and ex-
perimental expenditures for a particular
project or projects as expenses under
§ 174(a) or deferred expenses under
§174(b)totreatingsuchexpendituresasa
capital expenditure under § 263(a), orvice
versa.
(b)Inapplicability. This change does
not apply to:
(i) a portion of the research and ex-
perimental expenditures paid or incurred
for a particular project during the year
of change or in subsequent taxable years
(that is, the change must apply to all of
such expenditures;see§§1.174–3(a) and
1.174–4(a)(5));
(ii) a change in the treatment of com-
puter software costs under Rev. Proc.
2000–50, 2000–2 C.B. 601, as modified
by Rev. Proc. 2007–16, 2007–4 I.R.B.
358(butseesection9ofthisAPPENDIX
for making that change); or
(iii) a change in the treatment of Year
2000 costs under Rev. Proc. 97–50,
1997–2 C.B. 525 (but see section 9.02 of
this APPENDIX for making that change).
(3)Scope limitations clarified.The
scope limitation under section 4.02(7) of
this revenue procedure is applied on a
project by project basis.
(4)Manner of making change.
(a) This change is made on a cut-off ba-
sis and applies to all research and exper-
imental expenditures paid or incurred for
a particular project or projects on or af-
ter the beginning of the year of change.
See section 2.06 of this revenue proce-
dure and § 174(b)(2), and §§ 1.174–3(a),
1.174–3(b)(2), and 1.174–4(a)(5) for more
information regarding a cut-off basis. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.
(b) The requirement under
§§ 1.174–3(b)(2), 1.174–3(b)(3), and
1.174–4(b)(2) to file an application no
later than the end of the first taxable
year in which the different method or
different amortization period is to be used
is waived for this change. However, see
section 6 of this revenue procedure for
filing requirements applicable under this
revenue procedure.
(c) The consent granted under this
revenue procedure satisfies the consent
required under §§ 174(a)(2)(B), 174(a)(3),
and 174(b)(2), and §§ 1.174–3(b)(2),
1.174–3(b)(3), and 1.174–4(b)(2).
(5)Additional requirement. A taxpayer
must attach to its Form 3115 a written
statement providing:
(a) the information required in
§ 1.174–3(b)(2) if the taxpayer is chang-
ing to treating research and experimental
expenditures as expenses under § 174(a);
(b) the information required in
§ 1.174–3(b)(3) if the taxpayer is changing
from treating research and experimental
expenditures as expenses under § 174(a);
or
(c) the information required in
§ 1.174–4(b)(2) if the taxpayer is changing
from treating research and experimental
expenditures as deferred expenses under
§ 174(b) or is changing to a different
period of amortization for research and
experimental expenditures being treated
as deferred expenses under § 174(b).
(6)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nection with this change.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 7.01
of this APPENDIX is “17.”Seesection
6.02(4) of this revenue procedure.
(8)Contact information. For further
information regarding a change under
this section, contactGrant Anderson at
202–622–4930 (not a toll-free call).
September 8, 20086362008–36 I.R.B.

.02Reserved.
SECTION 8. ELECTIVE EXPENSING
PROVISIONS (§§ 179B(a), 181, and
194(b))
.01Treatment of qualified film and tele-
vision productions.
(1)Description of change. This change
applies to a taxpayer that wants to elect
under § 181 to treat the production costs
(as defined in § 1.181–1T(a)(3)) of any
qualified film or television production (as
defined in § 181(d) and § 1.181–3T) as an
expense that is not chargeable to a capital
account and to deduct the cost.
(2)Scope.
(a)Applicability. This change in
method of accounting applies to:
(i) A qualified film or television pro-
duction commencing after October 22,
2004, and before January 1, 2009. A
production commences when principal
photography begins with respect to the
production; and
(ii) A taxpayer that, before June 15,
2006, filed its federaltax return for the tax-
able year in which production costs were
first paid or incurred, and that wants to
make a § 181 election for that taxable year.
(b)Inapplicability. This change does
not apply to:
(i) Any qualified film or television
production, the production cost of which
exceeds $15,000,000 (or $20,000,000 for
the areas specified in § 181(a)(2)(B)). See
§ 1.181–1T(b) for further guidance; or
(ii) A taxpayer that made the § 181
election for the taxable year in which the
production costs were first paid or in-
curred by filing an amended federal tax
return for that taxable year, and all sub-
sequent affected taxable year(s), on or
before November 15, 2006.
(3)Time for making the change.The
change in methodof accounting under
section8.01ofthisAPPENDIXmustbe
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure are not applicable to
this change.
(5)Additional requirements.
(a) The change in accounting method
results in items being omitted or duplicated
and thus, an adjustment under § 481(a)
must be computed; and
(b) The statement and information ref-
erenced in § 1.181–2T(e)(3) must be at-
tached to the Form 3115.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.01
of this APPENDIX is “100.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.02Expensing of certain reforestation
expenditures.
(1)Description of change. This change
applies to a taxpayer that wants to elect,
under § 194(b), to treat up to $10,000 of
reforestation expenditures with respect to
any qualified timberproperty as an ex-
pense that is not chargeable to a capital ac-
count and to deduct those expenditures in
the year paid or incurred under § 194(b).
The remainder of the reforestation expen-
ditures for the year may be amortized over
84 months under § 194(a).
(2)Scope.
(a)Applicability. This change in ac-
counting method applies to:
(i) Reforestation expenditures paid or
incurred after October 22, 2004, with re-
spect to qualified timber property; and
(ii) A taxpayer that, before June 15,
2006, filed its federal tax return for a tax-
able year ending after October 22, 2004,
in which reforestation expenditures were
paid or incurred after October 22, 2004,
with respect to qualified timber property,
and that wants to make a § 194(b) election
for the reforestation expenditures paid or
incurred during that taxable year.
(b)Inapplicability. This change does
not apply to:
(i) Reforestation expenditures paid or
incurred on or before October 22, 2004; or
(ii) A taxpayer that made the § 194(b)
election for the taxable year in which re-
forestation expenditures were paid or in-
curred after October 22, 2004, with respect
to qualified timber property, by filing an
amended federal tax return for that taxable
year, and all subsequent affected taxable
year(s), on or before November 15, 2006.
(3)Time for making the change.The
change in method of accounting under
section 8.02 of this APPENDIX must be
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(5)Additional requirements.
(a) The guidance about creating and
maintaining separate timber accounts for
each qualified timber property referenced
in section C.2. of Notice 2006–47, 2006–1
C.B. 892, 895, must be followed.
(b) The statement required underIn-
terim Rulesin section C.2. of Notice
2006–47, 2006–1 C.B. 892, 896, must be
attached to the Form 3115.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.02
of this APPENDIX is “101.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under this
section, contact Jennifer Bernardini at
202–622–3110 (not a toll-free call).
.03Deduction for capital costs incurred
in complying with Environmental Protec-
tion Agency sulfur regulations.
(1)Description of change. This change
applies to a small business refiner (as de-
fined in § 45H(c)(1)) that wants to elect
under § 179B(a) to deduct 75 percent of
the qualified capital costs (as defined in
§ 45H(c)(2)) that are paid or incurred by
the taxpayer during the taxable year.
(2)Scope.
(a)Applicability. This change in ac-
counting method applies to a small busi-
ness refiner that, before June 15, 2006,
filed its federal tax return for a taxable
year ending after December 31, 2002, in
which qualified capital costs were paid or
incurred after December 31, 2002, and that
wants to make a § 179B(a) election for all
qualified capital costs paid or incurred dur-
ing that taxable year.
(b)Inapplicability. This change does
not apply to:
2008–36 I.R.B.637September 8, 2008

(i) Qualified capital costs paid or in-
curred on or before December 31, 2002;
(ii) A taxpayer that made the § 179B(a)
election for a taxable year ending after De-
cember 31, 2002, in which qualified cap-
ital costs were paid or incurred after De-
cember 31, 2002, by filing an amended
federal tax return for that taxable year, and
all subsequent affected taxable year(s), on
or before November 15, 2006; or
(iii) The election under § 179B(e).
(3)Time for making the change.The
change in methodof accounting under
section8.03ofthisAPPENDIXmustbe
made for the taxpayer’s first or second
taxable year ending on or after December
31, 2005.
(4)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(5)Additional requirements.
(a) The change in accounting method
results in items being omitted or duplicated
and thus, an adjustment under § 481(a)
must be computed;
(b) The statement required under the
Interim Rulesin section C.3. of Notice
2006–47, 2006–1 C.B. 892, 897, must be
attached to the Form 3115; and
(c) The basis of any property must
be reduced by the portion of the cost of
the property taken into account under the
§ 179B(a) election.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 8.03
of this APPENDIX is “102.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Nicole Cimino at
202–622–3110 (not a toll-free call).
SECTION 9. COMPUTER SOFTWARE
EXPENDITURES (§§ 162, 167, and 197)
.01Computer software expenditures.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the costs of
computer software to a method described
in Rev. Proc. 2000–50, 2000–2 C.B.
601, as modified by Rev. Proc. 2007–16,
2007–4 I.R.B. 358. Section 5 of Rev. Proc.
2000–50 describes the methods applicable
to the costs of developing computer soft-
ware. Section 6 of Rev. Proc. 2000–50 de-
scribes 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. If a taxpayer treats the
costs of computer software in accordance
with the applicable method described in
Rev. Proc. 2000–50, the Service will not
disturb the taxpayer’s treatment of its costs
of computer software.
(2)Scope. This change applies to all
costs of computer software as defined in
section 2 of Rev. Proc. 2000–50. How-
ever, this change does not apply to any
computer software that is subject to amor-
tization as an “amortizable section 197 in-
tangible” as defined in § 197(c) and the
regulations thereunder, or to costs that a
taxpayer has treated as research and exper-
imentation expenditures under § 174.
(3)Statement required. If a taxpayer
is changing to the method described in
section 5.01(2) of Rev. Proc. 2000–50,
the taxpayer must attach to its Form 3115
a statement providing the information re-
quired in section 8.02(2) of Rev. Proc.
2000–50.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 9.01
of this APPENDIX is “18.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02Year 2000 costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for Year 2000
costs (as defined in Rev. Proc. 97–50,
1997–2 C.B. 525, as modified by Rev.
Proc. 2000–50, 2000–2 C.B. 601, as mod-
ified by Rev. Proc. 2007–16, 2007–4
I.R.B. 358) to conform to the method de-
scribed in section 3 of Rev. Proc. 97–50.
Section 3 of Rev. Proc. 97–50 pro-
vides that Year 2000 costs fall within the
purview of Rev. Proc. 69–21, 1969–2 C.B.
303, superseded by Rev. Proc. 2000–50,
as modified by Rev. Proc. 2007–16, and
that the Service will not disturb a tax-
payer’s treatment of its Year 2000 costs
as deductible expenses or capital expendi-
tures if the taxpayer treats these costs in
accordance with Rev. Proc. 2000–50.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 9.02
of this APPENDIX is “120.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
SECTION 10. CAPITAL
EXPENDITURES (§ 263)
.01Package design costs.
(1)Description of change.
(a)
Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package de-
sign costs that are within the scope of
Rev. Proc. 97–35, 1997–2 C.B. 448, as
modified by Rev. Proc. 98–39, 1998–1
C.B. 1320, to one of the three alternative
methods of accounting for package design
costs described in section 5 of Rev. Proc.
97–35. The three alternative methods of
accounting for package design costs de-
scribed are: (i) the capitalization method,
(ii) the design-by-design capitalization
and 60-month amortization method, and
(iii) the pool-of-cost capitalization and
48-month amortization method.
(b)Inapplicability. This change does
not apply to a taxpayer that wants to
change to the capitalization method for
costs of developing (or modifying) any
package design that has an ascertainable
useful life.
(2)Additional requirements.Ifatax-
payer is changing its method of account-
ing for package design costs to the capi-
talization method or the design-by-design
capitalization and 60-month amortization
method, the taxpayer must attach a state-
ment to its timely filed Form 3115. The
statement must provide a description of
each package design, the date on which
each was placed in service, and the cost ba-
sis of each (as determined under sections
5.01(2) or 5.02(2) of Rev. Proc. 97–35).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
September 8, 20086382008–36 I.R.B.

number for a change under section 10.01
of this APPENDIX is “19.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.02Line pack gas or cushion gas.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for line pack gas
or cushion gas to a method consistent with
the holding in Rev. Rul. 97–54, 1997–2
C.B. 23. Rev. Rul. 97–54 holds that the
cost of line pack gas or cushion gas is a
capital expenditure under § 263, the cost
of recoverable line pack gas or recover-
able cushion gas is not depreciable, and the
cost of unrecoverable line pack gas or un-
recoverable cushion gas is depreciable un-
der §§ 167 and 168.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for unrecoverable line pack gas or
unrecoverable cushion gas under section
10.02 of this APPENDIX must change to
a permissible method of accounting for
depreciation for the cost of that gas.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.02
of this APPENDIX is “20.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.03Removal costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for certain costs
incurred in the retirement and removal of
depreciable assets to conform with Rev.
Rul. 2000–7, 2000–1 C.B. 712.
(2)Additional requirements.
(a) Except for assets for which depre-
ciation is determined in accordance with
§ 1.167(a)–11 (ADR), the taxpayer’s new
method of treating removal costs for assets
accounted for in a multiple asset account
must be consistent with the taxpayer’s
method of treating salvage proceeds.See
Rev. Rul. 74–455, 1974–2 C.B. 63. (See
section6.02oftheAPPENDIXofthis
revenue procedure for changing a tax-
payer’s present method of treating salvage
proceeds.)
(b) If this change involves assets
that are public utility property within
the meaning of § 168(i)(10) or former
§ 167(l)(3)(A), the taxpayer must comply
with the terms and conditions in section
6.01(3)(b)(v) of this APPENDIX.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.03
of this APPENDIX is “21.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.04Distributor commissions.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from
currently deducting distributor commis-
sions (as defined by section 2 of Rev. Proc.
2000–38, 2000–2 C.B. 310, as modified
by Rev. Proc. 2007–16, 2007–4 I.R.B.
358) to a method of capitalizing and amor-
tizing distributor commissions using the
distribution fee period method, the 5-year
method, or the useful life method (all de-
scribed in Rev. Proc. 2000–38).
(b)Inapplicability. This change does
notapplytoanamortizablesection197in-
tangible (including any property for which
a timely election under § 13261(g)(2) of
the Revenue Reconciliation Act of 1993,
1993–3 C.B. 1, 128, was made).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to distributor commissions paid
or incurred on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.04
of this APPENDIX is “47.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information
. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.05Intangibles.
(1)Description of change. This change
applies to a taxpayer that wants to change
its treatment of an item to a method of
accounting permitted by §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b). See Rev.
Proc. 2006–12, 2006–1 C.B. 310, as mod-
ified by Rev. Proc. 2006–37, 2006–2 C.B.
499, for the specific requirements, infor-
mation, and documentation required for
this change.
(2)Prior unauthorized change in
method of accounting. In certain circum-
stances, a taxpayer that made an unautho-
rized change in method of accounting for
an item the treatment of which is provided
for in §§ 1.263(a)–4, 1.263(a)–5, and
1.167(a)–3(b) is eligible for this change
only if the taxpayer amends prior federal
income tax returns to correct the unautho-
rized change in method of accounting.See
section 4.03 of Rev. Proc. 2006–12 for
details.
(3)Scope limitations. The 5-year prior
change scope limitation in section 4.02(7)
of this revenue procedure is modified for
this change in that the taxpayer does not
take into account a change in method of
accounting provided in §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b) requested
or made for a tax year ending on or before
December 31, 2005.
(4)Section 481(a) adjustment.Incom-
puting the § 481(a) adjustment for this
change, the taxpayer takes into account
only amounts paid or incurred in taxable
years ending on or after January 24, 2002.
See section 5 of Rev. Proc. 2006–12 for
detailed rules for computing the § 481(a)
adjustment and reporting it on Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.05
of this APPENDIX is “78.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
2008–36 I.R.B.639September 8, 2008

.06Rotable spare parts.
(1)Description of change.This change
applies to a taxpayer that maintains a pool
or pools of rotable spare parts that are
primarily used to repair customer-owned
(or customer-leased) equipment under
warranty or maintenance agreements, and
wants to change its method of account-
ing for the rotable spare parts to the safe
harbor method of accounting provided in
Rev. Proc. 2007–48, 2007–29 I.R.B. 110.
The taxpayer must meet the requirements
in section 4.01 of Rev. Proc. 2007–48 to
use this safe harbor method of accounting.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to a tax-
payer that wants to make the change in
method of accounting forits first or second
taxable year ending on or after December
31, 2006, provided the taxpayer’s method
of accounting for rotable spare parts is not
an issue under consideration for taxable
years under examination, within the mean-
ing of section 3.09 of this revenue proce-
dure, at the time the Form 3115 is filed
with the national office.
(3)Change from safe harbor method.
A taxpayer that is required to change its
method of accounting from the safe harbor
method under section 5.06 of Rev. Proc.
2007–48, must make the change under sec-
tion 21.09 of this APPENDIX.
(4)Designated automatic accounting
method change number.The designated
automatic accounting method change
number for a change under section 10.06
of this APPENDIX is “109.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.07Repairable and reusable spare
parts.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change its
method of accounting to treat repairable
and reusable spare parts as depreciable
property to conform with the holdings in
Rev. Rul. 69–200, 1969–1 C.B. 60, and
Rev. Rul. 69–201, 1969–1 C.B. 60. This
change applies to repairable and reusable
spare parts that: are owned by the taxpayer
at the beginning of the year of change; are
used to repair equipment owned by the
taxpayer; are acquired by the taxpayer for
a specific type of equipment at the time
that the related equipment is acquired;
usually have the same useful life as the
related equipment; and have been placed
in service by the taxpayer after 1986. A
taxpayer making a change in method of
accounting under this section 10.07 of
the APPENDIX may treat its repairable
and reusable spare parts as tangible prop-
erty for which depreciation is allowable
at the time that the related equipment is
placed in service by the taxpayer. The
method of computing depreciation for the
repairable and reusable spare parts is the
same method of computing depreciation
for the related equipment.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that is currently capital-
izing and depreciating the cost of its re-
pairable and reusable spare parts, or that
is currently capitalizing the cost of its re-
pairable and reusable spare parts and treat-
ing these parts as nondepreciable property
(but see section 6.01 of this APPENDIX
for making a change from an impermissi-
ble to a permissible method of accounting
for depreciation);
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 10.07 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
or
(iii) a taxpayer that is using an imper-
missible method of accounting for depre-
ciation for the related equipment for which
the repairable and reusable spare parts are
acquired, unless the taxpayer concurrently
changes its method to use a permissible
method of accounting for depreciation un-
der section 6 of this APPENDIX.
(2)Additional requirements. In addi-
tion to the other filing requirements of this
revenue procedure, to change a method
of accounting under this section 10.07 of
the APPENDIX, a taxpayer must complete
Schedule E of Form 3115 for the repairable
and reusable spare parts and also provide
and attach the following to the completed
application:
(a) A description of the repairable and
reusable spare parts;
(b) A list of related equipment for which
the repairable and reusable spare parts are
acquired; and
(c) A complete description of the
method of computing depreciation (e.g.,
depreciation method, recovery period,
convention, and applicable asset class un-
der Rev. Proc. 87–56, 1987–2 C.B. 674,
as clarified and modified by Rev. Proc.
88–22, 1988–1 C.B. 785) that the taxpayer
uses for the related equipment for which
the repairable and reusable spare parts are
acquired.
(3)Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of
this APPENDIX (as applicable) for the
same year of change should file a single
Form 3115 for both changes and enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(b) A taxpayer that wants to make both
this change and a change to a permissi-
ble method of accounting for depreciation
for repairable and reusable spare parts, or
for the related equipment for which the re-
pairable and reusable spare parts are ac-
quired, under section 6 of this APPEN-
DIX (as applicable) for the same year of
change should file a single Form 3115 for
both changes and enter the designated au-
tomatic accounting method change num-
bers for both changes on the appropriate
line on that Form 3115.
(c) A taxpayer that makes this change
also may establish pools for the repairable
and reusable spare parts or may identify
disposed repairable and reusable spare
parts in accordance with section 6.20 of
this APPENDIX. A taxpayer that wants
to make both this change and the change
under section 6.20 of this APPENDIX
for the same year of change should file
a single Form 3115 for both changes and
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.07
September 8, 20086402008–36 I.R.B.

of this APPENDIX is “121”.Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
SECTION 11. UNIFORM
CAPITALIZATION (UNICAP)
METHODS (§ 263A)
.01Certain uniform capitalization
(UNICAP) methods used by resellers and
reseller-producers.
(1)Description of change.
(a)Applicability. This change applies
to:
(i) a small reseller of personal prop-
erty that wants to change from a permissi-
ble UNICAP method to a permissible non-
UNICAP inventory capitalization method
in any taxable year that it qualifies as a
small reseller;
(ii) a formerly small reseller that
wants to change from a permissible
non-UNICAP inventory capitalization
method to a permissible UNICAP method
in the first taxable year that it does not
qualify as a small reseller;
(iii) a reseller-producer that wants
to change from a permissible UNICAP
method for both its production and resale
activities to a permissible simplified resale
method described in § 1.263A–3(d)(3)
in any taxable year that it qualifies to
use a simplified resale method for both
its production and resale activities under
§ 1.263A–3(a)(4) (resellers withde min-
imisproduction activities);
(iv) a reseller-producer that wants to
change from a permissible simplified re-
sale method described in § 1.263A–3(d)(3)
for both its production and resale activities
to a permissible UNICAP method for both
its production and resale activities in the
first taxable year that it does not qualify
to use a simplified resale method for both
its production and resale activities under
§ 1.263A–3(a)(4);
(v) a reseller that wants to change its
permissible UNICAP method to include a
special reseller cost allocation rule; or
(vi) a reseller that wants to change to
a UNICAP method (or methods) specif-
ically described in the regulations (and
make any attendant changes in the iden-
tification of costs subject to § 263A and
including any special reseller cost allo-
cation rules) in any taxable year, other
than the first taxable year, that it does not
qualify as a small reseller. However, this
does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (orvice versa)
under the simplified resale method.
(b)Inapplicability.
(i)Self-constructed assets.This
change does not apply to a taxpayer
that wants to use either the simplified
service cost method or the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D) and
1.263A–2(b)(2)(i)(D).
(ii)Historic absorption ratio.This
change does not apply to a taxpayer that
wants to make an historic absorption
ratio election under §§ 1.263A–2(b)(4)
or 1.263A–3(d)(4), or to a taxpayer
that wants to revoke an election to
use the historic adsorption ratio with
the simplified resale method (see
§ 1.263A–3(d)(4)(iii)(B)), including a tax-
payer using the simplified resale method
with an historic adsorption ratio that wants
to change to a UNICAP method specif-
ically described in the regulations that
does not include the historic absorption
ratio. However, this change applies to a
small reseller that wants to change from
the historic absorption ratio with the sim-
plified resale method to a permissible
non-UNICAP inventory capitalization
method under section 11.01(1)(a)(i) of this
APPENDIX.
(c)Scope limitations inapplicable.The
scope limitations of section 4.02 of this
revenue procedure do not apply to this
change.
(2)Definitions.
(a) “Reseller” means a taxpayer that ac-
quires real or personal property described
in § 1221(a)(1) for resale.
(b) “Small reseller” means a reseller
whose average annual gross receipts for
the three immediately preceding taxable
years (or fewer, if the taxpayer has not
been in existence for the three preceding
taxable years) do not exceed $10,000,000.
See§ 263A(b)(2)(B).
(c) “Formerly small reseller” means a
reseller that no longer qualifies as a small
reseller.
(d) “Producer” means a taxpayer that
produces real or tangible personal prop-
erty.
(e) “Reseller-producer” means a tax-
payer that is both a producer and a reseller.
(f) “Permissible UNICAP method”
means a method of capitalizing costs that
is permissible under § 263A.
(g) “A UNICAP method specifically
described in the regulations” includes the
simplified service cost method using a la-
bor-based allocation ratio (§ 1.263A–1(h))
and the simplified resale method with-
out an historic absorption ratio election
(§ 1.263A–3(d)), but does not include any
other reasonable allocation method within
the meaning of § 1.263A–1(f)(4).
(h) “Special reseller cost alloca-
tion rule” means the 90–10de minimis
rule to allocate a mixed service de-
partment’s costs to property acquired
for resale (§ 1.263A–1(g)(4)(ii)), the
1
/3—
2
/3rule to allocate labor costs
of personnel to purchasing activities
(§ 1.263A–3(c)(3)(ii)(A)), and the 90–10
de minimisrule to allocate a dual-function
storage facility’s coststo property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)).
(i) “Permissible non-UNICAP in-
ventory capitalization method” means a
method of capitalizing inventory costs that
is permissible under § 471.
(3)Section 481(a) adjustment pe-
riod. Beginning with the year of change,
a taxpayer changing its method of ac-
counting for costs pursuant to sec-
tions 11.01(1)(a)(i), 11.01(1)(a)(iii), or
11.01(1)(a)(iv) of this APPENDIX gener-
ally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over the same number of
taxable years, not to exceed four, that the
taxpayer used its former method of ac-
counting. A taxpayer changing its method
of accounting for costs pursuant to sec-
tions 11.01(1)(a)(ii), 11.01(1)(a)(v) or
11.01(1)(a)(vi) of this APPENDIX gener-
ally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over four taxable years.
Seesection 5.04(3) of this revenue proce-
dure for exceptions to this general rule.
(4)Multiple changes. A taxpayer that
wants to make both this change and an-
other change in method of accounting for
the same year of change must comply with
the ordering rules of § 1.263A–7(b)(2).
2008–36 I.R.B.641September 8, 2008

(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.01
of this APPENDIX is “22.”Seesection
6.02(4) of this revenue procedure.
(6)Example. The following example
illustrates the principles of section 11.01
of this APPENDIX for small resellers and
formerly small resellers.
AssumeX, a corporate reseller of personal prop-
erty, incorporated January 2, 2001, adopted a taxable
year ending December 31.Xdetermines that its aver-
age annual gross receipts for the three taxable years
(or fewer, if applicable) immediately preceding tax-
able years 2001 through 2010 are as shown in the ta-
ble below:
Current
Taxable
Year
AVERAGE Annual Gross
Receipts for the Three Taxable
Years Immediately Preceding the
Current Taxable Year
2001
$0
2002
5,000,000
20036,000,000
20047,000,000
2005
11,000,000
200611,000,000
20079,000,000
20088,000,000
200911,000,000
201012,000,000
Furthermore,Xwhich adopted the dollar-value
LIFO inven
tory method, has the following LIFO in-
ventory balances determined without considering the
effects of
the UNICAP method:
B
eginningEnding
2005
$1,000,000$1,100,000
20061,100,0001,200,000
20071,200,0001,300,000
20081,300,00
0
1,400,00
0
20091,400,000
1,500,00
0
2010
1,500,000
1,600,000
Xwas required by § 263A to change to the
UNICAP method for 2005 because its average annual
gross re
ceipts for the three taxable years immediately
preceding 2005 were $11,000,000, which exceeded
the $10,000,000 ceiling permitted by the small
resell
er exception. Assume thatXwas required to
capitalize $80,000 of “additional § 263A costs” to
the cost of its 2005 beginning inventory because
of this change in inventory method. In addition,X
was required to include one-fourth of the § 481(a)
adjustm
ent when computing taxable income for each
of the four taxable years beginning with 2005. Thus,
Xwas required to include a $20,000 positive § 481(a)
adjust
ment in its 2005 taxable income.
Xelected to use the simplified resale method
without an historic absorption ratio election under
§ 1.263A–3(d)(3) for determining the amount of ad-
ditional § 263A costs to be capitalized to each LIFO
layer. A
ssume thatXwas required to add $10,000
of additional § 263A costs to the cost of its 2005
ending inventory because ofthe $100,000 increment
for 200
5.
X’s 2005 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,000,000
2005 Increment
100,000
Additi
onal § 263A Costs in Beginning Inventory
80,000
Addit
ional § 263A Costs in 2005 Increment
1
0,000
Total 2005 Ending Inventory
$1,19
0,000
X’s Un
amortized 2005 § 481(a) Adjustment:
2005 § 481(a) Adjustment
$80,0
00
Amount included in 2005 Taxable Income
<
20,0
00>
Unam
ortized 2005 § 481(a) Adjustment–12/31/05
$60,000
BecauseXfailed to satisfy the small reseller ex-
ception for 2006,Xwas required to continue using
the UNICAP method for its inventory costs. Further-
more,Xwas required to include $20,000 of the un-
amortized 2005 positive § 481(a) adjustment in 2006
taxable income. Assume thatXwas required to add
$10,000 of additional § 263A costs to the cost of its
2006 ending inventory because of the $100,000 in-
crement for 2006.
September 8, 20086422008–36 I.R.B.

X’s 2006 Ending Inventory:
Beginning Inventory (With UNICAP costs)
$1,190,000
2006 Increment100,000
Additional § 263A Costs in 2006 Increment1
0,000
Total 2006 Ending Inventory
$1,300,000
X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/05
$60,000
Amount Included in 2006 Taxable Income<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/31/06
$40,000
BecauseXsatisfies the small reseller excep-
tion for 2007,Xmay change voluntarily from the
UNICAP meth
od to a permissible non-UNICAP
inventory capitalization method under section 11.01
of this APPENDIX. To reflect the removal of the
additional § 263A costs from the cost of its 2007 be-
ginning inventory,Xmust compute a corresponding
§481(a)adj
ustment, which is a negative $100,000
($1,200,000 - $1,300,000). The entire amount of
this negative § 481(a) adjustment is included in the
computation ofX’s taxable income for 2007. In
addition,Xmust include $20,000 of the unamortized
2005 § 481(a
) adjustment in 2007 taxable income.
X’s 2007 End
ing Inventory:
Beginning Inventory (With UNICAP costs)
$1,300,000
2007 Increm
ent
100,000
2007 § 481(a) Adjustment <Negative><
100,000>
Total 2007 Ending Inventory
$1,300,00
0
X’s Unamor
tized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–2/31/06
$40,000
Amount inc
luded in 2007 Taxable Income
<
20,000>
Unamorti
zed 2005 § 481(a) Adjustment–12/21/07
$20,000
X’s Unamortized 2007 § 481(a) Adjustment:
2007 § 481(a) Adjustment <Negative>
$<100,000>
Amount included in 2007 Taxable Income1
00,000
Unamortized 2007 § 481(a) Adjustment–12/31/07
$0
Xalso satisfies the small reseller exception for
2008 and, therefore, is not required to return to the
UNICAP method for 2008.X, however, must include $20,000 of the unamortized 2005 positive § 481(a)
adjustment in its 2008 taxable income.
X’s 2008 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,300,000
2008 Increment100,000
Total 2008 Ending Inventory
$1,400,000
X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/07
$20,000
Amount in 2008 Taxable Income<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/31/08
$0
X’s Unamortized 2009 § 481(a) Adjustment:
In 2009,Xfails to satisfy the small reseller ex-
ceptionand,therefore,mustreturntotheUNICAP
meth
od as provided under section 11.01 of this AP-
PENDIX.Xchanges to the simplified resale method
without a historic absorption ratio election under
§1.2
63A–3(d)(3). Assume thatXmust capitalize
$120,000 of additional § 263A costs to the cost of its
2009 beginning inventory because of this change in
inve
ntory method. BecauseXused a non-UNICAP
method for two taxable years prior to 2009, the § 481
spread period for the positive §481(a) adjustment is
two y
ears. Therefore,Xmust include one-half of
the § 481(a) adjustment ($60,000) when computing
taxable income for 2009 and 2010. Assume that
Xmus
t add $10,000 of additional § 263A costs to
the cost of its 2009 ending inventory because of the
$100,000 increment for 2009.
2008–36 I.R.B.643September 8, 2008

X’s 2009 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,400,000
2009 Increment100,000
Additional § 263A costs in Beginning Inventory120,000
Additional § 263A costs in 2009 Increment1
0,000
Total 2009 Ending Inventory
$1,630,000
X’s Unamortized 2009 § 481(a) Adjustment:
2009 § 481 Adjustment
$120,000
Amount included in 2009 Taxable Income<
60,000>
Unamortized 2009 § 481(a) Adjustment–12/31/09
$60,000
BecauseXfails to satisfy the small reseller ex-
ception for 2010,Xmust continue using the UNICAP
method for its inventory costs. Furthermore,Xis re-
quired to include $60,000 of the unamortized 2009
positive § 481(a) adjustment in 2010 taxable income.
Assume thatXis required to add $10,000 of addi-
tional § 263A costs to the cost of its 2010 ending in-
ventory because of the $100,000 increment for 2010.
X’s 2010 Ending Inventory:
Beginning Inventory (With UNICAP costs)
$1,630,000
2010 Increment100,000
Additional § 263A Costs in 2010 Increment1
0,000
Total 2010 Ending Inventory
$1,740,000
X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment–12/31/09
$60,000
Amount included in 2010 Taxable Income<
60,000>
Unamortized 2009 § 481(a) Adjustment–12/31/10
$0
(7)Contact information. For further in-
formation regarding a change under this
section, contact Donna Crawford or Kari
Fisher at 202–622–4970 (not a toll-free
call).
.02Certain uniform capitalization
(UNICAP) methods used by producers and
reseller-producers.
(1)Description of change.
(a)Applicability. This change ap-
plies to a producer (as defined in sec-
tion 11.01(2)(d) of this APPENDIX) or
a reseller-producer (as defined in sec-
tion 11.01(2)(e) of this APPENDIX) that
wants to change to a UNICAP method (or
methods) specifically described in the reg-
ulations and includes any changes in the
identification of costs subject to § 263A
made in connection therewith. However,
this does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (orvice versa)
under the simplified production method.
(b)Inapplicability.
1
/3This change does
not apply to a producer or reseller-pro-
ducer that wants to revoke an election
to use the historic absorption ratio with
the simplified production method (see
§ 1.263A–2(b)(4)(iii)(B)), including a
taxpayer using the simplified production
method with an historic absorption ratio
changing to a UNICAP method specifi-
cally described in the regulations that does
not include the historic absorption ratio.
This change also does not apply to a tax-
payer that wants to use either the simpli-
fied service cost method of the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D)
and 1.263A–2(b)(2)(i)(D). Also, this
change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capital-
ization.
(2)Definition. A “UNICAP method
specifically described in the regula-
tions” includes the 90–10de minimis
rule to allocate a mixed service depart-
ment’s costs to production or resale
activities (§ 1.263A–1(g)(4)(ii)), the
1
/3—
2
/3rule to allocate labor costs
of personnel to purchasing activities
(§ 1.263A–3(c)(3)(ii)(A)), the 90–10de
minimisrule to allocate a dual-function
storage facility’s coststo property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)),
the specific identification method
(§ 1.263A–1(f)(2)), the burden rate
method (§ 1.263A–1(f)(3)), the stan-
dard cost method (§ 1.263A–1(f)(3)),
the direct reallocation method
(§ 1.263A–1(g)(4)(iii)(A)), the step-allo-
cation method (§ 1.263A–1(g)(4)(iii)(B)),
the simplified service cost method
(§ 1.263–1(h)) (with either a labor-based
allocation ratio or a production cost
allocation ratio), and the simplified
production method without the historic
absorption ratio election (§ 1.263A–2(b)),
but does not include any other reasonable
allocation method within the meaning of
§ 1.263A–1(f)(4).
(3)Multiple changes. A taxpayer that
wants to make both this change and an-
other change in method of accounting in
the same year of change must comply with
the ordering rules of § 1.263A–7(b)(2).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.02
of this APPENDIX is “23.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Donna Crawford
September 8, 20086442008–36 I.R.B.

or Kari Fisher at 202–622–4970 (not a
toll-free call).
.03Change to no longer capitalize re-
search and experimental expenditures un-
der § 263A.
(1)Description of change. The change
applies to a taxpayer who no longer wants
to capitalize research and experimental ex-
penditures to inventory under § 263A and
the regulations thereunder. A taxpayer
making this change must be in compliance
with all other aspects of § 263A and the
regulations thereunder and must have an
effective election under either § 174(a) or
(b).
(2)Manner of making change.Atax-
payer must attach to its Form 3115 the fol-
lowing representations:
(a) “The § 174 costs that are the subject
of this Form 3115 filed under section 11.03
of the APPENDIX of Rev. Proc. 2008–52
and will not be capitalized to inventory un-
der § 263A and the regulations thereunder
are costs that are subject to the taxpayer’s
effective election under [Insert, as appro-
priate: § 174(a) or § 174(b)] and the regu-
lations thereunder” and
(b) “All § 174 costs that will be re-
moved from inventory costs, have been
identified as § 174 costs at the time that the
costs were capitalized to inventory under
§ 263A and the regulations thereunder.”
(3)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.03
of this APPENDIX is “24.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further in-
formation regarding a change under this
section, contact Donna Crawford or Kari
Fisher at 202–622–4970 (not a toll-free
call).
.04Impact fees.
(1)Description of change. This change
applies to a taxpayer that incurs impact
fees as defined in Rev. Rul. 2002–9,
2002–1 C.B. 614, in connection with the
construction of a new residential rental
building that wants to capitalize the costs
to the building under §§ 263(a) and 263A.
See Rev. Rul. 2002–9 for further informa-
tion.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.04
of this APPENDIX is “25.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Cheryl Oseekey at
202–622–4970 (not a toll-free call).
.05Change to capitalizing environmen-
tal remediation costs under § 263A.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for environmen-
tal remediation costs from a method that
does not comply with the holding in Rev.
Rul. 2004–18, 2004–1 C.B. 509, to capi-
talizingthemtoinventoryunder§263A.
(2)Concurrent automatic changes.A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided
the taxpayer enters the designated auto-
matic change numbers for both changes
on the appropriate line on that Form 3115,
and complies with the ordering rules of
§ 1.263A–7(b)(2).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.05
of this APPENDIX is “77.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact John Faron at
202–622–4930 (not a toll-free call).
.06Change in allocating environmental
remediation costs under § 263A.
(1)Description of change. This change
applies to a taxpayer that capitalizes envi-
ronmental remediation costs to inventory
under § 263A, but allocates these costs to
inventory using a method of accounting
that does not comply with the holding in
Rev. Rul. 2005–42, 2005–2 C.B. 67, and
wants to change to allocating these costs
to inventory produced during the taxable
year in which the costs are incurred under
§ 263A. See Rev. Rul. 2005–42 for further
information.
(2)Concurrent automatic changes.A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A–7(b)(2).
(3)
Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.06
of this APPENDIX is “92.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact John Faron at
202–622–4930 (not a toll-free call).
SECTION 12. LOSSES, EXPENSES
AND INTEREST WITH RESPECT
TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)
.01Change to comply with § 267.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of § 267,
which disallows or defers certain deduc-
tions attributable to transactions between
related taxpayers. However, this change
applies to a change for stated interest
only to the extent the stated interest is
qualified stated interest (as defined in
§ 1.1273–1(c)).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 12.01
of this APPENDIX is “26.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Steve Gee at
202–622–4970 (not a toll-free call).
.02Reser
ved.
SECTION 13. DEFERRED
COMPENSATION (§ 404)
.01Change to comply with
§ 404(a)(11).
2008–36 I.R.B.645September 8, 2008

(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to comply with
§ 404(a)(11). Section 404(a)(11) provides
that, for purposes of determining under
§ 404 whether compensation of an em-
ployee is deferred compensation and when
deferred compensation is paid, no amount
is treated as received by the employee, or
paid, until it is actually received by the
employee. Section 404(a)(11) overturns
the decision inSchmidt Baking Co., Inc.
v. Commissioner, 107 T.C. 271 (1996), in
which the court held that a § 83(a) income
inclusion event upon securitization of va-
cation and severance pay benefits with a
letter of credit constitutes receipt of those
benefits by employees for purposes of de-
termining whether an employer’s deduc-
tion for the benefits is subject to § 404.See
Notice 99–16, 1999–1 C.B. 842.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Section 481(a) adjustment period.
A taxpayer must take the § 481(a) ad-
justment into account ratably over three
taxable years beginning with the year of
change.
(4)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.01
of this APPENDIX is “27.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under this
section, contact Maryellen Simpson at
202–622–6030 (not a toll-free call).
.02Deferred compensation.
(1)Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of accounting
to treat bonuses or vacation pay as fol-
lows (see§ 404(a)(5) and § 1.404(b)–1T,
Q&A 2):
(a)Applicability.
(i)Bonuses.
(A)Bonuses not subject to capitaliza-
tion under § 263A.Ifbytheendofthetax-
able year all the events have occurred that
establish the fact of the liability to pay a
bonus and the amount of the liability can
be determined with reasonable accuracy
(see§ 1.446–1(c)(1)(ii)), and the bonus is
otherwise deductible, but the bonus is re-
ceived by the employee after the 15
th
day
of the 3
rd
calendar month after the end of
that taxable year, to treat the bonus as de-
ductible in the taxable year of the employer
in which or with which ends the taxable
year of the employee in which the bonus is
includible in the gross income of the em-
ployee; or
(B)Bonuses that are subject to capital-
ization under § 263A.Ifbytheendofthe
taxable year all the events have occurred
that establish the fact of the liability to pay
a bonus and the amount of the liability can
be determined with reasonable accuracy
(see§ 1.446–1(c)(1)(ii)), and the bonus
is otherwise deductible (without regard to
§ 263A), but the bonus is received by the
employee after the 15
th
day of the 3
rd
cal-
endar month after the end of that taxable
year, to treat the bonus as capitalizable
(within the meaning of § 1.263A–1(c)(3))
in the taxable year of the employer in
which or with which ends the taxable year
of the employee in which the bonus is
includible in the gross income of the em-
ployee.
(ii)Vacation pay.
(A)Vacation pay not subject to capital-
ization under § 263A.Ifbytheendofthe
taxable year all the events have occurred
that establish the fact of the liability to pay
vacation pay and the amount of the liability
can be determined with reasonable accu-
racy (see§ 1.446–1(c)(1)(ii)), and the va-
cation pay is otherwise deductible but the
vacation pay is received by the employee
after the 15
th
day of the 3
rd
calendar month
after the end of that taxable year, to treat
the vacation pay as deductible in the tax-
able year of the employer in which the va-
cation pay is paid to the employee; or
(B)Vacation pay that is subject to capi-
talization under § 263A.Ifbytheendofthe
taxable year all the events have occurred
that establish the fact of the liability to pay
vacation pay and the amount of the liability
can be determined with reasonable accu-
racy (see§ 1.446–1(c)(1)(ii)), and the va-
cation pay is otherwise deductible (with-
out regard to § 263A), but the vacation pay
is received by the employee after the 15
th
day of the 3
rd
calendar month after the end
of that taxable year, to treat the vacation
pay as capitalizable (within the meaning
of § 1.263A–1(c)(3))in the taxable year of
the employer in which the vacation pay is
paid to the employee.
(b)Inapplicability. This change does
not apply to the extent that it is also de-
scribed in section 13.01 of this APPEN-
DIX.
This change also does not apply to a tax-
payer that is required under § 263A and
the regulations thereunder to capitalize the
costs with respect to which the taxpayer
wants to change its method of account-
ing under this section 13.02 of the AP-
PENDIX if the taxpayer is not capitaliz-
ing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.02
of this APPENDIX is “28.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact Maryellen Simpson at
202–622–6030 (not a toll-free call).
.03Grace period contributions.
(1)Description of change. This change
applies to a taxpayer that wants to cease
deducting contributions made during the
§ 404(a)(6) grace period to a qualified cash
or deferred arrangement within the mean-
ing of § 401(k) or to a defined contribu-
tion plan as matching contributions with
the meaning of § 401(m) when the con-
tributions are attributable to compensation
earned by plan participants after the end
of a taxable year as required by Rev. Rul.
2002–46, 2002–2 C.B. 117, as modified by
Rev. Rul. 2002–73, 2002–2 C.B. 805.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.03
of this APPENDIX is “29.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact James Holland at
September 8, 20086462008–36 I.R.B.

202–283–9699 or Carlton Watkins at
202–283–9625 (not toll-free calls).
SECTION 14. METHODS OF
ACCOUNTING (§ 446)
.01Change in overall method from the
cash method to an accrual method.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change its
overall method of accounting from the
cash receipts and disbursements (cash)
method to an accrual method, with or
without a “special method” as defined re-
spectively in sections 14.01(3)(a), (b), and
(e) of this APPENDIX, if subsequent to
this change, the taxpayer will be using an
overall accrual method of accounting (that
is, all items of income and expense are
accounted for using an accrual method).
A taxpayer changing its overall method
of accounting to an accrual method under
this section 14.01 of the APPENDIX may
also adopt the recurring item exception for
one or more types of recurring items. A
taxpayer that wants to change its method
of accounting for one or more items of
income or expense, but not its overall
method of accounting, may be eligible to
make such change(s) using section 14.09
of this APPENDIX.
If the year of change is the first taxable
year the taxpayer is required by § 448 to
change from the cash method (first § 448
year) and the taxpayer qualifies to make
this change under the automatic consent
procedures of § 1.448–1(g) and (h)(2) as
well as this revenue procedure, the tax-
payer must comply with both the provi-
sions of § 1.448–1(h)(2) and the require-
ments of this revenue procedure.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that will not use an “over-
all accrual method of accounting” subse-
quent to this change under section 14.01 of
this APPENDIX;
(ii) a taxpayer that is required by § 447
to change to an accrual method when the
year of change is the first taxable year
the taxpayer is required to change to that
method;
(iii) a cooperative organization de-
scribed in § 501(c)(12), 521, or 1381;
(iv) an individual taxpayer, except for
activities conducted as a sole proprietor-
ship;
(v) a taxpayer that is required by §§ 446
and 471 and §§ 1.446–1(a)(4)(i) and
1.471–1 to use an inventory method in the
year of change. However, the taxpayer
qualifies to make the change to an overall
accrual method under this section 14.01
of this APPENDIX when in the year of
change either:
(A) the taxpayer adopts or changes to
a proper inventory method or continues to
use a proper inventory method that it had
used in the taxable year immediately prior
to the year of change but only when:
(1) the taxpayer is a small reseller
within the meaning of § 1.263A–3(a)
and, if the taxpayer also has produc-
tion activities, those activities qualify
under thede minimispresumption of
§ 1.263A–3(a)(2)(iii);
(2) the taxpayer is a reseller within the
meaning of § 263A and the regulations
thereunder that qualifies to use the simpli-
fied resale method under § 1.263A–3(d)
and the taxpayer either adopts or changes
to that method in the year of change or con-
tinues its use of that method from the tax-
able year immediately prior to the year of
change; or
(3) the taxpayer is a producer of real
or tangible personal property described
in § 1.263A–2 that adopts in the year of
change a “UNICAP method specifically
described in the regulations” within the
meaning of section 14.01(3)(d) of this
APPENDIX. (For purposes of this section
14.01(1)(b)(v)(A)(3)oftheAPPENDIX,
a method not listed in section 14.01(3)(d)
may not be adopted or changed in the year
of change); or
(B) the taxpayer continues to use
the proper inventory method and proper
UNICAP method that it had used in the
taxable year immediately prior to the year
of change and the taxpayer is a producer
of real or tangible personal property
described in § 1.263A–2;
(vi) a taxpayer that is either required
to or voluntarily wants to use a “special
method of accounting” in the year of
change regardless of whether a change to
that special method is requested in that
year. However, the taxpayer can request
its change to an overall accrual method
under this section 14.01 of the APPEN-
DIX when (a) the change to the special
method of accounting is permitted to be
changed automatically either under this
revenue procedure or any other Code, reg-
ulation, or administrative provision, and
(b) the change to the special method of
accounting is requested for the identical
taxable year of the change requested under
this section 14.01 of the APPENDIX if
the taxpayer is required to use the special
method of accounting; and
(vii) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes such changes so that the same over-
all accrual method is used for each such
trade or business beginning with the year
of change.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02(6) of
this revenue procedure do not apply to a
change in method of accounting request
made under section 14.01 of this AP-
PENDIX when the taxpayer changed to
the overall cash method within the pre-
vious 5 taxable years (including the year
of change) either under the provisions of
Rev. Proc. 2001–10, 2001–1 C.B. 272 or
Rev. Proc. 2002–28, 2002–1 C.B. 815.
(3)Definitions.
(a)Cash method of accountingis
the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(b)Accrual method of accountingis
the method identified by § 446(c)(2) and
§§ 1.446–1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(c)Recurring item exceptionis the
method described in § 461(h)(3) and
§ 1.461–5.
(d)UNICAP method specifically de-
scribed in the regulationsis one of the
following:
(i) the specific identification method
within the meaning of § 1.263A–1(f)(2);
(ii) the burden rate method within the
meaning of § 1.263A–1(f)(3);
(iii) the standard cost method within the
meaning of § 1.263A–1(f)(3);
(iv)thedirectreallocation
method within the meaning of
§ 1.263A–1(g)(4)(iii)(A);
(v) the step-allocation method within
the meaning of § 1.263A–1(g)(4)(iii)(B);
(vi) the simplified service cost method
within the meaning of § 1.263A–1(h); and
2008–36 I.R.B.647September 8, 2008

(vii) the simplified production method
without the historic absorption ratio elec-
tion within the meaning of § 1.263A–2(b).
(e)Special method of accountingwithin
the meaning of this section 14.01 of the
APPENDIX is a method of accounting,
other than the cash method, expressly
permitted by the Code, regulations, or
guidance published in the IRB that devi-
ates from the tax accrual accounting rules
of §§ 451 and 461 and the regulations
thereunder. For example, the installment
method of accounting under § 453, the
mark-to-market method under § 475, a
long-term contract method such as the
percentage of completion method, and the
deferral method of Rev. Proc. 2004–34,
2004–1 C.B. 991, used to account for ad-
vance payments are special methods of
accounting. In contrast, application of the
all-events test under a specific set of facts
is not a special method of accounting. See,
for example, Rev. Rul. 69–314, 1969–1
C.B. 139 (concerning the treatment of re-
tainages).
(f)Overall accrual method of account-
ingwithin the meaning of this section
14.01 of the APPENDIX is a method of
accounting where, but for the use of a
“special method of accounting,” all items
of income and expense are accounted for
using an accrual method.
(4)Manner of making change.
(a)Section 481(a) adjustment.Atax-
payer changing its method of accounting
under this section 14.01 of the APPEN-
DIX must compute a § 481(a) adjustment.
This adjustment must reflect the account
receivables, account payables, inventory,
and any other item determined to be nec-
essary in order to prevent items from be-
ing duplicated or omitted. However, the
adjustment does not include any item of
income accrued but not received that was
worthless or partiallyworthless (within the
meaning of § 166(a)) on the last day of
the year immediately prior to the year of
change.
(b)Concurrent change to a special
method of accounting not permitted to be
made under this revenue procedure.A
taxpayer, that can not change to an over-
all accrual method of accounting using
this section 14.01 of the APPENDIX be-
cause the taxpayer is seeking to make a
concurrent change to a special method of
accounting not permitted automatically
under this revenue procedure, may request
both changes by filing one Form 3115
under Rev. Proc. 97–27 (or any succes-
sor). Only one user fee per taxpayer will
be required when a Form 3115 is filed for
both changes.
(c)Adoption of recurring item excep-
tion. The taxpayer must attach to its Form
3115 a statement describing the types of li-
abilities for which the recurring item ex-
ception will be used.
(5)Coordinationwithsection33.01
of this APPENDIX for short-term obliga-
tions. When a taxpayer subject to § 1281
is changing its method of accounting for
interest income on short-term obligations
as part of the change to an overall ac-
crual method, the taxpayer must request
the change for the interest income under
section 33.01 of this APPENDIX. Section
14.01 will govern the request for change in
method of accounting to an overall accrual
method. The taxpayer must timely file
individual Forms 3115 for each change
requested.
(6)Concurrent automatic change to the
deferral method for advance payments.A
taxpayer that wants to make both a change
to an overall accrual method under this
section 14.01 of the APPENDIX and an
automatic change to the deferral method
for advance payments under Rev. Proc.
2004–34 (seesection 15.07 of this AP-
PENDIX) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.01
of this APPENDIX for other than a tax-
payer’s first § 448 year is “122.”
The designated automatic accounting
method change number for a change un-
der section 14.01 of this APPENDIX for
the taxpayer’s first § 448 year is “123.”
Entering designated automatic accounting
method change number “123” on the ap-
propriate line on the Form 3115 fulfills
the requirement of § 1.448–1(h)(2) to type
or print “Automatic Change to Accrual
Method — Section 448” at the top of page
1 of the Form 3115.Seesection 6.02(4) of
this revenue procedure.
(8)Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.02Multi-year insurance policies for
multi-year servicewarranty contracts.
(1)Description of change.
(a)Applicability. This change applies
to a manufacturer, wholesaler, or retailer of
motor vehicles or other durable consumer
goods that wants to change its method of
accounting for insurance costs paid or in-
curred to insure its risks under multi-year
service warranty contracts to the method
described in section 14.02(2) of this AP-
PENDIX. Multi-year service warranty
contracts to which this change applies
include only those separately priced con-
tracts sold by a manufacturer, wholesaler,
or retailer also selling the motor vehicles
or other durable consumer goods (to the
ultimate customer or to an intermediary)
underlying the contracts. The classifica-
tion of goods as “durable consumer goods”
for purposes of this change depends on the
common usage of the goods, rather than
the purchaser’s actual intended use of the
goods.
(b)Inapplicability. This change does
not apply to a taxpayer that covers its risks
under its multi-year service warranty con-
tracts through arrangements not constitut-
ing insurance.
(2)Description of method. If a taxpayer
purchases a multi-year service warranty
insurance policy (in connection with its
sale of multi-year service warranty con-
tractstocustomers)bypayingalump-sum
premium in advance, the taxpayer must
capitalize the amount paid or incurred
and may only obtain deductions for that
amount by prorating (or amortizing) it over
the life of the insurance policy (whether
the cash method or an accrual method of
accounting is used to account for service
warranty transactions).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.02
of this APPENDIX is “31.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Erika Reigle at
202–622–4950 (not a toll-free call).
September 8, 20086482008–36 I.R.B.

.03Taxpayers changing to overall cash
method.
(1)Description of change. This change
applies to either:
(a) a taxpayer (other than a taxpayer de-
scribed in § 448(a)(3) or a bank described
in section 14.12(2)(a) of this APPENDIX)
with “average annual gross receipts” (as
defined in section 5.01 of Rev. Proc.
2001–10, 2001–1 C.B. 272) of $1,000,000
or less that wants to change to the overall
cash receipts and disbursements (cash)
method of accounting as provided in Rev.
Proc. 2001–10; or
(b) a taxpayer (other than a taxpayer
described in § 448 or a bank described
in section 14.12(2)(a) of this APPEN-
DIX) with “average annual gross re-
ceipts” (as defined in section 5.02 of Rev.
Proc. 2002–28, 2002–1 C.B. 815) of
$10,000,000 or less that wants to change
to the overall cash receipts and disburse-
ments (cash) method of accounting as
provided in Rev. Proc. 2002–28.
(2)Scope limitations applicable.Rev.
Proc. 2001–10 and Rev. Proc. 2002–28
are modified to delete section 6.02(1)(a) of
Rev. Proc. 2001–10 and section 7.02(1)(a)
of Rev. Proc. 2002–28. Therefore, the
scopelimitationsinsection4.02ofthis
revenue procedure (including the limita-
tion regarding a prior change within five
taxable years of section 4.02(6)) and the re-
quirements in sections 6.03 (regarding tax-
payers under examination), 6.04 (regard-
ing taxpayers before an appeals office) and
6.05 (regarding taxpayers before a federal
court) of this revenue procedure apply to a
change in method of accounting made un-
der this section 14.03 of the APPENDIX.
(3)Manner of making change. See ei-
ther Rev. Proc. 2001–10 or Rev. Proc.
2002–28 for additional guidance on the
computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4)Concurrent automatic change to
treat inventoriable items as nonincidental
materials and supplies under Rev. Proc.
2001–10 or Rev. Proc. 2002–28.Atax-
payer that wants to make both a change to
the overall cash method under this section
14.03 of the APPENDIX and a change
to treat inventoriable items as materials
and supplies that are not incidental un-
der § 1.162–3 (seesection 21.03 of this
APPENDIX) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(5)Banks changing to overall cash/hy-
brid method. This change does not apply
to a bank described in section 14.12(2)(a)
of this APPENDIX. However, such a bank
may be eligible to change to the overall
cash/hybrid method under section 14.12 of
this APPENDIX if it meets the require-
ments of that section.
(6)Designated automatic account-
ing method change number.Thedes-
ignated automatic accounting method
change number for a change under sec-
tion 14.03(1)(a) of this APPENDIX is
“32.” The designatedautomatic account-
ing method change number for a change
under section 14.03(1)(b) of this APPEN-
DIX is “33.”Seesection 6.02(4) of this
revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
.04Nonaccrual-experience method.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer within the scope of sec-
tion 3.01(1) through (5) of Rev. Proc.
2006–56, 2006–2 C.B. 1169, that wants to
make certain changes to, from, or within a
nonaccrual-experience (NAE) method of
accounting.
(b)Inapplicability. This change does
not apply to a taxpayer within the scope
of section 3.01(6) through 3.01(8) of Rev.
Proc. 2006–56.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change for the taxpayer’s first taxable year
ending on or after August 31, 2006. How-
ever, if the taxpayer’s NAE method of ac-
counting is an issue under consideration
for taxable years under examination, be-
fore an appeals office, or before a federal
court, at the time the Form 3115 is filed
with the national office, the audit protec-
tion of section 7 of this revenue procedure
does not apply.
(3)Manner of making the change.A
change in method of accounting within
section 3.01(1), (2), (3), or (5) of Rev.
Proc. 2006–56 is made with a § 481(a)
adjustment. A change made under sec-
tion 3.01(4) of Rev. Proc. 2006–56 is
made on a cut-off basis and the new ap-
plicable period applies only to the tax-
payer’s nonaccrual-experience calculation
of its uncollectible amount for the year of
change and for subsequent years. Accord-
ingly, a § 481(a) adjustment is neither per-
mitted nor required for changes made un-
der section 3.01(4) of Rev. Proc. 2006–56.
(4)Concurrent change to overall ac-
crual method and a NAE method of ac-
counting.
(a)First § 448 year. A taxpayer that is
within the scope of section 3.01(1) through
(5) of Rev. Proc. 2006–56 that wants to
change to a NAE method of accounting
(with or without also changing to a peri-
odic system) and is required to change to
an overall accrual method of accounting
under § 448 and the regulations thereun-
der for the taxpayer’s first § 448 year must
request to make both changes by filing one
Form 3115, and the taxpayer must follow
the change in method of accounting pro-
visions of § 1.448–1(h)(2). The taxpayer
must complete all applicable sections of
Form 3115, including sections that apply
to the change to an overall accrual method
and to the change to the NAE method,
and must enter the automatic accounting
method change numbers for both changes
on Form 3115.
(b)Concurrent automatic change to
overall accrual method. A taxpayer that is
within the scope of section 3.01(1) through
(5) of Rev. Proc. 2006–56 that wants to
make a change to a NAE method of ac-
counting (with or without also changing
to a periodic system) under this section
14.04 of the APPENDIX and is eligible to
and wants to change to an overall accrual
method of accounting under Appendix
section 14.01 of this APPENDIX for the
same year of change, must file a single
Form 3115 for both changes. The taxpayer
must complete all applicable sections of
Form 3115, including sections that apply
to the change to an overall accrual method
and to the change to the NAE method,
and must enter the automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(5)Designated automatic accounting
method change number
. The designated
automatic accounting method change
2008–36 I.R.B.649September 8, 2008

number for a change to the NAE method
of accounting under section 14.04 of this
APPENDIX is “35.”
The designated automatic accounting
method change number for a change to an
overall accrual method for the taxpayer’s
first § 448 year under the provisions of
§ 1.448–1(h)(2) is “34.” Entering the
designated automatic accounting method
change number “34” on the appropriate
line on the Form 3115 fulfills the require-
ment of § 1.448–1(h)(2) to type or print
“Automatic Change to Accrual Method
— Section 448” at the top of page 1 of
the Form 3115.Seesection 6.02(4) of this
revenue procedure.
(6)Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.05Interest accruals on short-term con-
sumer loans–Rule of 78’s method.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting from the Rule of
78’s method to the constant yield method
for stated interest (including stated in-
terest that is original issue discount) on
short-term consumerloans described in
Rev. Proc. 83–40, 1983–1 C.B. 774,
which was obsoleted by Rev. Proc. 97–37,
1997–2 C.B. 455.
(2)Background.
(a) A short-term consumer loan is de-
scribed in Rev. Proc. 83–40, provided:
(i) the loan is a self-amortizing loan that
requires level payments, at regular inter-
vals at least annually, over a period not in
excess of five years (with no balloon pay-
ment at the end of the loan term); and
(ii) the loan agreement between the bor-
rower and the lender provides that interest
is earned, or upon the prepayment of the
loan interest is treated as earned, in accor-
dance with the Rule of 78’s method.
(b) In general, the Rule of 78’s method
allocates interest over the term of a loan
based, in part, on the sum of the periods’
digits for the term of the loan. See Rev.
Rul. 83–84, 1983–1 C.B. 97, for a descrip-
tion of the Rule of 78’s method.
(c) In general, the constant yield
method allocates interest and original is-
sue discount over the term of a loan based
on a constant yield. See § 1.1272–1(b)
for a description of the constant yield
method. The Rule of 78’s method gener-
ally front-loads interest as compared to the
constant yield method.
(d) Rev. Proc. 83–40 was obsoleted
because, under §§ 1.446–2 and 1.1272–1
(which were effective for debt instruments
issued on or after April 4, 1994), taxpayers
generally must account for stated interest
and original issue discount on a debt in-
strument (loan) by using a constant yield
method. As a result, the Rule of 78’s
method is no longeran acceptable method
of accounting for federal income tax pur-
poses.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.05
of this APPENDIX is “71.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.06Film producer’s treatment of certain
creative property costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for creative
property costs to the safe harbor method
provided by section 5 of Rev. Proc.
2004–36, 2004–1 C.B. 1063. This safe
harbor method of accounting applies to a
taxpayer engaged in the trade of business
of film production and to creative property
costs (as defined in section 2.01 of Rev.
Proc. 2004–36) properly written off by
the taxpayer under The American Institute
of Certified Public Accountants Statement
of Position (SOP) 00–2, “Accounting for
Producers or Distributors of Film.”
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.06
of this APPENDIX is “85.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.07Deduction of incentive payments to
health care providers.
(1)Description of change.Rev.Proc.
2004–41, 2004–2 C.B. 90, permits an
insurance company that makes incentive
payments to health care providers to in-
clude those payments in discounted unpaid
losses without regard to § 404. A payment
by a taxpayer to a health care provider is a
“provider incentive payment,” and thus el-
igible for this treatment, if (a) the taxpayer
is taxable as an insurance company under
Part II of subchapter L; (b) the payment
is made pursuant to a written agreement
the purpose of which is to encourage par-
ticipating health care providers to provide
quality health care to the taxpayer’s sub-
scribers in a cost-efficient manner; (c) the
taxpayer’s liability for the payment is de-
pendent on the attainment of one or more
preestablished goals during a performance
period consisting of not more than 12 con-
secutive months; (d) the terms of the ar-
rangement pursuant to which the payment
is made are established unilaterally by
the taxpayer, and are not negotiated with
the health care providers; (e) the taxpayer
normally makes payments to health care
providers under the arrangement within 12
months after the close of the performance
period; (f) deferring the receipt of income
by the health care provider or otherwise
providing a tax benefit to the provider is
not a principal purpose of the arrange-
ment; (g) the taxpayer records a liability
for the payment on its annual statement
filed for state regulatory purposes, and
includes this liability in the determination
of discounted unpaid losses under § 846;
and (h) the health care provider is not an
employee, and is not providing health care
as an agent, of the taxpayer.SeeRev.
Proc. 2004–41.
(2)Scope. This procedure applies to
a taxpayer that wants to change to the
method of accounting for provider incen-
tive payments, under which those pay-
ments are included in discounted unpaid
losses without regard to § 404.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.07
of this APPENDIX is “90.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information
. For further
information regarding a change under this
section, contact Josephine Firehock or Kay
Hossofsky, at 202–622–3970 (not a toll-
free call).
.08Change by bank for uncollected in-
terest.
September 8, 20086502008–36 I.R.B.

(1)Description of change.This
change applies to a “bank” as defined in
§ 1.166–2(d)(4)(i) that: (1) uses an ac-
crual method of accounting to determine
its taxable income for federal income tax
purposes; (2) is subject to supervision by
Federal authorities, or by state authorities
maintaining substantially equivalent stan-
dards; (3) has uncollected interest other
than interest described in § 1.446–2(a)(2);
and (4) has six or more years of collec-
tion experience. Under the safe harbor
method of accounting provided by sec-
tion 4 of Rev. Proc. 2007–33, 2007–21
I.R.B. 1289, a bank determines for each
taxable year the amount of uncollected
interest (other than interest described in
§ 1.446–2(a)(2)) for which it is consid-
ered to have a reasonable expectancy of
payment by multiplying: (1) the total ac-
crued (determined under § 1.446–2) but
uncollected interest for the year by, (2) the
bank’s “recovery percentage” (determined
under section 4.02 of Rev. Proc. 2007–33)
for that year. Solely for purposes of this
safe harbor, the bank is not considered
to have a reasonable expectancy of pay-
ment for the excess, if any, of the accrued
but uncollected interest over the expected
collection amount determined using the
bank’s recovery percentage. The bank
includes in gross income the portion of
accrued but uncollected interest for which
it has a reasonable expectancy of payment.
The bank excludes from income the por-
tion of accrued but uncollected interest for
which it has no reasonable expectancy of
payment.
(2)Recovery percentage. Subject to the
limitations and conditions in Rev. Proc.
2007–33, sections 4.02(2), (3), and (4), a
bank determines its recovery percentage
for each taxable year by dividing: (a) total
payments that the bank received on loans
(including principal and interest) during
the 5 taxable years immediately preceding
the taxable year, by (b) total amounts that
were due and payable to the bank on loans
during the same 5 taxable years. The re-
covery percentage cannot exceed 100 per-
cent and must be calculated to at least four
decimal places. The data used in the re-
covery percentage must take into account
acquisitions and dispositions. If a bank ac-
quires the major portion of a trade or busi-
ness of another person (predecessor) or the
major portion of a separate unit of a trade
or business of a predecessor, then in apply-
ing Rev. Proc. 2007–33 for any taxable
year ending on or after the acquisition, the
data from preceding taxable years of the
predecessor attributable to the portion of
the trade or business acquired, if available,
must be used in determining the bank’s re-
covery percentage. If a bank disposes of
a major portion of a trade or business or
the major portion of a separate unit of a
trade or business, and the bank furnished
the acquiring person the information nec-
essary for the computations required by
Rev. Proc. 2007–33, then in applying
the revenue procedure for any taxable year
ending on or after the disposition, the data
from preceding taxableyears attributable
to the disposed portion of the trade or busi-
ness may not be used in determining the
bank’s recovery percentage.
(3)Scope limitations inapplicable.
The scope limitations in section 4.02 of
this revenue procedure do not apply to
a change made for either the bank’s first
or second taxable year ending on or after
December 31, 2006.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.08
of this APPENDIX is “108.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.09Change from the cash method to an
accrual method for specific items.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer whose overall method of ac-
counting is an accrual method of account-
ing but has identified a specific item or
items of income and expense that are be-
ing accounted for on the cash method of
accounting. This change does not apply
to a taxpayer that is changing its overall
method of accounting from cash to accrual.
Such a taxpayer may be eligible to change
to an overall accrual method using section
14.01 of this APPENDIX.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that will not have all
items of income and expense on an accrual
method subsequent to this change under
this section 14.09 of the APPENDIX;
(ii) a cooperative organization de-
scribed in § 501(c)(12), 521, or 1381;
(iii) an individual taxpayer, except for
activities conducted as a sole proprietor-
ship;
(iv) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes this change so that the identical
accrual method is used for each such trade
or business beginning with the year of
change;
(v) a change in method of accounting
for any payment liability described in
§ 1.461–4(g); and
(vi) any change that is specifically pro-
vided in another section of the APPENDIX
of this revenue procedure.
(2)Definitions.
(a) Cash method of accounting is
the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(b) Accrual method of accounting
is the method identified by § 446(c)(2)
and §§ 1.446–1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(3)Additional requirements.Inaddi-
tion to the other filing requirements of this
revenue procedure, to change a method of
accounting under this section 14.09 of the
APPENDIX, a taxpayer must fully and
completely describe each specific item for
which the change in method of account-
ing is being made and how the accrual
method applies to each item and list the
§ 481(a) adjustment for each item, if any,
associated with the change. The change
is fully and completely described if the
revenue or expense item is described with
specificity and how the all-events test (and
the economic performance requirement,
if applicable) applies to the item is de-
scribed under the facts and circumstances
of the taxpayer’s trade or business. For
example, a taxpayer that merely states
that it is changing its accounting method
for advertising expenses from the cash
method to an accrual method, recites the
regulations under § 1.461–1(a)(2), and
enters the associated § 481(a) adjustment
has failed to describe fully and completely
the specific item for which the change
in method of accounting is being made.
In contrast, a taxpayer that states that it
is changing its method of accounting for
2008–36 I.R.B.651September 8, 2008

print advertising expenses from the cash
method to an accrual method, describes
all of the relevant facts related to the print
advertising expenses, and explains how
the all-events test applies to those facts
and when economic performance occurs
has fully and completely described the
item and the change. See section 6.02
of this revenue procedure for additional
filing requirements.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.09
of this APPENDIX is “124.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.10Multi-year service warranty con-
tracts.
(1)Description of change.
(a)Applicability. This change applies
to an eligible accrual method manufac-
turer, wholesaler, or retailer of motor vehi-
cles or other durable consumer goods that
wants to change to the service warranty
income method described in section 5 of
Rev. Proc. 97–38, 1997–2 C.B. 479. Un-
der the service warranty income method, a
qualifying taxpayer may, in certain speci-
fied and limited circumstances, include a
portion of an advance payment related to
the sale of a multi-year service warranty
contract in gross income generally over the
life of the service warranty obligation.
(b)Inapplicability. This change does
not apply to a taxpayer outside the scope
of Rev. Proc. 97–38.
(2)Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off
basis and applies only to qualified advance
payments for multi-year service warranty
contracts on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§1.446–1(e)(3)(i)tofileanapplication
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “125”;
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual);
(iii) the year of change (both the begin-
ning and ending dates); and
(iv) the information required under sec-
tion 6.03 of Rev. Proc. 97–38, except that
the statement under section 6.03(2) (that
the taxpayer agrees to all of the terms and
conditions of the revenue procedure) also
should refer to Rev. Proc. 2008–52.
(3)Additional requirement. A taxpayer
changing to the service warranty income
method of accounting under section 14.10
of this APPENDIX must satisfy the annual
reporting requirement set forth in section
6.04 of Rev. Proc. 97–38.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Erika Reigle at
202–622–4950 (not a toll-free call).
.11Overall cash method for specified
transportation industry taxpayers.
(1)Description of change. This change
applies to a “specified transportation in-
dustry taxpayer” with “average annual
gross receipts” of more than $10,000,000
and not in excess of $50,000,000 that
wants to change to the overall cash re-
ceipts and disbursement (cash) method.
(2)Definitions. For purposes of this
section 14.11 of this APPENDIX, the fol-
lowing definitions apply:
(a)Specified transportation indus-
try taxpayer. A specified transportation
industry taxpayer is a taxpayer that satis-
fies the following criteria for the year of
change:
(i) The taxpayer reasonably identi-
fies its “business” (as defined in section
14.11(2)(b) below) as being described in
one of the following NAICS subsector
codes (first three digits of the six-digit
NAICS codes):
(A) Air Transportation, Rail Trans-
portation, Water Transportation, Truck
Transportation, Transit and Ground Pas-
senger Transportation, or Scenic and
Sightseeing Transportation, within the
meaning of NAICS subsector codes
481–485 and 487; or
(B) Support Activities for Transporta-
tion within the meaning of NAICS subsec-
tor code 488.
(ii) The taxpayer is not prohibited from
using the overall cash method under § 448.
(b)Business. A taxpayer may use any
reasonable method of applying the rele-
vant facts and circumstances to determine
its business. A business may consist of
several activities, which may or may not
be related. For example, a taxpayer en-
gaged in transportation activities may pro-
vide various services such as transport-
ing air cargo and then subsequently truck-
ing the cargo throughout a metropolitan
area to warehouses and wholesale/retail
stores. However, each activity within a
taxpayer’s business must individually sat-
isfy the description of a NAICS subsector
code in section 14.11(2)(a)(i)(A) or (B) of
this APPENDIX. For example, a sightsee-
ing bus operator that sells box lunches in
connection with its tours is not a “specified
transportation industry taxpayer” because
each of its two activities (that is, sightsee-
ingtransportationandfoodsales)donot
each satisfy the description of a NAICS
subsector code in section 14.11(2)(a)(i)(A)
or (B) of this APPENDIX. Similarly, a
train operator who operates a dining car
where meals are served is not a “speci-
fied transportation industry taxpayer” be-
cause all of the activities of its “business”
fail to satisfy the descriptions of one or
more of the NAICS subsector codes in sec-
tion 14.11(2)(a)(i)(A) or (B) of this AP-
PENDIX. That is, while the rail service
satisfies the description of a NAICS sub-
sector code in section 14.11(2)(a)(i)(A) of
this APPENDIX, the food service does not
satisfy the description of any NAICS sub-
sector code in section 14.11(2)(a)(i)(A) or
(B)ofthisAPPENDIX,andthus,thetax-
payer’s business fails to meet the criteria
of section 14.11(2)(a)(i).
(c)Average annual gross receipts.A
taxpayer has average annual gross receipts
of more than $10,000,000 and not in ex-
cess of $50,000,000 if, for each prior tax-
able year ending on or after December 31,
2006, the taxpayer’s average annual gross
receipts for the three prior taxable-year pe-
riod ending with the applicable prior tax-
able year are more than $10,000,000 and
do not exceed $50,000,000. If a taxpayer
has not been in existence for three prior
taxable years, the taxpayer must determine
September 8, 20086522008–36 I.R.B.

its average annual gross receipts for the
number of years (including short taxable
years) that the taxpayer has been in exis-
tence.See§ 448(c)(3)(A).
(d)Gross receipts. Gross receipts is de-
fined consistent with § 1.448–1T(f)(2)(iv).
Thus, gross receipts for a taxable year
equal all receipts that must be recognized
under the method of accounting actually
used by the taxpayer for that taxable year
for federal income tax purposes.Seealso
§ 448(c)(3)(C).
(e)Aggregation of gross receipts.For
purposes of computing gross receipts un-
der section 14.11(2)(d) of this APPEN-
DIX, all taxpayers treated as a single em-
ployer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as
a single taxpayer. However, when trans-
actions occur between taxpayers that are
treated as a single taxpayer by the previous
sentence, gross receipts arising from these
transactions will not be treated as gross re-
ceipts for purposes of the average annual
gross receipts limitation.See§ 448(c)(2)
and § 1.448–1T(f)(2)(ii).
(f)Treatment of short taxable year.In
the case of a short taxable year, a tax-
payer’s gross receipts must be annualized
by multiplying the gross receipts for the
short taxable year by 12 and then dividing
the result by the number of months in the
short taxable year.See§ 448(c)(3)(B) and
§ 1.448–1T(f)(2)(iii).
(g)Treatment of predecessors.Anyref-
erence to a taxpayer in this section 14.11
of the APPENDIX includes a reference
to any predecessor of that taxpayer.See
§ 448(c)(3)(D).
(h)Cash method. The cash method
is the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.11
of this APPENDIX is “126.”Seesection
6.02(4) of this revenue procedure.
(4)Example.
Example. TaxpayerXis an LLC and taxed for
federal income tax purposes as a partnership. Tax-
payerXdoes not have any C corporations as partners
and TaxpayerXis not a tax shelter within the mean-
ing of § 448(d)(3). TaxpayerX’s business consists of
short-haul trucking among various cities within State
Y, which satisfies the description of the NAICS sub-
sector code 484. TaxpayerXdetermines that its av-
erage annual gross receipts for each of the three prior
taxable years have been more than $10,000,000 and
not in excess of $50,000,000. TaxpayerXqualifies to
change to the overall cash method using this section
14.11 of the APPENDIX.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
.12Change to overall cash/hybrid
method for certain banks.
(1)Description of change.
(a)Applicability. This change applies
to a bank described in section 14.12(2)(a)
of this APPENDIX that wants to change to
an overall cash/hybrid method described in
section 14.12(2)(b) of this APPENDIX.
(b)Inapplicability. A bank’s change to
an overall cash/hybrid method under this
section 14.12 of the APPENDIX does not
include any change in the accounting treat-
ment of an item for which the bank uses
a special method (as described in section
14.12(2)(b) of this APPENDIX) before the
change, or is required to use a special
method, or will use a special method after
the change. No change in the accounting
treatment of such an item may be made un-
der this section 14.12 of the APPENDIX.
Any change in the accounting treatment of
such an item must be made under an ap-
plicable section of this APPENDIX, un-
der Rev. Proc. 97–27 (or any successor),
or under another guidance published in the
IRB, as appropriate.
(2)Definitions.
(a)Bank. A bank is described in this
section 14.12(2)(a) of the APPENDIX if
the bank:
(i) is a bank as defined in § 581;
(ii) is an S corporation as defined in
§ 1361(a)(1), or a qualified subchapter S
subsidiary as defined in § 1361(b)(3)(B);
and
(iii) has average annual gross receipts
(computed as described in section 14.12(5)
of this APPENDIX) not in excess of
$50,000,000.
(b)Overall cash/hybrid method.An
overall cash/hybrid method is the use of a
combination of accounting methods under
which some items of income or expense
are reported on the cash receipts and dis-
bursements method (cash method) and
other items of income or expense are re-
ported on methods permitted or required
for the accounting treatment of special
items (special methods).
(i)Cash method. The cash method
is the method identified by § 446(c)(1)
and §§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1).
(ii)Special methods.Afewofthe
special methods typically used by banks
include those provided for the accounting
treatment of the following items: secu-
rities held by a dealer in securities as
defined in § 475(c)(1) (the mark-to-mar-
ket method of § 475); securities held
by a dealer in securities as defined in
§ 1.471–5 (inventories maintained under
§ 471 and § 1.446–1(c)(2)(i)); hedging
transactions (§ 1.446–4); contracts to
which § 1256 applies (§ 1256); origi-
nal issue discount on debt instruments
(§§ 163(e) and 1271–1275); interest in-
come (including acquisition discount and
original issue discount) on short-term
obligations (§§ 1281–1283); and stripped
debt instruments (§ 1286). For example, a
bank that regularly purchases or originates
mortgages in the ordinary course of its
business and engages in more than negli-
gible sales of those mortgages generally
is a dealer in securities under § 475(c)(1)
and § 1.475(c)–1(c) and thus must use the
mark-to-market method of § 475 for mort-
gages and any other securities (as defined
in § 475(c)(2)) held by the bank.
(3)Additional condition of change.To
change to an overall cash/hybrid method
under this section 14.12 of the APPEN-
DIX, a bank must comply with the fol-
lowing additional condition. In addition
to complying with the terms and condi-
tions set forth in section 5 of this revenue
procedure, the bank must keep its books
and records for the year of change and
for subsequent taxable years on an over-
all cash/hybrid method allowed by this
section 14.12 of the APPENDIX. This
condition is considered satisfied if the
bank reconciles the results obtained un-
der the method used in keeping its books
and records and those obtained under the
method used for federal income tax pur-
poses pursuant to this section 14.12 of
the APPENDIX and the bank maintains
sufficient records to support such recon-
ciliation.See also§ 1.446–1(a)(4).
2008–36 I.R.B.653September 8, 2008

(4)Additional filing requirement.To
change to an overallcash/hybrid method
under this section 14.12 of this APPEN-
DIX, a bank must include the following ad-
ditional information on its Form 3115 filed
in accordance with section 6.02 of this rev-
enue procedure. In addition to comply-
ing with all other applicable requirements,
the Form 3115 must describe each specific
item of the bank’s income or expense that
is affected by the change under this sec-
tion 14.12 of the APPENDIX and, for each
such item, identify the following: the ac-
counting method under which the bank re-
ports that item for federal income tax pur-
poses immediately before the change; and
the amount of the § 481(a) adjustment as-
sociated with changing that item to the
cash method under this section 14.12 of the
APPENDIX.
(5)Computation of average annual
gross receipts. For purposes of section
14.12(2)(a)(iii) of this APPENDIX, a
bank’s average annual gross receipts are
computed as described in this section
14.12(5) of the APPENDIX.
(a)Average annual gross receipts.A
bank has average annual gross receipts not
in excess of $50,000,000 if, for each prior
taxable year ending on or after December
31, 2006, the bank’s average annual gross
receipts for the three prior taxable-year pe-
riod ending with the applicable prior tax-
able year do not exceed $50,000,000. If
a bank has not been in existence for three
prior taxable years, the bank must deter-
mine its average annual gross receipts for
the number of years (including short tax-
able years) that the bank has been in exis-
tence.See§ 448(c)(3)(A).
(b)Gross receipts. Gross receipts is de-
fined consistent with § 1.448–1T(f)(2)(iv).
Thus, gross receipts for a taxable year
equal all receipts that must be recognized
under the method of accounting actually
used by the bank for that taxable year for
federal income tax purposes.See also
§ 448(c)(3)(C).
(c)Aggregation of gross receipts.For
purposes of computing gross receipts un-
der section 14.12(5)(b) of this APPEN-
DIX, all taxpayers treated as a single em-
ployer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as a
single taxpayer (i.e., a single bank). How-
ever, when transactions occur between tax-
payers that are treated as a single taxpayer
by the previous sentence, gross receipts
arising from these transactions will not be
treated as gross receipts for purposes of the
average annual gross receipts limitation.
See§ 448(c)(2) and § 1.448–1T(f)(2)(ii).
(d)Treatment of short taxable year.In
the case of a short taxable year, a bank’s
gross receipts must be annualized by mul-
tiplying the gross receipts for the short
taxable year by 12 and then dividing the
result by the number of months in the
short taxable year.See§ 448(c)(3)(B) and
§ 1.448–1T(f)(2)(iii).
(e)Treatment of predecessors.Anyref-
erence to a bank or taxpayer in section
14.12(5) of this APPENDIX includes a ref-
erence to any predecessor of that bank or
taxpayer.See§ 448(c)(3)(D).
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.12
of this APPENDIX is “127.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Sharon Galm at
202–622–3930 (not a toll-free call).
.13Change to overall cash method for
farmers.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer engaged in the trade or busi-
ness of farming that wants to change to
the overall cash receipts and disbursement
(cash) method. If a taxpayer is engaged
in more than one trade or business, this
change applies only to the taxpayer’s trade
or business of farming.
(b)Inapplicability. This change does
not apply to a taxpayer that is required to
use an accrual method pursuant to § 447 or
prohibited from using the cash method by
§ 448.
(2)Definitions.
(a) Cash method of accounting is
the method defined by § 446(c)(1) and
§§ 1.446–1(c)(1)(i), 1.451–1(a), and
1.461–1(a)(1). See also, §§ 1.61–4 and
1.162–12 for specific rules relating to
farmers.
(b) The trade or business of farm-
ingisafarmingbusinessasdefinedby
§ 263A(e)(4) and the regulations thereun-
der.
(3)Manner of making change.Gen-
erally, a taxpayer changing its method of
accounting under this section 14.13 of the
APPENDIX, must compute a § 481(a)
adjustment. However, if the taxpayer
is changing from the crop method, that
portion of the change shall be made us-
ing a cut-off basis under which expenses
reported on the crop method and not de-
ducted prior to the year of change are
deducted in the year the related crop is
sold.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.13
of this APPENDIX is “128.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Robert Basso
at 202–622–4950 or Renay France at
202–622–5020 (not a toll-free call).
.14Nonshareholder contributions to
capital under § 118.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for nontaxable
contributions to capital from excluding
certain payments received from gross in-
come, by characterizing the payments as
nontaxable contributions to capital under
§ 118(a), to including the payments in
gross income. This change also applies to
a taxpayer that wants to change its method
of accounting of treating certain payments
received from including the payments in
gross income to excluding the payments
from income, as nontaxable contributions
to capital under § 118(a).SeeRev. Rul.
2008–30, 2008–25 I.R.B. 1156.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.14
of this APPENDIX is “129.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further in-
formation regarding a change under this
section, contact Grant Anderson or Karla
Meola at 202–622–4930 (not a toll-free
call).
September 8, 20086542008–36 I.R.B.

SECTION 15. TAXABLE YEAR OF
INCLUSION (§ 451)
.01Accrual of interest on nonperform-
ing loans.
(1)Description of change.
(a) This change applies to an accrual
method taxpayer that is a bank as defined
in § 581 (or whose primary business is
making or managing loans) and wants
to change its method of accounting to
comply with § 451 and § 1.451–1(a) for
qualified stated interest (as defined in
§ 1.1273–1(c)) on nonperforming loans.
(b) Section 1.451–1(a) requires income
to be accrued when all the events have
occurred that fix the right to receive the
income and the amount thereof can be
determined with reasonable accuracy. A
taxpayer may not stop accruing qualified
stated interest on a nonperforming loan
for federal income tax purposes merely
because payments on the loan are over-
due by a certain length of time, such as
90 days, even if a federal, state, or other
regulatory authority having jurisdiction
over the taxpayer permits or requires that
the overdue interest not be accrued for
regulatory purposes.
(c) Under § 451 and § 1.451–1(a), a
taxpayer must continue accruing qualified
stated interest on any nonperforming loan
until either (i) the loan is worthless un-
der § 166 and charged off as a bad debt,
or (ii) the interest is determined to be un-
collectible. In order for interest to be de-
termined uncollectible, the taxpayer must
substantiate, taking into account all the
facts and circumstances, that it has no rea-
sonable expectation of payment of the in-
terest. This substantiation requirement is
applied on a loan by loan basis.
(d) A taxpayer that changes its method
of accounting under section 15.01 of this
APPENDIX must do so for all of its loans.
(2)Section 481(a) adjustment.In
general, the § 481(a) adjustment for a
method change under section 15.01 of
this APPENDIX represents the amount of
qualified stated interest, on the taxpayer’s
nonperforming loans outstanding as of
the beginning of the year of change, that
should have been accrued under § 451 and
§ 1.451–1(a) and was not accrued. Interest
for which the taxpayer, as of the beginning
of the year of change, has no reasonable
expectation of payment is not taken into
account in determining the amount of the
§ 481(a) adjustment.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.01
of this APPENDIX is “36.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.02Advance rentals.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for advance
rentals (other than advance rentals subject
to § 467 and the regulations thereunder)
to include such advance rentals in gross
income in the taxable year received.See
§ 1.61–8(b).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.02
of this APPENDIX is “37.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.03State or local income or franchise
tax refunds.
(1)Description of change. This change
applies to an accrual method taxpayer de-
scribed in Rev. Rul. 2003–3, 2003–1 C.B.
252, that receives a state or local income
or franchise tax refund and wants to accrue
the refund in the year payment or notice of
the approval of the refund claim is received
(whichever is earlier).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.03
of this APPENDIX is “38.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.04Capital cost reduction payments.
(1)Description of change. This change
applies to a taxpayer that purchases motor
vehicles subject to leases and assumes the
associated leases from the vehicles’ deal-
ers and wants to use the safe harbor ac-
counting method for capital cost reduction
(CCR) payments specified in Rev. Proc.
2002–36, 2002–1 C.B. 993.
(2)Audit protection. If a taxpayer com-
plies with the requirements of Rev. Proc.
2002–36 and changes its method of ac-
counting for CCR payments to the CCR
method provided in section 5 of Rev. Proc.
2002–36, the treatment of CCR payments
willnotberaisedasanissueinanytaxable
year before the year of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.04
of this APPENDIX is “39.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.05Credit card annual fees.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
annual fees as described in Rev. Rul.
2004–52, 2004–1 C.B. 973, either to a
method that satisfies the all events test in
accordance with Rev. Rul. 2004–52 or
to the Ratable Inclusion Method for Credit
Card Annual Fees that is described in sec-
tion 4 of Rev. Proc. 2004–32, 2004–1
C.B. 988. Rev. Rul. 2004–52 holds that
credit card annual fees are not interest for
federal income tax purposes and that such
fees are includible in income by the card
issuer when the all events test under § 451
is satisfied. Rev. Proc. 2004–32 provides
additional guidance for taxpayers seeking
to change their methods of accounting for
such fees, including guidance with respect
to the Ratable Inclusion Method for Credit
Card Annual Fees. However, a taxpayer
may make either change under this rev-
enue procedure only if the taxpayer uses
an overall accrual method of accounting
for federal income tax purposes and issues
credit cards to, and receives annual fees
from, cardholders under agreements that
allow each cardholder to use a credit card
to access a revolving line of credit to make
purchases of goods and services and, if so
authorized, to obtain cash advances.
2008–36 I.R.B.655September 8, 2008

(2)Manner of making change.Atax-
payer making this change must identify the
specific method to which the taxpayer is
changing.See alsosection 15.05(3) of this
APPENDIX.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.05
of this APPENDIX to a method that sat-
isfies the all events test in accordance
with Rev. Rul. 2004–52 is “80.” The
designated automatic accounting method
change number for a change under section
15.05 of this APPENDIX to the Ratable
Inclusion Method for Credit Card Annual
Fees is “81.”Seesection 6.02(4) of this
revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.06Credit card late fees.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
late fees to a method that treats these fees
as interest income that creates or increases
the amount of original issue discount
(OID) on the pool of credit card loans
to which the fees relate. This change is
available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer and that, for federal income
tax purposes, does not treat the credit card
purchase transactions of its cardholders as
creating either debt that is given in consid-
eration for the sale or exchange of property
(within the meaning of § 1274) or debt that
is deferred payment for property (within
the meaning of § 483). See Rev. Proc.
2004–33, 2004–1 C.B. 989, for additional
guidance relating to this change.
(2)Additional requirements.Atax-
payer making this change must be able to
demonstrate both of the following:
(a) the amount of any credit card late fee
charged to each cardholder by the taxpayer
is separately stated on the cardholder’s ac-
count when that fee is imposed; and
(b) under the applicable credit card
agreement governing each cardholder’s
use of the credit card, no amount iden-
tified as a credit card late fee is charged
for property or for specific services per-
formed by the taxpayer for the benefit of
the cardholder.
(3)Audit protection. The audit pro-
tection provided in connection with this
change is not a determination by the Com-
missioner that the taxpayer is properly ac-
counting for any OID income on that pool
of credit card loans. Thus, for example,
the Service is not precluded from pursuing
the issue of whether a taxpayer is properly
accounting for its OIDincome (including
any OID income attributable to credit card
late fees) on its pool of credit card loans in
accordance with § 1272(a)(6).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.06
of this APPENDIX is “82.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.07Advance payments.
(1)Description of change. This change
applies to a taxpayer using or changing to
an overall accrual accounting method that
receives advance payments, as defined in
Rev. Proc. 2004–34, 2004–1 C.B. 991,
and wants to use either the full inclusion
or deferral method, as described in Rev.
Proc. 2004–34.See alsoAnnouncement
2004–48, 2004–1 C.B. 998.
(2)Manner of making change. In lieu of
providing the information and documenta-
tion required by line 1 of Schedule B to
Form 3115, a taxpayer changing to the de-
ferral method must also: (i) state whether
the taxpayer uses an applicable financial
statement and, if so, identify the type; (ii)
describe the bases used for deferral (that is,
the method the taxpayer uses in its appli-
cable financial statement or how the tax-
payer determines amounts earned, as ap-
plicable); and (iii) if the taxpayer makes an
allocation to which section 5.02(4) of Rev.
Proc. 2004–34 applies, include a statement
that the allocation method is based on pay-
ments the taxpayer regularly receives for
an item or items it regularly provides sep-
arately.SeeRev. Proc. 2004–34 and An-
nouncement 2004–48.
(3)Concurrent automatic change to an
overall accrual method. A taxpayer that
wants to make both a change to the defer-
ral method under this section 15.07 of the
APPENDIX and a change to an overall
accrual method under section 14.01 of this
APPENDIX for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.07 of
this APPENDIX to use the full-inclusion
method is “83.” The designated automatic
accounting method change number for a
change under 15.07 of this APPENDIX
to use the deferral method is “84.”See
section 6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.08Credit card cash advance fees.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
cash advance fees to a method that treats
these fees as creating or increasing origi-
nal issue discount (OID) on a pool of credit
card loans that includes the cash advances
that give rise to the fees. This change
is available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer both to make credit card pur-
chase transactions and to obtain cash ad-
vances and that, for federal income tax pur-
poses, does not treat the credit card pur-
chase transactions of its cardholders as cre-
ating debt that is given in consideration for
thesaleorexchangeofproperty.SeeRev.
Proc. 2005–47, 2005–2 C.B. 269, for ad-
ditional guidance relating to this change.
(2)
Other requirements. A taxpayer
making this change must be able to demon-
strate both of the following:
(a) the amount of any credit card cash
advance fee charged to a cardholder by the
taxpayer is separately stated on the card-
holder’s account when that fee is imposed;
and
(b) under the credit card agreement with
the cardholder, no amount identified as a
credit card cash advance fee is charged for
property or for specific services performed
September 8, 20086562008–36 I.R.B.

by the taxpayer for the benefit of the card-
holder.
(3)Audit protection.Theauditpro-
tection provided in connection with this
change is not a determination by the Com-
missioner that the taxpayer is properly ac-
counting for any OID income on that pool
of credit card loans. Thus, for example, the
Service is not precluded from pursuing the
issue of whether, under § 1272(a)(6), a tax-
payer is correctly accounting for its OID
income (including any OID income attrib-
utable to credit card cash advance fees) on
its pool of credit card loans.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.08
of this APPENDIX is “94.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.09Sales or dispositions to implement
Federal Energy Regulatory Commission or
state electric restructuring policy.
(1)Description of change. This change
applies to a taxpayer that realizes qualified
gain from a qualifying electric transmis-
sion transaction and elects, under § 451(i),
to recognize all or part of the gain ratably
over an 8-year period beginning with the
year that includes the date of the qualify-
ing electric transmission transaction.
(2)Scope.
(a)Applicability. This change applies
only to a qualified electric transmission
transaction occurring after October 22,
2004, for which a taxpayer filed its federal
tax return for the taxable year in which
the transaction occurred before June 15,
2006. This change may only be made for
the taxpayer’s first or second taxable year
ending on or after December 31, 2005.
(b)Inapplicability. This change does
not apply to a qualified electric transmis-
sion transaction occurring after October
22, 2004, for which a taxpayer filed its fed-
eral tax return for the taxable year in which
the transaction occurred before June 15,
2006, and filed on or before November 15,
2006, an amended federal tax return for the
taxable year in which the transaction oc-
curred and all subsequent affected taxable
years.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(4)Additional requirements. The state-
mentdescribedinsectionF.1,Interim
Rules, of Notice 2006–47, 2006–1 C.B.
892, should be attached to the Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.09
of this APPENDIX is “103.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Michael Schmit at
202–622–4960 (not a toll-free call).
.10Retainages.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants to
change its method ofaccounting for treat-
ing retainages under § 451 to a method
consistent with the holding in Rev. Rul.
69–314, 1969–1 C.B. 139.
(b)Inapplicability. This change does
not apply to retainages that are received
under long-term contracts as defined in
§ 460.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.10
of this APPENDIX is “130.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
SECTION 16. OBLIGATIONS ISSUED
AT DISCOUNT (§ 454)
.01Series E, EE or I U.S. savings bonds.
(1)Description of change. This change
applies to a cash method taxpayer that
wants to change its method of account-
ing for interest income on Series E, EE,
or I U.S. savings bonds. However, this
change only applies to a taxpayer that has
previously made an election under § 454
to report as interest income the increase
in redemption price on a bond occurring
in a taxable year, and that now wants to
report this income in the taxable year in
which the bond is redeemed, disposed of,
or finally matures, whichever is earliest.
(2)Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off ba-
sis and is effective for any increase in re-
demption price occurring after the begin-
ning of the year of change for all Series E,
EE and I U.S. savings bonds held by the
taxpayer on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b) In accordance with § 1.446–
1(e)(3)(ii), the requirement of § 1.446–
1(e)(3)(i) to file an application on Form
3115 is waived and a statement in lieu
of the Form 3115 is authorized for this
change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “131”;
(ii) the taxpayer’s name and employer
identification or social security number, as
applicable;
(iii) the year of change (both the begin-
ning and ending dates);
(iv) the Series E, EE or I U.S. savings
bonds for which this change in accounting
method is requested;
(v) an agreement to report all interest
on any bonds acquired during or after the
year of change when the interest is realized
upon disposition, redemption, or final ma-
turity, whichever is earliest; and
(vi) an agreement to report all interest
on the bonds acquired before the year of
change when the interest is realized upon
disposition, redemption, or final maturity,
whichever is earliest, with the exception of
any interest income previously reported in
prior taxable years.
(3)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 17. PREPAID
SUBSCRIPTION INCOME (§ 455)
.01Prepaid subscription income.
2008–36 I.R.B.657September 8, 2008

(1)Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of account-
ing for prepaid subscription income to the
method described in § 455 and the regula-
tions thereunder, including an eligible tax-
payer that wants to make the “within 12
months” election under § 1.455–2.
(2)Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off ba-
sis and applies only to prepaid subscription
income received on or after the beginning
of the year of change. Any prepaid sub-
scription income received prior to the year
of change is accounted for under the tax-
payer’s former method of accounting. See
section 2.06 of this revenue procedure for
more information regarding a cut-off basis.
Accordingly, a § 481(a) adjustment is nei-
ther permitted nor required.
(b) In accordance with § 1.446–
1(e)(3)(ii), the requirement of § 1.446–
1(e)(3)(i) to file anapplication on Form
3115 is waived and a statement in lieu
of the Form 3115 is authorized for this
change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “132”;
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual);
(iii) the year of change (both the begin-
ning and ending dates);
(iv) the information described in
§ 1.455–6(a), as required by § 1.455–6(b);
and
(v) if the taxpayer wants to make
a “within 12 months” election under
§ 1.455–6(c), the information described in
section § 1.455–6(c)(2).
(c) The consent granted under this rev-
enue procedure satisfies the consent re-
quired under § 455(c)(3) and § 1.455–6(b).
(3)Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.02Reserved.
SECTION 18. SPECIAL RULES FOR
LONG-TERM CONTRACTS (§ 460)
.01Change from exempt-contract
method to percentage-of-completion
method.
(1)Description of change. This change
applies to a taxpayer that:
(a) is not required by § 460 and regu-
lations thereunder to use the percentage-
of-completion method to account for its
long-term contracts, and
(b) wants to change its method of ac-
counting for long-term contracts from an
exempt-contract method properly applied
(see§ 1.460–4(c)) to the percentage-of-
completion method (see§ 1.460–4(b)).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to long-term contracts entered
into on or after the beginning of the year
of change.See§ 1.460–1(c)(2) for a de-
scription of when a contract is treated as
“entered into.” See section 2.06 of this rev-
enue procedure for more information re-
garding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3)No audit protection. The taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 18.01
of this APPENDIX is “41.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Lore Cavanaugh at
202–622–4960 (not a toll-free call).
.02Reserved.
SECTION 19. TAXABLE YEAR OF
DEDUCTION (§ 461)
.01Timing of incurring liabilities for
employee compensation.
(1)Self-insured employee medical ben-
efits.
(a)Description of change.
(i)Applicability. This change ap-
plies to an accrual method taxpayer that
wants to change its method of account-
ing for self-insured liabilities (including
any amounts not covered by insurance,
such as a “deductible” amount under an
insurance policy) relating to employee
medical expenses that are not paid from a
welfare benefit fund within the meaning
of§419(e)toamethodasfollows:
(A) If the taxpayer has a liability to
pay an employee for medical expenses in-
curred by the employee, the taxpayer will
treat the liability as incurred in the tax-
able year in which the employee files the
claim with the employer.See United States
v. General Dynamics Corp.
, 481 U.S. 239
(1987), 1987–2 C.B. 134.
(B) If the taxpayer has a liability to pay
a 3rd party for medical services provided
to its employees, the taxpayer will treat the
liability as incurred in the taxable year in
which the services are provided.
(ii)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(1) of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (as
applicable).
(b)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a lia-
bility that has been incurred is taken into
account. For example, for a taxpayer with
inventories, direct labor costs must be in-
cluded in inventory costs and may be re-
covered through cost of goods sold.See
§ 1.263A–1(e)(2)(i)(B). A taxpayer may
not rely on the provisions of this section
19.01 of the APPENDIX to take a current
year deduction.
(c)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(d)Designated automatic account-
ingmethodchangenumber. The des-
September 8, 20086582008–36 I.R.B.

ignated automatic accounting method
change number for a change under section
19.01(1) of this APPENDIX is “42.”See
section 6.02(4) of this revenue procedure.
(2)Bonuses.
(a)Description of change.
(i)Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
bonuses as incurred in the taxable year in
which all events have occurred that es-
tablish the fact of the liability to pay a
bonus and the amount of the liability can
be determined with reasonable accuracy
(see§ 1.446–1(c)(1)(ii)). A taxpayer may
change its method of accounting under this
section 19.01(2) of the APPENDIX pro-
vided that:
(A) the terms of the bonus liability have
been made available to employees;
(B) the amount of the bonus is calcula-
ble as of year end; and
(C) the bonus is received by the em-
ployee by the 15th day of the 3rd calendar
month after the end of that taxable year.
(ii)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(2) of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (as
applicable).
(b)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(c)Designated automatic account-
ing method change number. The des-
ignated automatic accounting method
change number for a change under section
19.01(2) of this APPENDIX is “133.”See
section 6.02(4) of this revenue procedure.
(3)Vacation pay.
(a)Description of change.
(i)Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
vacation pay as incurred in the taxable year
in which all events have occurred that es-
tablish the fact of the liability to pay va-
cation pay, and the amount of the liability
can be determined with reasonable accu-
racy (see§ 1.446–1(c)(1)(ii)). A taxpayer
may change its method of accounting un-
der this section 19.01(3) of the APPEN-
DIX provided that:
(A) the vacation pay vests in that tax-
able year; and
(B) the vacation pay is received by the
employee by the 15th day of the 3rd cal-
endar month after the end of that taxable
year.
(ii)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.01(3) of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (as
applicable).
(b)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
atelineonthatForm3115.
(c)Designated automatic account-
ing method change number.Thedes-
ignated automatic accounting method
change number for a change under section
19.01(3) of this APPENDIX is “134.”See
section 6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Sandra Cheston at
202–622–7900 (not a toll-free call).
.02Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state fran-
chise taxes.
(1)Background. An accrual method
taxpayer generally incurs a liability
in the taxable year that all the events
have occurred that establish the fact of
the liability, the amount of the liabil-
ity can be determined with reasonable
accuracy, and economic performance
has occurred with respect to the lia-
bility.See§ 1.446–1(c)(1)(ii). Under
§ 1.461–4(g)(6), if the liability of the
taxpayer is to pay a tax, economic per-
formance occurs as the tax is paid to the
government authority that imposed the
tax.
(2)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to:
(i) treat liabilities (for which the all
events test of § 461(h)(4) is otherwise met)
for real property taxes, personal property
taxes, state income taxes, or state fran-
chise taxes as incurred in the taxable year
in which the taxes are paid, under § 461
and § 1.461–4(g)(6);
(ii) account for real property taxes, per-
sonal property taxes, state income taxes,
or state franchise taxes under the recurring
item exception method under § 461(h)(3)
and § 1.461–5(b)(1); or
(iii) revoke an election under § 461(c)
(ratable accrual election).
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer’s liability for a tax subject
to the limitation on acceleration of accrual
of taxes under § 461(d); or
(ii) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.02 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(3)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a liabil-
ity that has been incurred is taken into ac-
count. For example, for a taxpayer with in-
ventories, certain real property taxes must
be included in inventory costs and may be
2008–36 I.R.B.659September 8, 2008

recovered through cost of goods sold.See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.02 of the APPENDIX to take a current
year deduction.
(4)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.02
of this APPENDIX is “43.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.03Timing of incurring liabilities under
a workers’ compensation act, tort, breach
of contract, or violation of law.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for self-
insured liabilities (including any amounts
not covered by insurance, such as a “de-
ductible” amount under an insurance pol-
icy) arising under any workers’ compen-
sation act or out of any tort, breach of con-
tract, or violation of law, to treating the lia-
bility for the workers’ compensation, tort,
breach of contract, or violation of law as
being incurred in the taxable year in which
all the events have occurred which estab-
lish the fact of the liability, the amount of
the liability can be determined with rea-
sonable accuracy, and payment is made to
the person to which the liability is owed.
See§ 461 and § 1.461–4(g)(1) and (2).
(b)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.03 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a lia-
bility that has been incurred is taken into
account. For example, for a taxpayer with
inventories, certain employee benefit costs
(including workers’ compensation) must
be included in inventory costs and may be
recovered through costs of goods sold.See
§ 1.263A–1(e)(3)(ii)(D). A taxpayer may
not rely on the provisions of this section
19.03 of the APPENDIX to take a current
year deduction.
(3)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
atelineonthatForm3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.03
of this APPENDIX is “44.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.04Timing of incurring certain liabili-
ties for payroll taxes.
(1)Description of change.
(a)Applicability. This change applies
to:
(i) an accrual method employer that
wants to change its method of accounting
for:
(A) FICA and FUTA taxes to a method
consistent with the holding in Rev. Rul.
96–51, 1996–2 C.B. 36. Rev. Rul. 96–51
holds that, under the all events test of
§ 461, an accrual method employer may
deduct in Year 1 its otherwise deductible
FICA and FUTA taxes imposed with re-
spect to year-end wages properly accrued
in Year 1, but paid in Year 2, if the require-
ments of the recurring item exception are
met; and
(B) state unemployment taxes and, in
the event the taxpayer is an employer
within the meaning of the Railroad Re-
tirement Tax Act (RRTA) (see§ 3231(a)),
RRTA taxes to a method under which the
taxpayer may deduct in Year 1 its other-
wise deductible state unemployment taxes
and railroad retirement taxes (if appli-
cable) imposed with respect to year-end
wages properly accrued in year 1, but
paid in Year 2, if the requirements of the
recurring item exception are met (includ-
ing the requirement that, as of the end of
the taxable year, all events have occurred
that establish the fact of the liability and
the amount of the liability can be de-
termined with reasonable accuracy,see
§ 1.461–5(b));
(ii) an accrual method employer that
utilizes a method of accounting for FICA
and FUTA taxes that is consistent with the
holding in Rev. Rul. 96–51 and wants to
change its method of accounting for state
unemployment taxes and, in the event the
employer is an employer within the mean-
ing of RRTA (see§ 3231(a)), RRTA taxes
to a method under which the taxpayer may
deduct in Year 1 its otherwise deductible
state unemployment taxes and railroad
retirement taxes (if applicable) imposed
with respect to year-end wages properly
accrued in Year 1, but paid in Year 2, if
the requirements of the recurring item ex-
ception are met (including the requirement
that, as of the end of the taxable year, all
events have occurred that establish the fact
of the liability and the amount of the lia-
bility can be determined with reasonable
accuracy,see§ 1.461–5(b)); or
(iii) an accrual method taxpayer that
wants to change its method of account-
ing for FICA and FUTA taxes to the safe
harbor method provided in Rev. Proc.
2008–25, 2008–13 I.R.B. 686. Rev. Proc.
2008–25 provides that for purposes of the
recurring item exception, a taxpayer will
be treated as satisfying the requirement in
§ 1.461–5(b)(1)(i) for its payroll tax liabil-
ity in the same taxable year in which all
events have occurred that establish the fact
of the related compensation liability and
the amount of the related compensation li-
ability can be determined with reasonable
accuracy.
(b)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
September 8, 20086602008–36 I.R.B.

to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under this section 19.04 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Recurring item exception.Atax-
payer that previously has not changed to
or adopted the recurring item exception for
FICA taxes, FUTA taxes, state unemploy-
ment taxes, and railroad retirement taxes
(if applicable) must change to the recurring
item exception method for FICA taxes,
FUTA taxes, state unemployment taxes,
and railroad retirement taxes (if applica-
ble) as specified in § 461(h)(3) as part of
this change.
(3)Scope limitations inapplicable.
The scope limitations in section 4.02
of this revenue procedure do not ap-
ply to a change described in section
19.04(a)(1)(iii) of this APPENDIX that is
made for the taxpayer’s first taxable year
ending on or after December 31, 2007.
(4)Amounts taken into account.Appli-
cable provisions of the Code, regulation,
and other guidance published in the IRB
prescribe the manner in which a liabil-
ity that has been incurred is taken into
account. For example, for a taxpayer
with inventories, certain taxes must be
included in inventory costs and may be
recovered through cost of goods sold.See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.04 of the APPENDIX to take a current
year deduction.
(5)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes and enter the designated
automatic accounting method change
numbers for both changes on the appropri-
ate line on that Form 3115.
(6)Designated automatic account-
ing method change number. The des-
ignated automatic accounting method
change number for a change under section
19.04(1)(a)(i) or (ii) of this APPENDIX is
“45.” The designatedautomatic account-
ing method change number for a change
under section 19.04(1)(a)(iii) of this AP-
PENDIX is “113.”Seesection 6.02(4) of
this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.05Cooperative advertising.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cooperative
advertising costs to a method consistent
with the holding in Rev. Rul. 98–39,
1998–2 C.B. 198. Rev. Rul. 98–39 gen-
erally provides that, under the all events
test of § 461, an accrual method manufac-
turer’s liability to pay a retailer for cooper-
ative advertising services is incurred in the
year in which the services are performed,
provided the manufacturer is able to rea-
sonably estimate this liability, and even
though the retailer does not submit the re-
quired claim form until the following year.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.05
of this APPENDIX is “46.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.06Timing of incurring certain liabili-
ties for services or insurance.
(1)Description of change. This change
applies to a taxpayer that is currently treat-
ing the mere execution of a contract for ser-
vices or insurance as establishing the fact
of the liability under § 461 and wants to
change from that method of accounting for
liabilities for services or insurance to com-
ply with Rev. Rul. 2007–3, 2007–4 I.R.B.
350, that is, all the events needed to estab-
lish the fact of the liability occur when (a)
the event fixing the liability, whether that
be the required performance or other event
occurs or (b) payment is due, whichever
happens earliest.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.06
of this APPENDIX is “106.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leta Ayres at
202–622–5020 (not a toll-free call).
.07Rebates and allowances.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants to
change its method of accounting for treat-
ing its liability for rebates and allowances
to the recurring item exception method un-
der § 461(h)(3) and § 1.461–5.
(b)Inapplicability. This change does
not apply to a taxpayer’s liability to pay a
refund.
(2)Designated automatic accounting
method change number
. The designated
automatic accounting method change
number for a change under section 19.07
of this APPENDIX is “135.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
SECTION 20. RENT (§ 467)
.01Change from a ratable inclusion of
rental income or expense to inclusion in
accordance with the rent allocation.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that:
(i) is a party to § 467 rental agreements
(within the meaning of § 1.467–1(c)(1) for
rental agreements entered into after May
18, 1999, and § 467(d) for all other agree-
ments);
(ii) includes in taxable income a ratable
or straight-line amount of rental income or
expense for its § 467 rental agreements;
and
(iii) wants to change its method of
accounting for its fixed rent (as defined
in § 1.467–1(d)(2)) to the rent allocation
method provided in § 1.467–1(d)(2)(iii).
(b)Inapplicability. This change does
not apply to taxpayers required to use the
constant rental accrual method described
in § 1.467–(3)(a) or the proportional rental
accrual method described in § 1.467–(2)(a)
for their fixed rent.
(2)Additional requirements. The tax-
payer must attach to its Form 3115 a copy
2008–36 I.R.B.661September 8, 2008

of one of its § 467 rental agreements to
be covered by this automatic change (or at
least the pages of the agreement relating to
the manner in which rent is allocated).
(3)Audit protection. A taxpayer re-
ceives audit protection under section 7
of this revenue procedure in connection
with this change for all of its § 467 rental
agreements except those determined by
the Commissioner to be disqualified lease-
backs or long-term agreements described
in § 1.467–(3)(b).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 20.01
of this APPENDIX is “136.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02Reserved.
SECTION 21. INVENTORIES (§ 471)
.01Cash discounts.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cash dis-
counts (discounts granted for timely pay-
ment) when they approximate a fair in-
terest rate, from a method of consistently
including the price of the goods before
discount in the cost of the goods and in-
cluding in gross income any discounts
taken (the “gross invoice method”), to a
method of reducing the cost of the goods
by the cash discounts and deducting as an
expense any discounts not taken (the “net
invoice method”), orvice versa.SeeRev.
Rul. 73–65, 1973–1 C.B. 216.
(2)Computation of § 481(a) adjustment
for changes to net invoice method.Inthe
case of a taxpayer changing from the gross
invoice method to the net invoice method,
a negative adjustment is required to pre-
vent duplications arising from the fact that
the gross invoice method reported income
upon timely payment for some or all of
the goods that remain in inventory, and a
positive adjustment isrequired to prevent
omissions arising from the fact that the
gross invoice method included the invoice
price, unadjusted for the cash discounts, of
some or all goods in cost of goods sold
and the discount will be earned by pay-
ment in a subsequent taxable year. The
net § 481(a) adjustment can be computed
by deducting the “Applicable Discount”
at the beginning of the year of change
from the “Available Discount” at the be-
ginning of the year of change. The Avail-
able Discount is equal to the difference be-
tween the accounts payable balance under
the gross invoice method and the net in-
voice method. The Applicable Discount
is equal to the difference between the be-
ginning inventory value under the gross in-
voice method and the net invoice method.
Example. Taxpayer’s accounts payable bal-
ance at the beginning of the year of change was
$1,000 under the gross invoice method and $980
under the net invoice method. Taxpayer’s inven-
tory value was $3,000 under the gross invoice
method and $2,955 under the net invoice method.
The Available Discount is $20 ($1,000 - $980)
and the Applicable Discount is $45 ($3,000 -
$2,955). Thus, Taxpayer’s net § 481(a) adjust-
ment is a negative $25 ($20 - $45).
(3)Computation of § 481(a) adjustment
for changes to gross invoice method.In
the case of a taxpayer changing from the
net invoice method to the gross invoice
method, a positive adjustment is required
to prevent omissions arising from the fact
that the net invoice method did not re-
port income upon timely payment for some
or all of the goods that remain in inven-
tory, and a negative adjustment is required
to prevent duplications arising from the
fact that the net invoice method included
the invoice price, adjusted for the cash
discounts, of some or all goods in cost
of goods sold and the discount will be
earned by payment in a subsequent tax-
able year. The net § 481(a) adjustment can
be computed by deducting the “Applicable
Discount” at the beginning of the year of
change from the “Available Discount” at
the beginning of the year of change. The
Available Discount is equal to the differ-
ence between the accounts payable bal-
ance under the grossinvoice method and
the net invoice method. The Applicable
Discount is equal to the difference between
the beginning inventory value under the
gross invoice method and the net invoice
method.
Example. Taxpayer’s accounts payable bal-
ance at the beginning of the year of change
was $980 under the net invoice method and
$1,000 under the gross invoice method. Tax-
payer’s inventory value was $2,955 under the
net invoice method and $3,000 under the gross
invoice method. The Applicable Discount is $45
($3,000 - $2,955) and the Available Discount
is $20 ($1,000 - $980). Thus, Taxpayer’s net
§ 481(a) adjustment is a negative $25 ($20 - $45).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.01
of this APPENDIX is “48.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.02Estimating inventory “shrinkage”.
(1)Description of change. This change
applies to a taxpayer that wants to change
to a method of accounting for estimating
inventory shrinkage in computing ending
inventory, using:
(a) the “retail safe harbor method” de-
scribed in section 4 of Rev. Proc. 98–29,
1998–1 C.B. 857; or
(b) a method other than the retail safe
harbor method, provided (i) the taxpayer’s
present method of accounting does not es-
timate inventory shrinkage, and (ii) the
taxpayer’s new method of accounting (that
estimates inventory shrinkage) clearly re-
flects income under § 446(b).
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Additional requirements.Ifthe
taxpayer wants to change to a method of
accounting for inventory shrinkage other
than the retail safe harbor method, the
taxpayer must attach to its Form 3115 a
statement setting fortha detailed descrip-
tion of all aspects of the new method of
estimating inventory shrinkage (including,
for last-in, first-out (LIFO) taxpayers, the
method of determining inventory shrink-
age for, or allocating inventory shrinkage
to, each LIFO pool).
(4)Audit protection. A taxpayer does
not receive audit protection under section
7 of this revenue procedure in connec-
tion with a change to the retail safe harbor
method if, on the date the taxpayer files a
copy of the Form 3115 with the national
office, the taxpayer’s present method of
estimating inventory shrinkage is an issue
under consideration within the meaning of
section 3.09 of this revenue procedure.
September 8, 20086622008–36 I.R.B.

(5)Future change. A taxpayer that
changes to the retail safe harbor method
described in Rev. Proc. 98–29 will not
be precluded, solely by reason of such
change, from changing to another safe
harbor method for estimating inventory
shrinkage in computing ending inventory
in the first year such other safe harbor
method is available.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.02
of this APPENDIX is “49.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Steve Gee at
202–622–4970 (not a toll-free call).
.03Small taxpayer exception from re-
quirement to account for inventories under
§471.
(1)Description of change. This change
applies to either a taxpayer (other than a
taxpayer described § 448(a)(3)) with “av-
erage annual gross receipts” (as defined
in section 5.01 of Rev. Proc. 2001–10,
2001–1 C.B. 272) of $1,000,000 or less
or a qualifying taxpayer (other than a tax-
payer described in § 448) with “average
annual gross receipts” (as defined in sec-
tion 5.02 of Rev. Proc. 2002–28, 2002–1
C.B. 815) of $10,000,000 or less that wants
to change from a method of accounting for
inventoriable items (including, if applica-
ble, from the method of capitalizing costs
under § 263A) to the method described
in Rev. Proc. 2001–10 and Rev. Proc.
2002–28 for treating inventoriable items in
the same manner as materials and supplies
that are not incidental under § 1.162–3.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Manner of making change.SeeRev.
Proc. 2001–10 or Rev. Proc. 2002–28
(as applicable) for additional guidance on
the computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4)Concurrent automatic change to
the overall cash method under Rev. Proc.
2001–10 or Rev. Proc. 2002–28.Atax-
payer that wants to make both this change
and a change to the overall cash method
under Rev. Proc. 2001–10 or Rev. Proc.
2002–28 (seesection 14.03 of this AP-
PENDIX) for the same year of change
may file a single Form 3115 for both
changes, provided the taxpayer enters the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.03
of this APPENDIX for the small taxpayer
($1 million) inventory exception con-
tained in Rev. Proc. 2001–10 is “50.” The
designated automatic accounting method
change number for a change under section
21.03 of this APPENDIX for the small
taxpayer ($10 million) inventory excep-
tion contained in Rev. Proc. 2002–28 is
“51.”Seesection 6.02(4) of this revenue
procedure.
(6)Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.04Qualifying volume-related trade
discounts.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to treat qualifying
volume-related trade discounts as a reduc-
tion in the cost of merchandise purchased
at the time the discount is recognized in ac-
cordance with § 1.471–3(b). A “qualify-
ing volume-related trade discount” means
a discount satisfying the following criteria:
(a) the taxpayer receives or earns the
discount based solely upon the purchase of
a particular volume of the merchandise to
which the discount relates;
(b) the taxpayer is neither obligated nor
expected to perform or provide any ser-
vices in exchange for the discount; and
(c) the discount is not a reimbursement
of any expenditure incurred or to be in-
curred by the taxpayer.
(2)Section 481(a) adjustment.The
net § 481(a) adjustment attributable to the
change is computed in a manner similar
to the computation of a net § 481(a) ad-
justment in the case of a change to the
net invoice method of accounting for cash
discounts.Seesection 21.01(2) of this
APPENDIX.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.04
of this APPENDIX is “53.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.05Impermissible methods of identifi-
cation and valuation.
(1)Description of change. This change
applies to a taxpayer:
(a) changing from an impermissi-
ble method of accounting described in
§§ 1.471–2(f)(1) through (5), including
a LIFO taxpayer restoring a write down
of inventory below cost or discontinuing
maintaining an inventory reserve; or
(b) changing from a gross profit method
or from a method of determining market
that is not in accordance with § 1.471–4.
(i)Gross profit method. A gross profit
method is a method in which the taxpayer
estimates the cost of goods sold by reduc-
ing its gross sales by a percentage “mark-
up” from cost. The estimated cost of goods
sold is subtracted from the sum of the be-
ginning inventory and purchases and the
result is used as the ending inventory.
(ii)Method of determining market.An
example of a method of determining mar-
ket that is not in accordance with § 1.471–4
is where a taxpayer, under ordinary cir-
cumstances, determines the market value
of purchased merchandise using judgment
factors, and not using the prevailing cur-
rent bid price on the inventory date for the
particular merchandise in the volume in
which it is usually purchased by the tax-
payer.
(2)Applicability. For purposes of this
change, a taxpayer must be changing to an
inventory method (identification or valua-
tion, or both) specifically permitted by the
Code, the regulations, or a decision by the
United States Supreme Court, a revenue
ruling, a revenue procedure, or other guid-
ance published in the IRB for the inventory
goods, and the taxpayer is neither prohib-
ited from using that method nor required to
use a different inventory method for those
inventory goods. This change does not ap-
ply to a change described in another sec-
tion of this revenue procedure or in other
guidance published in the IRB.
2008–36 I.R.B.663September 8, 2008

(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.05
of this APPENDIX is “54.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.06Core Alternative Valuation Method.
(1)Description of change.
(a)Applicability. This change applies
to a remanufacturer and rebuilder of motor
vehicle parts and a reseller of remanu-
factured and rebuilt motor vehicle parts
that use the cost or market, whichever is
lower, (LCM) inventory valuation method
to value their inventory of cores held for
remanufacturing or sale and wants to use
the Core Alternative Valuation (CAV)
method specified in Rev. Proc. 2003–20,
2003–1 C.B. 445.
(b)Inapplicability. This change does
not apply to a taxpayer that values its
inventory of cores at cost (including
a taxpayer using the LIFO inventory
method) unless the taxpayer concurrently
changes (under section 6.02 of Rev. Proc.
2003–20) from cost to the LCM method
for its cores (including labor and over-
head related to the cores in raw materials,
work-in-process and finished goods).
(2)Concurrent automatic change.A
taxpayer that wants to make both this
change and (i) a change from the cost
method to the LCM method under section
21.11 of this APPENDIX, or (ii) a change
from the LIFO inventory method to a
permitted method for identification under
(and as determined and defined in) section
22.01(1)(b) of this APPENDIX for the
same year of change, should file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.06
of this APPENDIX is “55.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.07Replacement cost for automobile
dealers’ parts inventory.
(1)Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of selling vehicle parts
at retail, that is authorized under an agree-
ment with one or more vehicle manufac-
turers or distributors to sell new automo-
biles or new light, medium, or heavy-duty
trucks, and that wants to use the replace-
ment cost method described in section 4 of
Rev. Proc. 2002–17, 2002–1 C.B. 676, for
its vehicle parts inventory. See Rev. Proc.
2002–17 for further information regarding
this change.
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.07
of this APPENDIX is “63.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.08Replacement cost for heavy equip-
ment dealers’ parts inventory.
(1)Description of change. This change
applies to a heavy equipment dealer that
is engaged in the trade or business of sell-
ing heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy equip-
ment, and that wants to use the replace-
ment cost method described in section 4 of
Rev. Proc. 2006–14, 2006–1 C.B. 350, for
its heavy equipment parts inventory.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change for either the first or second taxable
year ending on or after April 30, 2005.
(3)Manner of making the change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
(4)Concurrent automatic change.A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A (see
section 11 of this APPENDIX) for the
same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A–7(b)(2).
(5)Designated automatic accounting
method change number
. The taxpayer
must prepare and file a Form 3115 in
accordance with section 6 of Rev. Proc.
2006–14. The designated automatic ac-
counting method change number for a
change under section 21.08 of this AP-
PENDIX is “96.”Seesection 6.02(4) of
this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Willie Armstrong at
202–622–4970 (not a toll-free call).
.09Rotable spare parts.
(1)Description of change. This change
applies to a taxpayer that is using the safe
harbor method of accounting to treat its
rotable spare parts as depreciable assets
in accordance with Rev. Proc. 2007–48,
2007–29 I.R.B. 110, and wants to change
its method of accounting to treat its rotable
spare parts as inventoriable items. This
change also applies to a taxpayer who is
treating its rotable spare parts as deprecia-
ble assets in a manner similar to the safe
harbor method described in Rev. Proc.
2007–48, and wants to change its method
of accounting to treat its rotable spare parts
as inventoriable items. A taxpayer chang-
ing its method of accounting for rotable
spare parts under this section 21.09 of the
APPENDIX, must use a proper inventory
method to identify and value its rotable
spare parts.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to a tax-
payer that is required to make the change
September 8, 20086642008–36 I.R.B.

in method of accounting pursuant to sec-
tion 5.06 of Rev. Proc. 2007–48.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.09
of this APPENDIX is “110.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.10Advance Trade Discount Method.
(1)Description of change. This change
applies to a taxpayer that wants to use
the Advance Trade Discount Method de-
scribed in Rev. Proc. 2007–53, 2007–30
I.R.B. 233.
(2)Scope. This change in method of
accounting applies to an accrual method
taxpayer required to use an inventory
method of accounting and maintaining
inventories, as provided in § 471 and the
regulations thereunder, that receives ad-
vance trade discounts as defined in § 4.03
of Rev. Proc. 2007–53.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to a tax-
payer that wants to make the change for its
first taxable year ending on or after July 2,
2007.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.10
of this APPENDIX is “111.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under this
section, contact W. Thomas McElroy, Jr. at
202–622–4970 (not a toll-free call).
.11Permissible methods of identifica-
tion and valuation.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from
one permissible method of identifying and
valuing inventories to another permissible
method of identifying and valuing inven-
tories that is not a change described in an-
other section of this revenue procedure or
in other guidance published in the IRB.
(b)Permissible method defined.For
purposes of this change, a permissible
method is an inventory method (identifi-
cation or valuation, or both) specifically
permitted by the Code, the regulations,
a decision by the United States Supreme
Court, a revenue ruling, a revenue proce-
dure, or other guidance published in the
IRB for the inventory goods, and the tax-
payer is neither prohibited from using that
method nor required to use a different in-
ventory method for those inventory goods.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.11
of this APPENDIX is “137.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.12Change in the official used vehicle
guide utilized in valuing used vehicles.
(1)Description of change.Usedvehi-
cles taken in trade as part payment on the
sale of vehicles by a dealer may be val-
ued for inventory purposes at valuations
comparable to those listed in an official
used vehicle guide as the average whole-
sale prices for comparable vehicles.See
Rev. Rul. 67–107, 1967–1 C.B. 115. This
change applies to: (a) a taxpayer that wants
to change from not using an official used
vehicle guide to using an official used ve-
hicle guide for valuing used vehicles; or
(b) a taxpayer that wants to change to a dif-
ferent official used vehicle guide for valu-
ingusedvehicles.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.12
of this APPENDIX is “138.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.13Invoiced advertising association
costs for new vehicle retail dealerships
.
(1)Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of retail sales of new au-
tomobiles or new light-duty trucks (“deal-
ership”) that wants to discontinue capital-
izing certain advertising costs as acquisi-
tion costs under § 1.471–3(b). The change
applies to advertising costs that meet the
following criteria: (a) the dealership must
pay this advertising fee when acquiring ve-
hicles from the manufacturer; (b) the ad-
vertising costs are separately coded and in-
cluded in the manufacturer’s invoice cost
of the new vehicle; (c) the advertising cost
is a flat fee per vehicle or a fixed percent-
age of the invoice price; and (d) the fees
collected by the manufacturer are paid to
local advertising associations that promote
and advertise the manufacturer’s products
in the dealership’s market area. Under the
new method, the dealership will exclude
advertising costs that meet the above cri-
teria from the cost of new vehicles and
deduct the advertising costs under § 162 as
the advertising services are provided to the
dealership.See§ 1.461–4(d)(2)(i).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.13
of this APPENDIX is “139.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.14Rolling-average method of account-
ing for inventories.
(1)Description of change. This change
applies to a taxpayer that uses a rolling-
average method to value inventories for
financial accounting purposes and wants
to use the same rolling-average method to
value inventories for federal income tax
purposes in accordance with Rev. Proc.
2008–43, 2008–30 I.R.B. 186.
(2)Certain scope limitation inapplica-
ble. The scope limitation in section 4.02(7)
of this revenue procedure does not apply to
the change to a rolling-average method in
the taxpayer’s first or second taxable year
ending on or after December 31, 2007.
(3)Manner of making change.This
change is made on a cut-off basis unless
the taxpayer’s books and records con-
tain sufficient information to compute a
§ 481(a) adjustment, in which case the tax-
payer may choose to implement the change
with a § 481(a) adjustment as provided
in section 5.04 of this revenue procedure.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis.
2008–36 I.R.B.665September 8, 2008

(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.14
of this APPENDIX is “114.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 22. LAST-IN, FIRST-OUT
(LIFO) INVENTORIES (§ 472)
.01Change from the LIFO inventory
method.
(1)Description of change.
(a)In general. This change applies to a
taxpayer that wants to:
(i) change from the LIFO inventory
method for all its LIFO inventory or for
one or more dollar-value pools; and
(ii) change to a permitted method
or methods as determined in section
22.01(1)(b) of this APPENDIX.
(b)Method to be used.
(i)Determining the permitted method
to be used. A taxpayer may change to
one or more non-LIFO inventory methods
for the LIFO inventories that are the sub-
ject of this accounting method change, but
only if the selected non-LIFO method is a
permitted method for the inventory goods
to which it will be applied. For exam-
ple, a heavy equipment dealer may change
tothespecificidentification method for
new heavy equipment inventories and the
replacement cost method, as described in
Rev. Proc. 2006–14, 2006–1 C.B. 350, for
heavy equipment parts inventories.
(ii)Permitted method defined. For pur-
poses of section 22.01 of this APPENDIX,
an inventory method (identification or val-
uation, or both) is a permitted method if
it is specifically permitted by the Code,
the regulations, a decision by the United
States Supreme Court,a revenue ruling, a
revenue procedure, or other guidance pub-
lished in the IRB for the inventory goods
and if the taxpayer is neither prohibited
from using that method nor required to use
a different inventory method for those in-
ventory goods.
(iii)Determining permitted method.
Whether an inventory method is a permit-
ted method is determined without regard
to the types and amounts of costs cap-
italized under the taxpayer’s method of
computing inventory cost.See§ 263A and
the regulations thereunder, which govern
the types and amounts of costs required to
be included in inventory cost for taxpayers
subject to those provisions.
(2)Certain scope limitation inapplica-
ble. The scope limitation in section 4.02(7)
of this revenue procedure does not apply in
the first taxable year that the taxpayer does
not or will not comply with the require-
ments of § 472(e)(2) because the taxpayer
has applied or will apply International Fi-
nancial Reporting Standards in its finan-
cial statements or because the taxpayer has
been acquired by an entity that has not or
will not use the LIFO method in its finan-
cial statements.
(3)Limitation on LIFO election.The
taxpayer may not re-elect the LIFO in-
ventory method for a period of at least
five taxable years beginning with the year
of change unless, based on a showing of
unusual and compelling circumstances,
consent is specifically granted by the
Commissioner to change the method of
accounting at an earlier time. A taxpayer
that wants to re-elect the LIFO inventory
method within a period of five taxable
years (beginning with the year of change)
must file a Form 3115 in accordance with
Rev. Proc. 97–27 (or any successor). A
taxpayer that wants to re-elect the LIFO
inventory method after a period of five
taxable years (beginning with the year of
change) is not required to file a Form 3115
in accordance with Rev. Proc. 97–27, but
must file a Form 970,Application To Use
LIFO Inventory Method, in accordance
with § 1.472–3.
(4)Effect of subchapter S election by
corporation.
(a)S election effective for year of LIFO
discontinuance. If a C corporation elects
to be treated as an S corporation for the
taxable year in which it discontinues use
of the LIFO inventory method, § 1363(d)
requires an increase in the taxpayer’s gross
income for the LIFO recapture amount (as
defined in § 1363(d)(3)) for the taxable
year preceding the year of change (the tax-
payer’s last taxable year as a C corpora-
tion) and a corresponding adjustment to
the basis of the taxpayer’s inventory as
of the end of the taxable year preceding
the year of change. Any increase in in-
come tax as a result of the inclusion of the
LIFO recapture amount is payable in four
equal installments, beginning with the tax-
payer’s last taxable year as a C corpora-
tion as provided in § 1363(d)(2). Any cor-
responding basis adjustment is taken into
account in computing the § 481(a) adjust-
ment (if any) that results upon the discon-
tinuance of the LIFO inventory method by
the corporation.
(b)S election effective for a year af-
ter LIFO discontinuance. If a C corpora-
tion elects to be treated as an S corpora-
tion for a taxable year after the taxable year
in which it discontinued use of the LIFO
inventory method, the remaining balance
of any positive § 481(a) adjustment must
be included in its gross income in its last
taxable year as a C corporation. If this in-
clusion results in an increase in tax for its
last taxable year as a C corporation, this
increase in tax is payable in four equal in-
stallments, beginning with the taxpayer’s
last taxable year as a C corporation as pro-
vided in § 1363(d)(2), unless the taxpayer
is required to take the remaining balance
of the § 481(a) adjustment into account in
the last taxable yearas a C corporation un-
der another acceleration provision in sec-
tion 5.04(3)(c) of this revenue procedure.
(5)Additional requirements. The tax-
payer must complete the following state-
ments and attach them to its Form 3115.
If the taxpayer will use different methods
for different inventory goods to which the
change applies, the taxpayer must com-
plete the statements for each of those dif-
ferent types of inventory goods.
(a) “The new method of identifying [In-
sert description of inventory goods]isthe
[Insert method, as appropriate; that is,
specific identification; FIFO; retail; etc.]
method.”
(b) “The new method of valuing [In-
sert description of inventory goods]is[In-
sert method, as appropriate; that is, cost;
LCM; etc.].”
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.01
of this APPENDIX is “56.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
September 8, 20086662008–36 I.R.B.

.02Determining current-year cost un-
der the LIFO inventory method.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to change its method of
determining current-year cost to:
(i) the actual cost of the goods most
recently purchased or produced (most-re-
cent-acquisitions method);
(ii) the actual cost of the goods pur-
chased or produced during the taxable year
in the order of acquisition (earliest-acqui-
sitions method);
(iii) the average unit cost equal to the
aggregate actual cost of all the goods
purchased or produced throughout the
taxable year divided by the total number
of units so purchased or produced.See
§ 1.472–8(e)(2)(ii);
(iv) the specific identification method;
or
(v) a rolling-average method if the tax-
payer uses that rolling-average method in
accordance with Rev. Proc. 2008–43,
2008–30 I.R.B. 186.
(b)Inapplicability. This change does
not apply to a taxpayer using the lower of
cost or market method to determine cur-
rent-year cost. A taxpayer using the lower
of cost or market method that valued in-
ventory below cost may not change to a
proper cost valuation under this section
22.02 of the APPENDIX.
(2)Certain scope limitation inapplica-
ble. The scope limitation in section 4.02(7)
of this revenue procedure does not apply to
the change to a rolling-average method in
the taxpayer’s first or second taxable year
ending on or after December 31, 2007.
(3)Manner of making change.This
change is made using a cut-off basis and
applies only to the computations of cur-
rent-year cost after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(4)Concurrent change to a rolling-av-
erage method. A taxpayer that wants to
make both a change to a rolling-aver-
age method of determining current-year
cost for its LIFO inventory under this
section 22.02 of the APPENDIX and a
change to a rolling-average method of ac-
counting for non-LIFO inventories under
Rev. Proc. 2008–43 (seesection 21.14
of this APPENDIX) should file a single
Form 3115 for both changes and enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.02
of this APPENDIX is “57.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.03Alternative LIFO inventory method
for retail automobile dealers.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer engaged in the trade or busi-
ness of retail sales of new automobiles
or new light-duty trucks (“automobile
dealer”) that wants to change to the “Al-
ternative LIFO method” described in
section 4 of Rev. Proc. 97–36, 1997–2
C.B. 450, as modified by Rev. Proc.
2008–23, 2008–12 I.R.B. 664, for its
LIFO inventories of new automobiles and
new light-duty trucks. Light-duty trucks
are trucks with a gross vehicle weight of
14,000 pounds or less, which also are re-
ferred to as class 1, 2, or 3 trucks.
(b)Inapplicability. This change does
not apply to an automobile dealer that uses
the inventory price index computation
(IPIC) method for goods other than new
automobiles, new light-duty trucks, parts
and accessories, used automobiles, and
used trucks.
(2)Manner of making change.
(a)Cut-off basis. This change is made
using a cut-off basis and applies only to
the computation of ending inventories af-
ter the beginning of the year of change.
See section 2.06 of this revenue procedure
and section 5.03(6) of Rev. Proc. 97–36
for more information regarding a cut-off
basis. Accordingly, a § 481(a) adjustment
is neither permitted nor required.
(b)Concurrent change from IPIC
method. An automobile dealer using
the IPIC method that also has parts and
accessories, used automobiles, or used
light-duty trucks (other goods) inventory
may incorporate a change, using a cut-off
basis, from IPIC to another acceptable
LIFO method for those other goods into
this change. When changing from IPIC
to a dollar-value LIFO method for its
other goods, the automobile dealer must
establish separate inventory pools for new
automobiles and new light-duty trucks,
unless the automobile dealer also concur-
rently changes to the Vehicle-Pool Method
(seesection 22.08 of this APPENDIX).
Further, the automobile dealer must estab-
lish a separate inventory pool for the parts
and accessories.
(c)Additional requirements.An auto-
mobile dealer also must comply with the
following:
(i) the conditions in section 5.03 of Rev.
Proc. 97–36; and
(ii) for an automobile dealer changing
from the IPIC method, the automobile
dealer also must attach to the application
a schedule setting forth the classes of
goods for which the automobile dealer has
elected to use the LIFO method and the
accounting method changes being made
under section 22.03 of this APPENDIX
for each class of goods.
(3)Concurrent change to the Vehi-
cle-Pool Method. A taxpayer that wants
to make both a change to the Alternative
LIFO Method under this section 22.03
of the APPENDIX and a change to the
Vehicle-Pool Method under Rev. Proc.
2008–23, 2008–12 I.R.B. 664, (seesection
22.08 of this APPENDIX) should file a
single Form 3115 for both changes and
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.03
of this APPENDIX is “58.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.04Used vehicle alternative LIFO
method.
(1)Description of change. This change
applies to a taxpayer that sells used auto-
mobiles and used light-duty trucks (“used
2008–36 I.R.B.667September 8, 2008

vehicle dealers”) that wants to change
to the “Used Vehicle Alternative LIFO
Method” as described in Rev. Proc.
2001–23, 2001–1 C.B. 784, as modified
by Announcement 2004–16, 2004–1 C.B.
668, and Rev. Proc. 2008–23, 2008–12
I.R.B. 664.
(2)Additional requirements.Atax-
payer making this change must comply
with the additional conditions set forth in
section 5.04 of Rev. Proc. 2001–23.
(3)Manner of making change.
(a)Cut-off basis. This change is made
on a cut-off basis, which requires that the
value of the taxpayer’s used automobile
and used light-duty truck inventory at the
beginning of the year of change must be
the same as the value of that inventory at
the end of the preceding taxable year, plus
cost restorations, if any, required by sec-
tion 5.04(5) of Rev. Proc. 2001–23. See
section 2.06 of this revenue procedure for
more information regarding a cut-off basis.
Accordingly, a § 481(a) adjustment is nei-
ther permitted nor required.
(b)Bargain purchase. If the taxpayer
has previously improperly accounted for
a bulk bargain purchase, the taxpayer
must, as part of this change, first change
its method of accounting to comply with
Hamilton Industries, Inc. v. Commis-
sioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change.SeeAnnouncement 91–173,
1997–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.04 of this APPENDIX except
for complying with section 22.04(3)(b) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. How-
ever, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain pur-
chase. Accordingly, the examining agent
may make any necessary adjustments in
any open year to effect compliance with
Hamilton Industries, Inc.
(c)New base year. Ineffectinga
change to the Used Vehicle Alternative
LIFO Method under this revenue proce-
dure, any LIFO inventory cost increments
previously determined and the value of
those increments must be retained. Instead
of using the earliest taxable year for which
the taxpayer adopted LIFO as the base
year, the year of change must be used as
the new base year in determining the value
of all existing LIFO cost increments for
the year of change and later taxable years.
(The cumulative index at the beginning
of the year of change will be 1.00). The
base-year cost of all LIFO cost increments
at the beginning of the year of change
must be restated in terms of new base-year
costs, using the year of change as the new
base year, and the indexes for previously
determined inventory increments must
be recomputed accordingly. The new
base-year cost of a pool is equal to the
total current-year cost of all the vehicles
in the pool.
(d)Application. Taxpayers are re-
minded to complete all applicable parts of
the Form 3115, including Part I of Sched-
ule C.
(4)Concurrent change from IPIC
method. A used vehicle dealer using the
IPIC method that also has parts and acces-
sories, new automobiles, or new light-duty
trucks (other goods) inventory may in-
corporate a change, using a cut-off basis,
from IPIC to another acceptable LIFO
method for those other goods into this
change. When changing from IPIC to a
dollar-value LIFO method for its other
goods, the used vehicle dealer must es-
tablish separate inventory pools for new
automobiles and new light-duty trucks,
unless the used vehicle dealer also concur-
rently changes to the Vehicle-Pool Method
(seesection 22.08 of this APPENDIX).
Further, the used vehicle dealer must es-
tablish a separate inventory pool for the
parts and accessories.
(5)Concurrent change to the Vehicle-
Pool Method. A taxpayer that wants to
make both a change to the Used Vehi-
cle Alternative LIFO Method under this
section 22.04 of the APPENDIX and a
change to the Vehicle-Pool Method under
Rev. Proc. 2008–23 (seesection 22.08
of this APPENDIX) should file a single
Form 3115 for both changes and enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.04
of this APPENDIX is “59.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.05Determining the cost of used vehi-
cles purchased or taken as a trade-in.
(1)Description of change and scope.
(a)Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to:
(i) determine the cost of used vehicles
acquired by trade-in using the average
wholesale price listed by an official used
vehicle guide on the date of the trade-in.
SeeRev. Rul. 67–107, 1967–1 C.B.
115. The official used vehicle guide se-
lected must be consistently used unless
the taxpayer receives permission to use a
different guide;
(ii) use a different official used vehicle
guide for determining the cost of used ve-
hicles acquired by trade-in;
(iii) determine the cost of used vehicles
purchased for cash using the actual pur-
chase price of the vehicle; or
(iv) reconstruct the beginning-of-the-
year cost of used vehicles purchased for
cash using values computed by national
auto auction companies based on vehicles
purchased for cash. The national auto
auction company selected must be consis-
tently used.
(b)Inapplicability. This change does
not apply to a taxpayer that adopted or
changed to the Used Vehicle Alternative
LIFO Method (seesection 22.04 of the AP-
PENDIX of this revenue procedure).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
pliesonlytousedvehiclesacquiredonor
after the beginning of the year of change.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. Accordingly,a § 481(a) adjustment
is neither permitted nor required.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.05
of this APPENDIX is “60.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
September 8, 20086682008–36 I.R.B.

.06Change to the inventory price index
computation (IPIC) method.
(1)Description of change. This change
applies to a taxpayer that wants to change:
(a) from a non-IPIC LIFO inventory
method to the IPIC method in accor-
dance with all relevant provisions of
§ 1.472–8(e)(3); or
(b) from the IPIC method as described
in T.D. 7814, 1982–1 C.B. 84, (March 15,
1982) (the old IPIC method) to the IPIC
method as described in T.D. 8976, 2002–1
C.B. 421, (January 8, 2002) (the new IPIC
method), which includes the following re-
quired changes (if applicable):
(i) from using 80% of the inventory
price index (IPI) to using 100% of the IPI
to determine the base-year cost and dol-
lar-value of a LIFO pool(s);
(ii) from using a weighted arithmetic
mean to using a weighted harmonic mean
to compute an IPI for a dollar-value
pool(s); and
(iii) from using a components-of-cost
method to define inventory items to using a
total-product-cost method to define inven-
tory items.
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
(3)Bargain purchase. If the taxpayer
has previously improperly accounted for
a bulk bargain purchase, the taxpayer
must, as part of this change, first change
its method of accounting to comply with
Hamilton Industries, Inc. v. Commis-
sioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change.SeeAnnouncement 91–173,
1997–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.06 of this APPENDIX except
for complying with section 22.06(3) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. How-
ever, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain pur-
chase. Accordingly, the examining agent
may make any necessary adjustments in
any open year to effect compliance with
Hamilton Industries, Inc.
(4)Concurrent automatic changes.
(a) A taxpayer that wants to make this
change and to change its method of de-
termining current-year cost under section
22.02 of this APPENDIX for the same year
of change may file a single Form 3115 for
both changes, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(b) A taxpayer that wants to make this
change and to change its method of pool-
ing to IPIC-method pools described in
§ 1.472–8(b)(4) or § 1.472–8(c)(2) under
section 22.07 of this APPENDIX for the
same year of change may file a single
Form 3115, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(c) A taxpayer that wants to make this
change and to change its method of pool-
ing under section 22.10 of this APPENDIX
for the same year of change may file a sin-
gle Form 3115, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.06
of this APPENDIX is “61.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.07Changes within the inventory price
index computation (IPIC) method.
(1)Description of change. This change
applies to a taxpayer using the IPIC
method described in § 1.472–8(e)(3) as
revised by T.D. 8976, 2002–1 C.B. 421,
(new IPIC method) that wants to make one
or more of the following changes:
(a) change from the double-exten-
sion IPIC method to the link-chain
IPIC method, orvice versa.See
§ 1.472–8(e)(3)(iii)(E) for principles con-
cerning the computation of the inventory
price index under the double-extension
IPIC method and the link-chain IPIC
method;
(b) change to or from the 10 percent
method. See § 1.472–8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to BLS categories under
the IPIC method;
(c) change to IPIC-method pools
described in § 1.472–8(b)(4) or
§ 1.472–8(c)(2), including a change to
begin or discontinue applying one or both
of the 5 percent pooling rules;
(d) change to combine or separate pools
as a result of the application of a 5 percent
pooling rule described in § 1.472–8(b)(4)
or § 1.472–8(c)(2);
(e) change its selection of BLS table
from Table 3 (Consumer Price Index for
All Urban Consumers (CPI-U): U.S. city
average, detailed expenditure categories)
of the monthly CPI Detailed Report to
Table 6 (Producer price indexes percent
changes for commodity groupings and in-
dividual items, not seasonally adjusted) of
the monthly PPI Detailed Report, orvice
versa.See§ 1.472–8(e)(3)(iii)(B)(2) for
principles concerning the selection of a
BLS table under the IPIC method;
(f) change the assignment of one or
more inventory items to BLS categories
under either Table 3 (Consumer Price In-
dex for All Urban Consumers (CPI-U):
U.S. City average, detailed expenditure
categories) of the monthly CPI Detailed
Report or Table 6 (Producer price indexes
and percent changes for commodity group-
ings and individual items, not seasonally
adjusted) of the monthly PPI Detailed
Report. See § 1.472–8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to BLS categories under
the IPIC method; and
(g) change the representative month
when necessitated because of a change
in taxable year or a change in method
of determining current-year cost made
pursuant to section 22.02 of this AP-
PENDIX. See § 1.472–8(e)(3)(iii)(B) for
principles concerning the determination
of a representative month under the IPIC
method. A change in method of deter-
mining current-year cost and a change of
the representative month may be made
using a single Form 3115, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.Seesection 6.02(4) of this
revenue procedure.
2008–36 I.R.B.669September 8, 2008

(2)Manner of making change.These
changes are made on a cut-off basis and ap-
ply only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
A taxpayer that changes pursuant to sec-
tions 22.07(1)(a), (b) and (e) of this AP-
PENDIX must establish a new base year
in the year of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.07
of this APPENDIX is “62.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.08Changes to the Vehicle-Pool
Method.
(1)Description of change.This
change applies to a retail dealer or whole-
sale distributor (“reseller”) of cars and
light-duty trucks that wants to change to
the “Vehicle-Pool Method” as described in
Rev. Proc. 2008–23, 2008–12 I.R.B. 664.
(2)Manner of making change.This
change is made on a cut-off basis and
applies only to the computation of ending
inventories after the beginning of the year
of change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a)
adjustment is neither permitted nor re-
quired. A reseller that changes its method
of pooling under Rev. Proc. 2008–23
and this section 22.08 of the APPENDIX
must comply with § 1.472–8(g). Instead
of using the earliest taxable year for which
the reseller adopted the LIFO method for
any items in a pool, the reseller must use
the year of change as the base year when
determining the LIFO value of that pool
for the year of change and subsequent
taxable years (i.e., the cumulative index at
the beginning of the year of change will
be 1.00). The reseller must restate the
base-year cost of all layers of increment
in a pool at the beginning of the year of
change in terms of new base-year cost.
For an example of establishing a new base
year, see § 1.472–8(e)(3)(iv)(B)(1)(ii).
(3)Scope limitations inapplicable.The
scope limitation in section 4.02(7) of this
revenue procedure does not apply for the
reseller’s first taxable year ending on or
after December 31, 2007.
(4)Concurrent change to the Alter-
native LIFO Method or the Used Vehicle
Alternative LIFO Method.Areseller
that wants to make both a change to the
Vehicle-Pool Method under this section
22.08 of the APPENDIX and a change to
the Alternative LIFO Method under Rev.
Proc. 97–36 (seesection 22.03 of this AP-
PENDIX) or the Used Vehicle Alternative
LIFO Method under Rev. Proc. 2001–23
seesection 22.04 of this APPENDIX)
should file a single Form 3115 for both
changes and enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line
on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.08
of this APPENDIX is “112.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.09Changes within the used vehicle al-
ternative LIFO method.
(1)Description of change. This change
applies to a taxpayer using the “Used Ve-
hicle Alternative LIFO Method” as de-
scribed in Rev. Proc. 2001–23, 2001–1
C.B. 784, as modified by Announcement
2004–16, 2004–1 C.B. 668, and Rev. Proc.
2008–23, 2008–12 I.R.B. 664, that wants
to change the particular “official used vehi-
cle guide” utilized by the taxpayer in con-
nection with the Used Vehicle Alternative
LIFO Method or any change in the precise
manner of its utilization (e.g., a change in
the specific guide category that a taxpayer
uses to represent vehicles of average con-
dition for purposes of section 4.02(5)(a) of
Rev. Proc. 2001–23).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
A taxpayer that changes its method pur-
suant to section 22.09 of this APPENDIX
must establish a new base year in the year
of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.09
of this APPENDIX is “140.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.10Changes to dollar-value pools of
manufacturers.
(1)
Description of change. This change
applies to a manufacturer that:
(a) purchases goods for resale (resale
goods) and, thus, must reassign resale
goods from the pool(s) it maintains for
the goods it manufactures to one or more
resale pools;
(b) wants to change from using multiple
pools described in § 1.472–8(b)(3) to us-
ing natural business unit (NBU) pools de-
scribed in § 1.472–8(b)(1), orvice versa;
and
(c) wants to reassign items in NBU
pools described in § 1.472–8(b)(1) into the
same number or a greater number of NBU
pools.
(2)Manner of making change.This
change is made on a cut-off basis and
applies only to the computation of end-
ing inventories after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off method. Accordingly,
a § 481(a) adjustment is neither permitted
nor required. A taxpayer that changes
its method of pooling pursuant to section
22.10 of this APPENDIX must combine or
separate pools as required by § 1.472–8(g).
A taxpayer that changes its method of
pooling pursuant to section 22.10 of this
APPENDIX must combine or separate
pools as required by § 1.472–8(g).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.10
of this APPENDIX is “141.”Seesection
6.02(4) of this revenue procedure.
September 8, 20086702008–36 I.R.B.

(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 23. MARK-TO-MARKET
ACCOUNTING METHOD FOR
DEALERS IN SECURITIES (§ 475)
.01Commodities dealers, securities
traders, and commodities traders electing
to use the mark-to-market method of ac-
counting under § 475(e) or (f).
(1)Description of change. This change
applies to certain taxpayers that have
elected to use the mark-to-market method
of accounting under § 475(e) or (f). Under
§ 475(e) and (f) and Rev. Proc. 99–17,
1999–1 C.B. 503, if a taxpayer makes an
election under § 475(e)or(f),thenbegin-
ning with the first taxable year for which
the election is effective (election year),
mark to market is the only permissible
method of accounting for securities or
commodities subject to the election. Thus,
if the electing taxpayer’s method of ac-
counting for its taxable year immediately
preceding the election year is inconsis-
tent with § 475, the taxpayer is required
to change its method of accounting to
comply with the election. A taxpayer
that makes a § 475(e) or (f) election but
fails to change its method of accounting
to comply with that election is using an
impermissible method.Seesection 4 of
Rev. Proc. 99–17.
(2)Scope. This change applies to a
taxpayer if all of the following conditions
are satisfied:
(a) the taxpayer is a commodities
dealer, securities trader, or commodities
trader that has made a valid election under
§ 475(e) or (f) (seesection 5.03(1) of Rev.
Proc. 99–17) and that is required to change
its method of accounting to comply with
the election;
(b) the method of accounting to which
the taxpayer changes is in accordance with
its election under § 475(e) or (f); and
(c) the year of change is the election
year.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(4)Election under Rev. Proc. 99–17.
In accordance with section 5.03(1) of Rev.
Proc. 99–17, in order to make a section
475(e) or (f) election, a taxpayer must file
a statement satisfying the requirements in
section 5.04 of Rev. Proc. 99–17. The
statement must be filed not later than the
due date (without regard to extensions) of
the original federal income tax return for
the taxable year immediately preceding the
election year and must be attached either
to that return or, if applicable, to a request
for an extension of time to file that re-
turn. For example, if a calendar year in-
dividual taxpayer wants to make a section
475(e) or (f) election for 2009 (the elec-
tion year), the taxpayer must file the state-
ment on or before April 15, 2009, with the
taxpayer’s timely filed (without regard to
extensions) federal income tax return for
2008 or the taxpayer’s timely filed request
for an extension of time to file the 2008
federal income tax return. On the Form
3115 filed for the year of change, a tax-
payer should indicate that the taxpayer has
filed the statement in compliance with sec-
tion 5.03(1) of Rev. Proc. 99–17.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 23.01
of this APPENDIX is “64.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Eric E. Boody at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 24. BANK RESERVES FOR
BAD DEBTS (§ 585)
.01Changing from the § 585 reserve
method to the § 166 specific charge-off
method.
(1)Description of change.
(a)Applicability. This change applies
to a bank (as defined in § 581, includ-
ing a bank for which a qualified subchap-
ter S subsidiary (QSub) election is filed)
that wants to change its method of account-
ing for bad debts from the § 585 reserve
method to the § 166 specific charge-off
method.
(b)Inapplicability. This change does
not apply to a large bank as defined in
§ 585(c)(2).
(2)Certain scope limitations inapplica-
ble. A bank that changed from the § 593
reserve method under § 593(g) to the § 585
reserve method will not be prohibited un-
der section 4.02(7) of this revenue pro-
cedure from changing its method of ac-
counting for bad debts under this section
24.01 of the APPENDIX solely because of
the § 593(g) change. A bank for which a
QSub election is filed will not be prohib-
ited under section 4.02(7) of this revenue
procedure from changing its method of ac-
counting for bad debts under this section
24.01 of the APPENDIX solely because of
the deemed liquidation of the bank arising
from a QSub election.
(3)Section 481(a) adjustment. Gener-
ally, the amount of the § 481(a) adjust-
ment for a change in method of account-
ing under this section 24.01 of the AP-
PENDIX is the amount of the bank’s re-
serve for bad debts as of the close of the
taxable year immediately before the year
of change. However, the amount of the
§ 481(a) adjustment does not include the
amount of a bank’s pre–1988 reserves (as
described in § 593(g)(2)(A)(ii), without
taking into account § 593(g)(2)(B)) if the
bank changed in a prior year from the
§593reservemethodtothe§585re-
servemethodand§593(g)appliedtothat
change. The deemed liquidation of a bank
occurring solely because its parent makes
a QSub election does not accelerate the
§ 481(a) adjustment. In accordance with
section 5.04(3)(c) of this revenue proce-
dure, a bank that ceases to be a bank under
§ 581 must accelerate its § 481(a) adjust-
ment.
(4)Change from § 585 required when
electing S corporation status.
(a)General rule. A bank electing
S corporation status (or a bank for which
a QSub election is filed) cannot use the
§585reservemethod. Thefilingbya
bank of a Form 2553,Election by a Small
Business Corporation,orthefilingbya
bank’s parent of Form 8869,Qualified
Subchapter S Subsidiary Election,with
respect to the bank will constitute an
agreement by the bank to change its
method of accounting for bad debts from
the § 585 reserve method to the § 166
specific charge-off method effective
as of the taxable year for which the
S corporation election or QSub election is
effective (year of change) in accordance
2008–36 I.R.B.671September 8, 2008

with all of the applicable provisions
of this revenue procedure (including
section 6 of this revenue procedure, which
requires filing a Form 3115 in duplicate).
The resulting § 481(a) adjustment is
recognized built-in gain under § 1374,
unless the bank elects under § 1361(g) and
section 24.01(4)(b) of this APPENDIX to
take the § 481(a) adjustment into account
in determining taxable income for the
taxable year immediately preceding the
year of change.See§ 1.1374–4 (d).
(b)Election to include § 481(a) adjust-
ment in taxable year immediately preced-
ing the year of change.
(i)Election requirements.Foratax-
able year beginning after December 31,
2006, a bank that changes its method of
accounting for bad debts under this sec-
tion 24.01 of the APPENDIX, from the
§ 585 reserve method to the § 166 spe-
cific charge-off method for the first tax-
able year for which the bank’s S corpora-
tion election is effective (year of change)
may elect under § 1361(g) to take into ac-
count the amount of the resulting § 481(a)
adjustment in determining taxable income
for the taxable year immediately preceding
the year of change. To make this election,
a bank must (1) file an original and copy
of Form 3115 under section 6.02(3) of this
revenue procedure for the year of change,
(2) file an additional copy of the Form
3115 with its original (or amended) fed-
eral income tax return for the taxable year
immediately preceding the year of change
filed no later than the date the original
Form 3115 is properly filed under section
6.02(3) of this revenue procedure, and (3)
include the amount of the § 481(a) adjust-
ment in gross income for the taxable year
immediately preceding the year of change.
The bank must attach a statement to the
original and both copies of Form 3115 stat-
ing that the bank elects under § 1361(g) to
take the § 481(a) adjustment into account
in determining taxable income for the tax-
able year immediately preceding the year
of change.
(ii)Special rule for QSub banks.In
the case of a QSub bank, the S corpora-
tion parent must file an original and copy
of Form 3115 under section 6.02(3) of this
revenue procedure for the year of change.
The QSub bank must file an additional
copy of the Form 3115 with its original
(or amended) federal income tax return
for the taxable year immediately preced-
ing the year of change filed no later than
the date the original Form 3115 is prop-
erly filed under section 6.02(3) of this rev-
enue procedure, and include the amount of
the § 481(a) adjustment in gross income
for the taxable year immediately preceding
the year of change. In the case of a QSub
bank, the Form 3115 should indicate that
the “filer” is the S corporation parent and
the “applicant” is the QSub bank.
(iii) The following example illustrates
the principles of section 24.01(4)(b) of this
APPENDIX.
Example.X, a calendar year taxpayer, is a bank
as defined in § 581 and is not a large bank as defined
in § 585(c)(2). For taxable years before 2007,X
accounted for its bad debts under the § 585 reserve
method. By March 15, 2007,Xproperly filed a Form
2553 electing to be an S corporation effective Jan-
uary 1, 2007. Pursuant to section 24.01(4)(a) of this
APPENDIX, the filing of the Form 2553 constituted
an agreement byXto change from the § 585 reserve
method to the § 166 specific charge-off method in
2007 in accordance with all of the applicable provi-
sions of this revenue procedure. Thus, for example,
Xmust file a Form 3115 for this 2007 change in
duplicate, in accordance with section 6.02(3) of this
revenue procedure, by attaching the original Form
3115 toX’s timely filed (including extensions) orig-
inal federal income tax return for 2007 and filing a
copy of the Form 3115 with the national office. The
amount ofX’s § 481(a) adjustment for the change is
the amount ofX’s bad debt reserve as of the close
of December 31, 2006.Xwishes to elect under
§ 1361(g) to include the § 481(a) adjustment in in-
come in the taxable year ending December 31, 2006,
the taxable year immediately preceding the year of
change. To make this election,Xmust (1) file an
original and copy of Form 3115 for the 2007 change
under section 6.02(3) of this revenue procedure, (2)
file an additional copy of that Form 3115 with its
original (or amended) federal income tax return for
2006 filed no later than the date the original Form
3115 is properly filed under section 6.02(3) of this
revenue procedure, and (3) include the amount of
its § 481(a) adjustment in gross income in its return
for 2006.Xmust attach a statement to the original
and both copies of Form 3115 stating thatXelects
under § 1361(g) to take the § 481(a) adjustment into
account in determining taxable income for 2006,
the taxable year immediately preceding the year of
change.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 24.01
of this APPENDIX is “66.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Sharon Galm
at 202–622–3930 or Laura Fields at
202–622–3050 (not a toll-free call).
.02Reserved.
SECTION 25. INSURANCE COMPANY
PREMIUM ACQUISITION EXPENSES
(§ 832)
.01Safe harbor method of accounting
for premium acquisition expenses.
(1)Description of change. Rev. Proc.
2002–46, 2002–2 C.B. 105, sets forth
a safe harbor method of accounting for
premium acquisition expenses of certain
non-life insurance companies. Under this
method, an insurance company is per-
mitted to treat as premium acquisition
expenses incurred for the taxable year an
amount equal to the sum of (a) the amount
of premium acquisition expenses paid
during the taxable year; (b) the difference
between the unpaid premium acquisition
expenses shown on the company’s annual
statement for the taxable year and the un-
paid premium acquisition expenses shown
on the company annual statement for the
preceding taxable year; and (c) the differ-
ence between the amount of the insurance
company’spro formapremium acquisition
expenses at the end of the taxable year and
the company’spro formapremium acqui-
sition expenses at the end of the preceding
taxable year. The amount taken into ac-
count as a net increase in thepro forma
premium acquisition expenses, however,
cannot exceed the insurance company’s
unearned premium reserve offset amount
for that year. A special rule applies to pre-
mium acquisition expenses with respect to
certain contracts with installment premi-
ums.SeeRev. Proc. 2002–46.
(2)Scope. This automatic change in
accounting method applies to any insur-
ance company that is subject to tax un-
der § 831(a) and determines its premiums
earned for insurance contracts during the
taxable year under § 832(b)(4) in accor-
dance with the provisions of § 1.832–4.
The automatic change does not apply to an
existing Blue Cross or Blue Shield organi-
zation or any other organization to which
§ 833 applies. The scope limitations in
section 4.02 of this revenue procedure do
not apply to this change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 25.01
September 8, 20086722008–36 I.R.B.

of this APPENDIX is “67.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further in-
formation regarding a change under this
section, contact Melissa Luxner or Kay
Hossofsky at 202–622–3970 (not a toll-
free call).
.02Reserved.
SECTION 26. DISCOUNTED UNPAID
LOSSES (§ 846)
.01Composite method for discounting
unpaid losses.
(1)Description of change. Section
846 defines “discounted unpaid losses”
for purposes of computing the insurance
company taxable income of certain insur-
ance companies. Notice 88–100, 1988–2
C.B. 439, section V, sets forth a composite
method for computing unpaid losses with
respect to accident years not separately
stated on the NAIC annual statement. Rev.
Proc. 2002–74, 2002–2 C.B. 980, section
3.01, clarifies that the composite method
of Notice 88–100, section V, is permitted,
but not required; section 3.02 sets forth
an alternative method for those taxpayers
that do not use the composite method of
section 3.01. An insurance company us-
ing a method provided in section 3.01 or
3.02 of Rev. Proc. 2002–74 to compute
discounted unpaid losses, must use the
same method to compute discounted esti-
mated salvage recoverable. An insurance
company that currently uses a permissi-
ble method of accounting for discounted
unpaid losses may change its method
of accounting to or from the composite
method of Notice 88–100, section V, with-
out the consent of the Commissioner. This
change applies to insurance companies
that are required to discount unpaid losses
under § 846.SeeRev. Proc. 2002–74.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 26.01
of this APPENDIX is “68.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further in-
formation regarding a change under this
section, contact Melissa Luxner or Kay
Hossofsky at 202–622–3970 (not a toll-
free call).
.02Reserved.
SECTION 27. REAL ESTATE
MORTGAGE INVESTMENT CONDUIT
(REMIC) (§§ 860A–860G)
.01REMIC inducement fees.
(1)Description of change. A taxpayer
that receives an inducement fee in connec-
tion with becoming the holder of a noneco-
nomic residual interest in a REMIC must
take that fee into account over the remain-
ing expected life of the applicable REMIC
in accordance with § 1.446–6. This change
applies to a taxpayer that seeks to change
from any method of accounting for such
inducement fees to one of the safe harbor
methods provided under § 1.446–6(e)(1) –
(2).SeeRev. Proc. 2004–30, 2004–1 C.B.
950, for additional guidance relating to this
change.
(2)Manner of making change.Atax-
payer making this change must identify
the specific safe harbor method under
§ 1.446–(6)(e) to which the taxpayer is
changing.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 27.01
of this APPENDIX is “79.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Santina Jannotta at
202–622–3930 (not a toll-free call).
.02Reserved.
SECTION 28. INCOME FROM
SOURCES WITHIN THE UNITED
STATES (§ 861)
.01Transactions involving computer
programs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for transactions
involving computer programs to conform
to the provisions of § 1.861–18. This
change applies only to transactions occur-
ring pursuant to contracts entered into on
or after December 31, 1998.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 28.01
of this APPENDIX is “69.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contactAnne Shelburne at
202–435–5145 (not a toll-free call).
.02Reserved
.
SECTION 29. FUNCTIONAL
CURRENCY (§ 985)
.01Change in functional currency.
(1)Description of change. This change
applies to a taxpayer that wants to change
its functional currency or the functional
currency of a qualified business unit
(QBU) of the taxpayer. The preceding
sentence does not apply to a QBU of a
taxpayer described in § 1.985–1(b)(1)(iii).
(2)Manner of making change.Atax-
payer making this change must make all
necessary adjustments required by such
change.See§§ 1.985–5, 1.985–8(c).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 29.01
of this APPENDIX is “70.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contactBarbara Felker at
202–622–3850 (not a toll-free call).
.02Reserved.
SECTION 30. BA
SIS OF
CERTAIN SECU
RITIES SOLD
OR TRANSFERR
ED (§ 1012)
.01Change to comply with
§ 1.1012–1(c)(1) – (4).
(1)Description of change.
(a)Applicability. This change ap-
plies to a taxpayer that sells or transfers
shares of stock in a corporation, bonds,
or book-entry securities (as defined in
§ 1.1012–1(c)(7)(iii)) (collectively re-
ferred to as “securities”), and wants
to change to the method provided in
§ 1.1012–1(c)(1) for determining basis
in the securities sold or transferred. The
method in § 1.1012–1(c)(1) provides that
the taxpayer determines the cost or basis
of the securities sold or transferred by
(1) adequately identifying the securities
sold or transferred or the lot from which
the securities are sold or transferred and,
(2) being deemed to have identified the
2008–36 I.R.B.673September 8, 2008

cost or basis of the securities sold from
the lot(s) of securities purchased or ac-
quired the earliest, if the taxpayer does
not make an adequate identification.See
§ 1.1012–1(c)(2) – (4) for examples of
what constitutes adequate identification.
(b)Inapplicability.
(i) This change does not apply to any
shares of stock for which a taxpayer
may make an election as to certain reg-
ulated investment company stock under
§ 1.1012–1(e).
(ii) This change does not apply, be-
cause there is no change in method of ac-
counting, when for prior sales a taxpayer
who has not adequately identified securi-
ties sold or transferred is deemed to have
identified the securities sold or transferred
that were purchased or acquired the earli-
est and for subsequent sales that taxpayer
adequately identifies the securities sold or
transferred, orvice versa.
(2)Manner of making change and
designated automatic accounting method
change number.
(a)Section 481(a) adjustment. Except
as provided in section 30.01(2)(b) of this
APPENDIX, this change is made using a
§ 481(a) adjustment. The § 481(a) ad-
justment is calculated as the difference be-
tween the basis of the shares on hand at the
beginning of the year of change under the
new and prior methods.
(b)Cut-off basis. In lieu of a § 481(a)
adjustment, the taxpayer may make an ir-
revocable election to make this change on
a cut-off basis under which the taxpayer
begins using the new method for determin-
ing basis in its securities for all sales and
transfers made on or after the beginning
of the year of change. See section 2.06
of this revenue procedure for more infor-
mation regarding a cut-off basis. The elec-
tion to make this change on a cut-off ba-
sis must be made on the taxpayer’s timely
filed Form 3115 (seesection 6.02(3) of this
revenue procedure). If the taxpayer elects
to make this change on a cut-off basis, the
basis of the shares on hand at the beginning
of the year of change is the basis deter-
mined under the taxpayer’s prior method
of accounting,i.e., the method from which
it is changing.
(c)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 30.01
of this APPENDIX is “142.”Seesection
6.02(4) of this revenue procedure.
(d)Contact information. For further
information regarding a change under
this section, contact Shareen Pflanz at
202–622–4920 (not a toll-free call).
.02Reserved.
SECTION 31. ORIGINAL ISSUE
DISCOUNT (§§ 1272, 1273)
.01De minimis original issue discount
(OID).
(1)Description of change. This change
applies to a taxpayer that wants to change
to the principal-reduction method of ac-
counting described in section 5 of Rev.
Proc. 97–39, 1997–2 C.B. 485. The prin-
cipal-reduction method of accounting is
an aggregate method of accounting forde
minimisOID (discount) on certain loans
originated by the taxpayer.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Description. The principal-reduc-
tion method of accounting is a permissi-
ble method for use by taxpayers to account
for discount on one or more categories of
loans described in section 4.02 or 4.03 of
Rev. Proc. 97–39. If the principal-re-
duction method is used to account for any
loans in a category of loans, the method
must be used for the entire category of
loans. The principal-reduction method ap-
plies only to loans described in section 3 of
Rev. Proc. 97–39.
(4)Manner of making change.
(a) This change is made on a cut-off
basis and applies only to loans described
in section 3 of Rev. Proc. 97–39 that were
acquired on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b) The taxpayer must maintain books
and records sufficient to satisfy the direc-
tor that old and new loans have been ade-
quately segregated.
(5)Additional requirements. On a state-
ment attached to the Form 3115, the tax-
payer must:
(a) identify the categories of loans to
which the new method will apply; and
(b) describe any “additional categories”
permitted under section 4.03 of Rev. Proc.
97–39.
(6)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nection with this change.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 31.01
of this APPENDIX is “72.”Seesection
6.02(4) of this revenue procedure.
(8)
Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 32. MARKET DISCOUNT
BONDS (§ 1278)
.01Revocation of § 1278(b) election.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market dis-
count bonds by revoking its § 1278(b)
election. Under § 1278(b), a taxpayer
may elect a method of accounting under
which market discount is currently in-
cluded in gross income for the taxable
years to which the discount is attributable.
SeeRev. Proc. 92–67, 1992–2 C.B. 429,
for the procedures to make a § 1278(b)
election (including a deemed § 1278(b)
election). The procedures for revoking a
§ 1278 election were formerly provided in
section 7 of Rev. Proc. 92–67.
(2)Revocation of election. The revoca-
tion of a § 1278(b) election applies to all
market discount bonds that are held by the
taxpayer on the first day of the first tax-
able year for which the revocation is effec-
tive (year of change), and to all market dis-
count bonds that are subsequently acquired
by the taxpayer. If a § 1278(b) election is
revoked, then for purposes of § 1278(a),
accrued market discount with respect to
any bond previously subject to the election
means accrued market discount as defined
in § 1276(b) less any market discount in-
cluded in income while the bond was sub-
ject to the § 1278(b) election.
September 8, 20086742008–36 I.R.B.

(3)Manner of making change.This
change is made on a cut-off basis and
applies only to market discount accruing
on or after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
Market discount accruing on a bond prior
to the year of change was currently in-
cluded in income and market discount
accruing on the bond on and after the first
day of the year of change is included in
incomegenerallyupondispositionofthe
bond.See§ 1276(a). Because a cut-off
basis is prescribed for this change, the
basis of any bond, adjusted for amounts
previously included in income during the
period of the election, is not affected by
the revocation.
(4)Additional requirements. On a state-
ment attached to the Form 3115, the tax-
payer must provide:
(a) the reason(s) for revoking the
§ 1278(b) election (or deemed § 1278(b)
election);
(b) a description of the method by
which, and the date on which, the taxpayer
made the § 1278(b) election (or deemed
§ 1278(b) election) that is being revoked;
and
(c) a statement that, after the revoca-
tion, the taxpayer will not make a constant
interest rate election for any bond that has
been subject to the § 1278(b) election (or
deemed § 1278(b) election) being revoked
and for which a constant interest rate elec-
tion was not effective in the year of acqui-
sition.
(5)Audit protection. A taxpayer re-
ceives audit protection under section 7 of
this revenue procedure in connection with
this change. However, the audit protec-
tion applicable to this change does not pre-
clude the Commissioner from examining
the method used by the taxpayer to deter-
mine the amount of accrued market dis-
count under § 1276(b) for a taxable year
prior to the year of change.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 32.01
of this APPENDIX is “73.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 33. SHORT-TERM
OBLIGATIONS (§ 1281)
.01Interest income on short obliga-
tions.
(1)Description of change.
(a) This change applies to a taxpayer
that wants to change its method of account-
ing to comply with § 1281 for interest in-
come on short-term obligations.
(b) Under § 1281, a holder of certain
short-term obligations, including a bank as
definedin§581,mustincludeingross
income any accrued interest income on
such obligations, regardless of the holder’s
overall method of accounting. Section
1281 applies to all types of interest in-
come, including acquisition discount, orig-
inal issue discount (OID), and stated inter-
est.SeeS. Rep. No. 99–313, 99
th
Cong.,
2d Sess. 903 (1986), 1986–3 (Vol. 3) C.B.
903.
(c) Section 1283(a)(1) generally de-
fines a short-term obligation as any bond,
debenture, note, certificate, or other evi-
dence of indebtedness that matures in one
year or less from its issue date.
(d) Under §§ 1281(a) and 1283(c), a
holder of a short-term obligation subject
to § 1281 must include in gross income an
amount equal to the sum of the daily por-
tions of the acquisition discount or OID,
whichever is applicable, on the obligation
for each day during the taxable year that
the obligation is held by the holder.See
§ 1283(b), as modified by § 1283(c), to
determine the daily portions of acquisition
discount or OID. In addition, § 1281(a) re-
quires the holder to include in gross in-
come any stated interest that is payable on
the short-term obligation (other than stated
interest taken into account to determine the
amount of the acquisition discount or OID)
as it accrues.
(2)Section 481(a) adjustment period.
A taxpayer must take the entire § 481(a)
adjustment into account in computing tax-
able income for the year of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.01
of this APPENDIX is “74.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Stated interest on short-term loans
of cash method banks.
(1)Description of change. This change
applies to a bank that uses the cash receipts
and disbursements (cash) method of ac-
counting as its overall accounting method
and that wants to change its method of
accounting from accruing stated interest
on short-term loans made in the ordi-
nary course of business to using the cash
method for that interest. For example,see
Security State Bank v. Commissioner,214
F.3d 1254 (10th Cir. 2000),aff’g111 T.C.
210 (1998),acq., 2001–1 C.B. xix; andSe-
curity Bank Minnesota v. Commissioner,
994 F.2d 432 (8th Cir. 1993),aff’g98
T.C. 33 (1992), in which the courts held
that § 1281 does not apply to short-term
loans made by a cash method bank in the
ordinary course of its business.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure are not applicable to
this change.
(3)Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into account
in computing taxable income for the year
of change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.02
of this APPENDIX is “75.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
2008–36 I.R.B.675September 8, 2008

APPENDIX CONTACT LIST
APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
1.0191David Silber202–622–3930FI&P
2.011William Ruane202–622–4920IT&A
3.012Martin Osborne202–622–7900IT&A
3.023Martin Osborne202–622–7900IT&A
3.034Martin Osborne202–622–7900IT&A
3.0486Martin Osborne202–622–7900IT&A
4.01
5
Sean Dwyer
202–622–5020
IT&A
5.01
16William E. Blanchard
202–622–3950
FI&P
6.017Douglas Kim202–622–4930IT&A
6.028Douglas Kim202–622–4930IT&A
6.0310Edward Schwartz202–622–4960IT&A
6.0411Douglas Kim202–622–4930IT&A
6.05
12Douglas Kim202–622–4930IT&A
6.0613Douglas Kim202–622–4930IT&A
6.0714Douglas Kim202–622–4930IT&A
6.08
15
Douglas Kim202–622–4930IT&A
6.0987Douglas Kim202–622–4930IT&A
6.1088Douglas Kim202–622–4930IT&A
6.1189Bernard Harvey202–622–4930IT&A
6.1297Douglas Kim202–622–4930IT&A
6.1398Mark Weiss
202–622–7750
CORP
6.1499Bernard Harvey202–622–4930IT&A
6.15
104Douglas Kim202–622–4930IT&A
6.16
105
Douglas Kim202–622–4930IT&A
6.17107Douglas Kim202–622–4930IT&A
6.18116Douglas Kim202–622–4930IT&A
6.19117Douglas Kim202–622–4930IT&A
6.20118Douglas Kim202–622–4930IT&A
6.21119Douglas Kim202–622–4930IT&A
6.22
115
Douglas Kim202–622–4930IT&A
7.0117Grant Anderson202–622–4930IT&A
8.01100Bernard Harvey202–622–4930IT&A
8.02101Jennifer Bernardini202–622–3110PS&I
8.03102Nicole Cimino202–622–3110PS&I
9.0118Douglas Kim202–622–4930IT&A
9.02120Douglas Kim202–622–4930IT&A
10.0119Gwen Turner
202–622–5020
IT&A
10.0220Gwen Turner
202–622–5020
IT&A
10.0321Gwen Turner
202–622–5020
IT&A
10.0447Gwen Turner
202–622–5020
IT&A
10.05
78Gwen Turner
202–622–5020
IT&A
10.06109Gwen Turner
202–622–5020
IT&A
10.07121Gwen Turner
202–622–5020
IT&A
11.0122Donna Crawford202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.0223Donna Crawford202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.0324Donna Crawford202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.04
25
Cheryl Oseekey202–622–4970IT&A
11.05
77John Faron202–622–4930IT&A
11.0692John Faron202–622–4930IT&A
12.0126Steve Gee202–622–4970IT&A
13.0127Maryellen Simpson202–622–6030TEGE
13.0228Maryellen Simpson202–622–6030TEGE
September 8, 20086762008–36 I.R.B.

APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
13.0329James Holland202–283–9699EP
Carlton Watkins
202–283–9625
EP
14.01122, 123W. Thomas McElroy, Jr.202–622–4970IT&A
14.0231Erika Reigle
202–622–4950
IT&A
14.0332,33Kari Fisher202–622–4970IT&A
14.04
34, 35
W. Thomas McElroy, Jr.202–622–4970IT&A
14.05
71William E. Blanchard
202–622–3950
FI&P
14.06
85
Bernard Harvey202–622–4930IT&A
14.0790Josephine Firehock202–622–3970FI&P
Kay Hossofsky202–622–3970FI&P
14.08108Timothy Sebastian202–622–3920FI&P
14.09124Gwen Turner
202–622–5020
IT&A
14.10
125
Erika Reigle
202–622–4950
IT&A
14.11126Kari Fisher202–622–4970IT&A
14.12127Sharon Galm202–622–3930FI&P
14.13128Robert Basso
202–622–4950
IT&A
Renay France
202–622–5020
IT&A
14.14129Grant Anderson202–622–4930IT&A
Karla Meola202–622–4930IT&A
15.01
36Timothy Sebastian202–622–3920FI&P
15.02
37R. Matthew Kelley202–622–7900IT&A
15.03
38R. Matthew Kelley202–622–7900IT&A
15.04
39R. Matthew Kelley202–622–7900IT&A
15.05
80, 81Santina Jannotta202–622–3930FI&P
15.06
82Santina Jannotta202–622–3930FI&P
15.07
83, 84R. Matthew Kelley202–622–7900IT&A
15.08
94Santina Jannotta202–622–3930FI&P
15.09
103Michael Schmit202–622–4960IT&A
15.10
130R. Matthew Kelley202–622–7900IT&A
16.01131William E. Blanchard
202–622–3950
FI&P
17.01132Willie Armstrong202–622–4970IT&A
18.0141Lore Cavanaugh202–622–4960IT&A
19.0142, 133, 134Sandra Cheston202–622–7900IT&A
19.0243Jamie Kim
202–622–4950
IT&A
19.0344Jamie Kim
202–622–4950
IT&A
19.04
45, 113
Jamie Kim
202–622–4950
IT&A
19.05
46Jamie Kim
202–622–4950
IT&A
19.06106Leta Ayres
202–622–5020
IT&A
19.07
135
Jamie Kim
202–622–4950
IT&A
20.01136William Ruane202–622–4920IT&A
21.0148Patty Ward202–622–4970IT&A
21.0249Steve Gee202–622–4970IT&A
21.03
50, 51
W. Thomas McElroy, Jr.202–622–4970IT&A
21.04
53
Patty Ward202–622–4970IT&A
21.0554
Patty Ward202–622–4970IT&A
21.06
55
Willie Armstrong202–622–4970IT&A
21.0763Willie Armstrong202–622–4970IT&A
21.0896Willie Armstrong202–622–4970IT&A
21.09110Gwen Turner
202–622–5020
IT&A
21.10111W. Thomas McElroy, Jr.202–622–4970IT&A
21.11137Patty Ward202–622–4970IT&A
21.12138Patty Ward202–622–4970IT&A
21.13139Patty Ward202–622–4970IT&A
21.14114Leo Nolan202–622–4970IT&A
22.01
56
Leo Nolan202–622–4970IT&A
22.02
57
Leo Nolan202–622–4970IT&A
22.03
58
Leo Nolan202–622–4970IT&A
22.04
59
Leo Nolan202–622–4970IT&A
22.05
60Patty Ward202–622–4970IT&A
2008–36 I.R.B.677September 8, 2008

APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
22.0661Leo Nolan202–622–4970IT&A
22.0762Leo Nolan202–622–4970IT&A
22.08112Leo Nolan202–622–4970IT&A
22.09140Leo Nolan202–622–4970IT&A
22.10141Leo Nolan202–622–4970IT&A
23.0164Eric E. Boody
202–622–3950
FI&P
24.0166Sharon Galm202–622–3930FI&P
Laura Fields
202–622–3050
PS&I
25.01
67Melissa Luxner202–622–3970FI&P
Kay Hossofsky202–622–3970FI&P
26.0168Melissa Luxner202–622–3970FI&P
Kay Hossofsky202–622–3970FI&P
27.0179Santina Jannotta202–622–3930FI&P
28.0169Anne Shelburne
202–435–5145
INTL
29.0170Barbara Felker
202–622–3850
INTL
30.01142Shareen Pflanz202–622–4920IT&A
31.0172William E. Blanchard
202–622–3950
FI&P
32.0173William E. Blanchard
202–622–3950
FI&P
33.0174William E. Blanchard
202–622–3950
FI&P
33.02
75
William E. Blanchard
202–622–3950
FI&P
26 C
FR 601.105: Examination of returns and claims
for
refund, credit, or abatement; determination of tax
lia
bility.
Rev
. Proc. 2008–53
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by for-
eign life insurance companies and foreign
property and liability insurance compa-
nies to compute their minimum effectively
connected net investment income under
section 842(b) of the Internal Revenue
Code for taxable years beginning after
December 31, 2006. Instructions are pro-
vided for computing foreign insurance
companies’ liabilities for the estimated tax
and installment payments of estimated tax
for taxable years beginning after Decem-
ber 31, 2006. For more specific guidance
regarding the computation of the amount
of net investment income to be included by
a foreign insurance company on its U.S. in-
come tax return, see Notice 89–96, 1989–2
C.B. 417. For the domestic asset/liability
percentage and domestic investment yield,
as well as instructions for computing for-
eign insurance companies’ liabilities for
estimated tax and installment payments of
estimated tax for taxable years beginning
aft
er December 31, 2005, see Rev. Proc.
200
7–58, 2007–37 I.R.B. 585.
SEC
TION 2. CHANGES
DOMESTICASSET/LIABILITY
PERCENTAGES FOR 2007. The Secre-
tary determines the domestic asset/liability
percentage separately for life insurance
companies and property and liability in-
surance companies. For the first taxable
year beginning after December 31, 2006,
the relevant domestic asset/liability per-
centages are:
124.4 percent for foreign life insurance
companies, and
197.1 percent for foreign property and
liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 2007. The Secretary is
required to prescribe separate domestic in-
vestment yields for foreign life insurance
companies and for foreign property and
liability insurance companies. For the first
taxable year beginning after December 31,
2006, the relevant domestic investment
yields are:
4.9 percent for foreign life insurance
companies, and
4.2 percent for foreign property and li-
ability insurance companies.
.03 SOURCE OF DATA FOR 2007.
The section 842(b) percentages to be used
for the 2007 tax year are based on tax re-
tur
n data following the same methodology
use
d for the 2006 year.
SECTION 3.
APPLICATION-ESTIMATED TAXES
To compute estimated tax and the in-
stallment payments of estimated tax due
for taxable years beginning after Decem-
ber 31, 2006, a foreign insurance com-
pany must compute its estimated tax pay-
ments by adding to its income other than
net investment income the greater of (i) its
net investment income as determined un-
der section 842(b)(5), that is actually ef-
fectively connectedwith the conduct of a
trade or business within the United States
for the relevant period, or (ii) the mini-
mum effectively connected net investment
income under section 842(b) that would re-
sult from using the most recently available
domestic asset/liability percentage and do-
mestic investment yield. Thus, for install-
ment payments due after the publication of
this revenue procedure, the domestic as-
set/liability percentages and the domestic
investment yields provided in this revenue
procedure must be used to compute the
minimum effectively connected net invest-
ment income. However, if the due date of
an installment is less than 20 days after the
date this revenue procedure is published
in the Internal Revenue Bulletin, the as-
set/liability percentages and domestic in-
vestment yields provided in Rev. Proc.
September 8, 20086782008–36 I.R.B.

2007–58 may be used to compute the mini-
mum effectively connected net investment
income for such installment. For further
guidance in computing estimated tax, see
Notice 89–96.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 2006.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Sheila Ramaswamy of the
Office of Associate Chief Counsel (In-
ternational). For further information re-
garding this revenue procedure, contact
Sheila Ramaswamy at (202) 622–3870
(not a toll-free call).
2008–36 I.R.B.679September 8, 2008

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Employer Comparable
Contributions to Health
Savings Accounts Under
Section 4980G, and
Requirement of Return
for Filing of the Excise Tax
Under Section 4980B, 4980D,
4980E or 4980G
REG–120476–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations providing guidance
on employer comparable contributions to
Health Savings Accounts (HSAs) under
section 4980G of the Internal Revenue
Code (Code) as amended by sections 302,
305 and 306 of the Tax Relief and Health
CareActof2006(theAct). Thepro-
posed regulations also provide guidance
relating to the requirement of a return
to accompany payment of the excise tax
under section 4980B, 4980D, 4980E, or
4980G of the Code and the time for filing
that return. These proposed regulations
would affect employers that contribute
to employees’ HSAs and Archer MSAs,
employers or employee organizations that
sponsor a group health plan, and certain
third parties such as insurance companies
or HMOs or third-party administrators
who are responsible for providing benefits
under the plan. This document also pro-
vides notice of a public hearing on these
proposed regulations.
DATES: Written or electronic comments
must be received by October 14, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for October 30,
2008, at 10:00 am, must be received by Oc-
tober 13, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–120476–07), In-
ternal Revenue Service, room 5203, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–120476–07),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically
via the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS
REG–120476–07). The public hearing
will be held in room 2116, Internal
Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations as they relate to section 4980E
or 4980G, Mireille Khoury at (202)
622–6080; concerning the proposed reg-
ulations as they relate to section 4980B
or 4980D, Russ Weinheimer at (202)
622–6080; concerning submissions of
comments, the hearing, and/or to be placed
on the building access list to attend the
hearing, Richard Hurst at (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of infor-
mation should be sent to theOffice of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to theInternal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of in-
formation should be received by Septem-
ber 15, 2008.
Comments are specifically requested
concerning:
Whether the proposed collections of in-
formation are necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collections of information in these
proposed regulations are in Q&A–11 in
§4980B–2, Q&A–1 in §4980D–1, Q&A–1
in §4980E–1, and Q&A–5 in §4980G–1.
These collections of information result
from the requirement to file a return for
the payment of the excise tax under sec-
tion 4980B, 4980D, 4980E, or 4980G
of the Code. The likely respondents are
employers that contribute to employees’
HSAs and Archer MSAs, employers or
employee organizations that sponsor a
group health plan, and certain third parties
such as insurance companies or HMOs or
third-party administrators who are respon-
sible for providing benefits under the plan.
Estimated total annual reporting bur-
den: 2,500 hours.
The estimated annual burden per re-
spondent is 30 minutes.
Estimated number of respondents:
5,000.
The estimated frequency of responses
per respondent is occasional, less than
once per year.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
September 8, 20086802008–36 I.R.B.

information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains proposed Pen-
sion Excise Tax Regulations (26 CFR part
54) under section 4980G of the Code, as
amended by sections 302 and 305 of the
Tax Relief and Health Care Act of 2006
(the Act), under paragraph (d) of section
4980G of the Code, as enacted by section
306 of the Act, and under section 4980E of
the Code.
Section 1201 of the Medicare Prescrip-
tion Drug, Improvement, and Modern-
ization Act of 2003 (Modernization Act),
Public Law 108–173, (117 Stat. 2066,
2003) added section 223 to the Code to
permit eligible individuals to establish
HSAs for taxable years beginning after
December 31, 2003. Section 4980G was
also added to the Code by the Modern-
ization Act. Section 4980G(a) imposes
an excise tax on the failure of an em-
ployer to make comparable contributions
to the HSAs of its employees for a cal-
endar year. Section 4980G(b) provides
that rules and requirements similar to
section 4980E (the comparability rules
for Archer Medical Savings Accounts
(Archer MSAs)) apply for purposes of
section 4980G. Section 4980E(b) imposes
an excise tax equal to 35% of the aggre-
gate amount contributed by an employer
to the Archer MSAs of employees dur-
ing the calendar year if an employer fails
to make comparable contributions to the
Archer MSAs of its employees in a cal-
endar year. Therefore, if the employer
fails to make comparable contributions to
the HSAs of its employees during a cal-
endar year, an excise tax equal to 35% of
the aggregate amount contributed by the
employer to the HSAs of its employees
during that calendar year is imposed on the
employer. See sections 4980G(a) and (b)
and 4980E(b). See also Notice 2004–2,
2004–1 C.B. 269, Q&A–32. On July 31,
2006, final regulations on comparability
were published in theFederal Register,
71 FR 43056 (T.D. 9277, 2006–2 C.B.
226). In addition, on April 17, 2008,
final regulations were published in the
Federal Register,73FR20794(T.D.
9393, 2008–20 I.R.B. 975), providing
guidance on employer comparable
contributions to HSAsin instances where
an employee has not established an HSA
by December 31
st
and in instances where
an employer accelerates contributions for
the calendar year for employees who have
incurred qualified medical expenses. See
§601.601(d)(2).
This document also contains proposed
Pension Excise Tax Regulations (26 CFR
part 54) under sections 4980B and 4980D
of the Code. Under section 4980B of the
Code, group health plans maintained by an
employer with 20 or more employees must
comply with continuation coverage re-
quirements. If a plan does not satisfy these
requirements, an excise tax is imposed
of $100 per day per affected beneficiary.
Final regulations under section 4980B
have been published, including provisions
concerning the excise tax, but no return
filing requirement has previously been
imposed. See §54.4980B–2, Q&A–9 and
Q&A–10. Moreover, under chapter 100
of the Code, group health plans must com-
ply with various requirements, including
limitations on preexisting condition exclu-
sions, certification of creditable coverage,
special enrollments, prohibitions against
discrimination based on a health factor,
parity in the annual and lifetime dollar lim-
its placed on mental health benefits with
those placed on medical/surgical benefits,
and minimum hospital lengths of stay in
connection with childbirth. If a plan does
not satisfy any of these requirements un-
der chapter 100, section 4980D imposes
an excise tax of $100 per day per affected
individual. Regulations interpreting the
substantive requirements of chapter 100
have previously been published, but no
regulations have been published concern-
ing the excise tax under section 4980D.
Explanation of Provisions
Special Rule for Contributions to
Nonhighly Compensated Employees
New paragraph (d) of section 4980G
provides an exception to the comparability
rules that allows, but does not require,
employers to make larger contributions
to the HSAs of nonhighly compensated
employees than the employer makes to the
HSAs of highly compensated employees.
These proposed regulations interpret that
requirement. Specifically, the proposed
regulations, in §54.4980G–4, provide that
employer contributions to the HSAs of
nonhighly compensated employees may
be larger than employer contributions to
the HSAs of highly compensated employ-
ees with comparable coverage during a
period. Conversely, employer contribu-
tions to the HSAs of highly compensated
employees may not exceed employer
contributions to the HSAs of nonhighly
compensated employees with comparable
coverage during a period.
The comparability rules still apply with
respect to contributions to the HSAs of all
nonhighly compensated employees who
are comparable participating employees
(eligible individuals who are in the same
category of employees with the same
category of high deductible health plan
(HDHP) coverage) and an employer must
make comparable contributions to the
HSA of each nonhighly compensated em-
ployee who is a comparable participating
employee during the calendar year. Sim-
ilarly, the comparability rules still apply
with respect to contributions to the HSAs
of all highly compensated employees who
are comparable participating employees
and an employer must make comparable
contributions to the HSA of each highly
compensated employee who is a compa-
rable participating employee during the
calendar year. Collectively bargained em-
ployees are disregarded for purposes of
section 4980G, as are HSA contributions
made through a cafeteria plan.
For purposes of §4980G(d), highly
compensated employee is defined under
section 414(q) and includes any employee
who was (1) a five-percent owner at any
time during the year or the preceding year;
or (2) for the preceding year, (A) had com-
pensation from the employer in excess of
$105,000 (for 2008, indexed for inflation)
and (B) if elected by the employer, was
in the group consisting of the top 20 per-
cent of employees when ranked based on
compensation. Nonhighly compensated
employees are employees that are not
highly compensated employees.
Maximum HSA Contribution Permitted
for Employees Who Become Eligible
Individuals Mid-year
Section 305 of the Act provides that in-
dividuals who are eligible individuals dur-
ing the last month of the taxable year (that
is, who, in the case of calendar year tax-
payers, are eligible individuals on Decem-
2008–36 I.R.B.681September 8, 2008

ber 1 of the year) may make or have made
on their behalf the maximum annual HSA
contribution based on their HDHP cover-
age (self only or family) on that date. A
portion of the contribution is included in
income and subject to an additional 10 per-
cent tax if the individual fails to remain
an eligible individual for 12 months after
the last month of the taxable year. See
section 223(b)(8). Section 54.4980G–6 of
the proposed regulations provides that the
employer can contribute up to this max-
imum contribution on behalf of all em-
ployees who are eligible individuals dur-
ing the last month of the taxable year, in-
cluding employees who become eligible
individuals after January 1
st
of the calen-
dar year and eligible individuals who are
hired after January 1
st
of the calendar year
(both such classes of individuals are here-
inafter referred to as “mid-year eligible
individuals”). An employer who makes
the maximum calendar year HSA contri-
bution, or who contributes more than a
pro-rataamount, on behalf of employees
who are mid-year eligible individuals will
not fail to satisfy comparability merely be-
cause some employees will have received
more contributions on a monthly basis than
employees who worked the entire calendar
year.
Employers are not required to make
these greater thanpro-ratacontributions
and may instead pro-rate contributions
based on the number of months that an
individual was both employed by the
employer and an eligible individual. How-
ever, if an employer contributes more than
the monthlypro-rataamount for the cal-
endar year to the HSA of any employee
who is a mid-year eligible individual,
the employer must then contribute, on an
equal and uniform basis, a greater than
pro-rataamount to the HSAs of all com-
parable participating employees who are
mid-year eligible individuals. Likewise,
if the employer contributes the maximum
annual contribution amount for the calen-
dar year to the HSA of any employee who
is a mid-year eligible individual, the em-
ployer must contribute that same amount
to the HSAs of all comparable participat-
ing employees who are mid-year eligible
individuals.
Special Comparability Rules For Qualified
HSA Distributions
Section 302(a) of the Act provides for
qualified HSA distributions. See section
106(e) and Notice 2007–22, 2007–10
I.R.B. 670. See §601.601(d)(2). Aqual-
ified HSA distributionis a direct distribu-
tion of an amount from a health flexible
spending arrangement (health FSA) or a
health reimbursement arrangement (HRA)
to an HSA. The distribution must not ex-
ceed the lesser of the balance in the health
FSA or HRA on September 21, 2006, or
as of the date of the distribution. Section
54.4980G–7 of the proposed regulations
would provide that if an employer of-
fers qualified HSA distributions to any
employee who is an eligible individual
covered under any HDHP, the employer
must offer qualified HSA distributions to
all employees who are eligible individuals
covered under any HDHP. However, an
employer that offers qualified HSA distri-
butions only to employees who are eligible
individuals covered under the employer’s
HDHP is not required to offer qualified
HSA distributions to employees who are
eligible individuals but are not covered
under the employer’s HDHP.
Requirement of Return and Time for Filing
of the excise tax under section 4980B,
4980D, 4980E or 4980G.
The regulations provide that persons
who are liable for the excise tax under
section 4980B, 4980D, 4980E, or 4980G
are required to file a return on Form
8928, “Return of Certain Excise Taxes
Under Chapter 43 of the Internal Rev-
enue Code.” The excise tax under section
4980B, 4980D, 4980E or 4980G must be
paid at the time prescribed for filing of
the excise tax return (without extensions).
With respect to the excise tax under sec-
tion 4980B or 4980D for employers and
third parties such as insurers or third party
administrators, the return is due on or be-
fore the due date for filing the person’s
federal income tax return. An extension
to file the person’s income tax return does
not extend the date for filing Form 8928.
With respect to the excise tax under sec-
tion 4980B or 4980D for multiemployer or
specified multiple employer health plans,
the return is due on or before the last day
of the seventh month after the end of the
plan year. Finally, with respect to the ex-
cise tax under section 4980E or 4980G for
noncomparable contributions, the return
is due on or before the 15
th
day of the
fourth month following the calendar year
in which the noncomparable contributions
were made.
Proposed Effective/Applicability Date
The sections of these regulations that
provide guidance on employer compara-
ble contributions to HSAs under section
4980G are proposed to apply to employer
contributions made on or after the first day
of the first calendar year after the final reg-
ulations are published in theFederal Reg-
ister. However, taxpayers may rely on
these regulations for guidance with respect
to employer contributions made on or after
January 1, 2007, and before the effective
date of final regulations.
The sections of these regulations that
provide guidance relating to the excise tax
under section 4980B, 4980D, 4980E and
4980G are proposed to be effective for cal-
endar years (or plan years, where applica-
ble) beginning after the date the final reg-
ulations are published in theFederal Reg-
ister.
Special Analyses
It has been determined that these regu-
lations are not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. It is hereby
certified that the collection of information
in these regulations will not have a sig-
nificant economic impact on a substan-
tial number of small entities. This cer-
tification is based on the fact, as previ-
ously noted, the estimated burden associ-
ated with the information collection aver-
ages thirty minutes per respondent and the
estimated number of respondents is 5000.
Moreover, the burden imposed under the
collection of information in these regula-
tions arises only if there has been a fail-
ure that triggers liability for the excise tax
under section 4980B, 4980D, 4980E, or
4980G of the Code. Therefore, a Regula-
tory Flexibility Analysis under the Regula-
tory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
September 8, 20086822008–36 I.R.B.

of the Code, this regulation has been sub-
mitted to the Chief Counsel for Advocacy
of the Small BusinessAdministration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submit-
tedtimelytotheIRS.TheIRSandthe
Treasury Department request comments
on the clarity of the proposed regulations
and how they can be made easier to under-
stand. All comments will be available for
public inspection and copying.
The public hearing has been scheduled
for October 30, 2008, beginning at 10 a.m.
in room 2116, Internal Revenue Building,
1111 Constitution Avenue, NW, Washing-
ton, DC. Due to building security proce-
dures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
October 14, 2008, and submit an outline
of the topics to be discussed and the time
to be devoted to each topic (a signed orig-
inal and eight (8) copies) by October 13,
2008. A period of 10 minutes will be al-
located to each person for making com-
ments. An agenda showing the schedul-
ing of the speakers will be prepared after
the deadline for receiving comments has
passed. Copies of the agenda will be avail-
able free of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Mireille Khoury, Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties), Internal Revenue Service. However,
personnel from other offices of the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 54 is pro-
posed to be amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding entries to the
table to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.4980G–6 also issued under
26 U.S.C. 4980G.
Section 54.4980G–7 also issued under
26 U.S.C. 4980G. * * *
Par. 2. Section 54.4980B–0 is amended
by adding a new Q–11 to §54.4980B–2 in
the list of questions to read as follows:
§54.4980B–0 Table of contents.
*****
List Of Questions
*****
§54.4980B–2 Plans that must comply.
*****
Q–11: If a person is liable for the excise
tax under section 4980B, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
*****
Par. 3. Section 54.4980B–2 is amended
by adding a new Q&A–11 to read as fol-
lows:
§54.4980B–2 Plans that must comply.
*****
Q–11: If a person is liable for the excise
tax under section 4980B, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–11: (a)In general. Any person who
is liable for the excise tax under section
4980B must report this tax by filing Form
8928, “Return of Certain Excise Taxes Un-
der Chapter 43 of the Internal Revenue
Code”, and the tax must be paid at the time
prescribed for filing such return (without
extensions). The return must include the
information required by Form 8928 and
the instructions issued with respect to it.
(b)Duedateforfilingofreturnbyem-
ployers or other persons responsible for
benefits under a group health plan.Ifthe
person liable for the excise tax is an em-
ployer or other person responsible for pro-
viding or administering benefits under a
group health plan (such as an insurer or a
third party administrator), the return must
be filed on or before the due date for filing
the person’s income tax return and must re-
flect the portion of the noncompliance pe-
riod for each failureunder section 4980B
that falls during the person’s taxable year.
An extension to file the person’s income
tax return does not extend the date for fil-
ing Form 8928.
(c)Due date for filing of return by mul-
tiemployer plans. If the person liable for
the excise tax is a multiemployer plan, the
return must be filed on or before the last
day of the seventh month following the end
of the plan’s plan year. The filing of Form
8928 by a plan must reflect the portion of
the noncompliance period for each failure
under section 4980B that falls during the
plan’s plan year.
(d)Effective/applicability date.Inthe
case of an employer or other person men-
tioned in paragraph (b) of this Q&A–11,
the rules in this Q&A–11 are effective for
taxable years beginning after the date the
final regulations are published in theFed-
eral Register. In the case of a plan men-
tioned in paragraph (c) of this Q&A–11,
the rules in this Q&A–11 are effective for
plan years beginning after the date the fi-
nal regulations are published in theFed-
eral Register.
Par. 4. Section 54.4980D–1 is added to
read as follows:
§54.4980D–1 Requirement of Return and
Time for Filing of the excise tax under
section 4980D.
Q–1: If a person is liable for the excise
tax under section 4980D, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–1: (a)In general. Any person who
is liable for the excise tax under section
4980D must report this tax by filing Form
8928, “Return of Certain Excise Taxes Un-
der Chapter 43 of the Internal Revenue
Code”, and the tax must be paid at the time
prescribed for filing such return (without
extensions). The return must include the
information required by Form 8928 and
the instructions issued with respect to it.
2008–36 I.R.B.683September 8, 2008

(b)Due date for filing of return by em-
ployers. If the person liable for the excise
taxisanemployer,thereturnmustbefiled
on or before the due date for filing the em-
ployer’s income tax return and must reflect
the portion of the noncompliance period
for each failure under chapter 100 that falls
during the employer’s taxable year. An ex-
tension to file the employer’s income tax
return does not extend the date for filing
Form 8928.
(c)Duedateforfilingofreturnby
multiemployer plans or multiple employer
health plans. If the person liable for the
excise tax is a multiemployer plan or a
specified multiple employer health plan,
the return must be filed on or before the
last day of the seventh month following
the end of the plan’s plan year. The filing
of Form 8928 by a plan must reflect the
portion of the noncompliance period for
each failure under chapter 100 that falls
during the plan’s plan year.
(d)Effective/applicability date.Inthe
caseofanemployerorotherpersonmen-
tioned in paragraph (b) of this Q&A–1, the
rules in this Q&A–1 are effective for tax-
able years beginning after the date the fi-
nal regulations are published in theFed-
eral Register. In the case of a plan men-
tioned in paragraph (c) of this Q&A–1, the
rules in this Q&A–1 are effective for plan
years beginning after the date the final reg-
ulations are published in theFederal Reg-
ister.
Par. 5. Section 54.4980E–1 is added to
read as follows:
§54.4980E–1 Requirement of Return and
Time for Filing of the excise tax under
section 4980E.
Q–1: If a person is liable for the excise
tax under section 4980E, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–1: (a)In general. Any employer
whoisliablefortheexcisetaxundersec-
tion 4980E must report this tax by fil-
ing Form 8928, “Return of Certain Excise
Taxes Under Chapter 43 of the Internal
Revenue Code”, on or before the 15
th
day
of the fourth month following the calendar
year in which the noncomparable contribu-
tions were made. The tax must be paid at
the time prescribed for filing such return
(without extensions), and the return must
includetheinformationrequiredbyForm
8928 and the instructions issued with re-
spect to it.
(b)Effective/applicability date.The
rules in this Q&A–1 are effective for plan
years beginning after the date the final
regulations are published in theFederal
Register.
Par. 6. Section 54.4980G–1 is amended
by:
1. Revising the last sentence in A–1
and adding a new sentence at the end of
paragraph (a) in A–2.
2. Adding a new Q&A–5.
The revisions and addition read as fol-
lows:
§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.
*****
A–1: * * * But see Q&A–6 in
§54.4980G–3 for treatment of collec-
tively bargained employees and Q&A–1 in
§54.4980G–6 for the rules allowing larger
comparable contributions to nonhighly
compensated employees.
*****
A–2: (a) * * * See also §54.4980G–6
for the rules allowing larger comparable
contributions to nonhighly compensated
employees.
*****
Q–5: If a person is liable for the excise
tax under section 4980G, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–5: (a)In general. Any employer
who is liable for the excise tax under sec-
tion 4980E must report this tax by fil-
ing Form 8928, “Return of Certain Excise
Taxes Under Chapter 43 of the Internal
Revenue Code”, on or before the 15
th
day
of the fourth month following the calendar
year in which the noncomparable contribu-
tions were made. The tax must be paid at
the time prescribed for filing such return
(without extensions), and the return must
includetheinformationrequiredbyForm
8928 and the instructions issued with re-
spect to it. See Q&A–4 of §54.4980G–1
for the rules on computation of the excise
tax under section 4980G.
(b)Effective/applicabilty date.The
rules in this Q&A–5 are effective for plan
years beginning after the date the final
regulations are published in theFederal
Register.
Par. 7. Section 54.4980G–3 is amended
by:
1. Revising the introductory text in
paragraph (a) of A–5.
2. Adding a new sentence at the end of
paragraph (c) of A–5 and paragraph (a) of
A–9.
The revision and additions read as fol-
lows:
§54.4980G–3 Failure of employer to
make comparable health savings account
contributions.
*****
A–5: (a)Categories. The categories of
employees for comparability testing are as
follows (but see Q&A–6 of this section for
the treatment of collectively bargained em-
ployees and Q&A–1 of §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employ-
ees)—
*****
(c) * * * But see §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employ-
ees.
*****
A–9: (a) * * * See §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employ-
ees.
*****
Par. 8. Section 54.4980G–4 is amended
by:
1. Adding a new sentence at the end of
paragraph (a) of A–1.
2. Adding paragraphs (h) and (i) to
A–2.
The additions read as follows:
§54.4980G–4 Calculating comparable
contributions.
*****
A–1: (a)***ButseeQ&A–1of
§54.4980G–6 for a special rule for con-
tributions made to the HSAs of nonhighly
compensated employees.
*****
A–2:***
*****
September 8, 20086842008–36 I.R.B.

(h)Maximum contribution permitted
for all employees who are eligible individ-
uals during the last month of the taxable
year. An employer may contribute up to
the maximum annual contribution amount
for the calendar year (based on the em-
ployees’ HDHP coverage) to the HSAs of
all employees who are eligible individuals
during the last month of the taxable year,
includingemployeeswhoworkedforthe
employer for less than the entire calendar
year and employees who became eligible
individuals after January 1
st
of the calen-
dar year. For example, such contribution
may be made on behalf of an eligible
individual who is hired after January 1
st
or an employee who becomes an eligible
individual after January 1
st
.Employers
are not required to provide more than a
pro-ratacontribution based on the num-
ber of months that an individual was an
eligible individual and employed by the
employer during the year. However, if an
employer contributes more than apro-rata
amount for the calendar year to the HSA
of any eligible individual who is hired
after January 1
st
of the calendar year or
any employee who becomes an eligible
individual any time after January 1
st
of
the calendar year, the employer must con-
tribute that same amount on an equal and
uniform basis to the HSAs of all compara-
ble participating employees (as defined in
Q&A–1 in §54.4980G–1) who are hired or
become eligible individuals after January
1
st
of the calendar year. Likewise, if an
employer contributes the maximum an-
nual contribution amount for the calendar
year to the HSA of any eligible individual
who is hired after January 1
st
of the calen-
dar year or any employee who becomes an
eligible individual any time after January
1
st
of the calendar year, the employer must
contribute the maximum annual contribu-
tion amount on an equal and uniform basis
to the HSAs of all comparable participat-
ing employees (as defined in Q&A–1 in
§54.4980G–1) who are hired or become
eligible individuals after January 1
st
of the
calendar year. An employer who makes
the maximum calendar year contribution
or more than apro-ratacontribution to
the HSAs of employees who become eli-
gible individuals after the first day of the
calendar year or eligible individuals who
are hired after the first day of the calendar
year will not fail to satisfy comparability
merely because some employees will have
received more contributions on a monthly
basis than employees who worked the en-
tire calendar year.
(i)Examples. The following examples
illustrate the rules in paragraph (h) in this
Q&A–2. In the following examples, no
contributions are made through a section
125 cafeteria plan and none of the employ-
ees are covered by a collective bargaining
agreement.
Example 1. On January 1, 2009, Employer Q con-
tributes $1,000 for the calendar year to the HSAs of
employees who are eligible individuals with family
HDHP coverage. In mid-March of the same year,
Employer Q hires Employee A, an eligible individual
with family HDHP coverage. On April 1, 2009, Em-
ployer Q contributes $1,000 to the HSA of Employee
A. In September of the same year, Employee B be-
comes an eligible individual with family HDHP cov-
erage. On October 1, 2009, Employer G contributes
$1,000 to the HSA of Employee B. Employer Q does
not make any other contributions for the 2009 calen-
dar year. Employer Q’s contributions satisfy the com-
parability rules.
Example 2. For the 2009 calendar year, Employer
R only has two employees, Employee C and Em-
ployee D. Employee C, an eligible individual with
family HDHP coverage, works for Employer R for
the entire calendar year. Employee D, an eligible in-
dividual with family HDHP coverage works for Em-
ployer R from July 1
st
through December 31
st
.Em-
ployer R contributes $1,200 for the calendar year to
theHSAofEmployeeCand$600totheHSAofEm-
ployee D. Employer R does not make any other con-
tributions for the 2009 calendar year. Employer R’s
contributions satisfy the comparability rules.
*****
Par. 9. Section 54.4980G–6 is added to
read as follows:
§54.4980G–6 Special rule for
contributions made to the HSAs of
nonhighly compensated employees.
Q–1: May an employer make larger
contributions to the HSAs of nonhighly
compensated employees than to the HSAs
of highly compensated employees?
A–1: Yes. Employers may make larger
HSA contributions for nonhighly com-
pensated employees who are comparable
participating employees than for highly
compensated employees who are com-
parable participating employees. See
Q&A–1 in §54.4980G–1 for the definition
of comparable participating employee.
For purposes of this section, highly com-
pensated employee is defined under sec-
tion 414(q). Nonhighly compensated em-
ployees are employees that are not highly
compensated employees. The comparabil-
ity rules continue to apply with respect to
contributions to the HSAs of all nonhighly
compensated employees. Employers must
make comparable contributions for the
calendar year to the HSA of each non-
highly compensated employee who is a
comparable participating employee.
Q–2: May an employer make larger
contributions to the HSAs of highly com-
pensated employees than to the HSAs of
nonhighly compensated employees?
A–2: (a)In general. No. Employer
contributions to HSAs for highly com-
pensated employees who are comparable
participating employees may not be larger
than employer HSA contributions for
nonhighly compensated employees who
are comparable participating employees.
The comparability rules continue to apply
with respect to contributions to the HSAs
of all highly compensated employees.
Employers must make comparable contri-
butions for the calendar year to the HSA
of each highly compensated comparable
participating employee. See Q&A–1 in
§54.4980G–1 for the definition of compa-
rable participating employee.
(b)Examples. The following examples
illustrate the rules in Q&A–1 and Q&A–2
of this section. No contributions are made
through a section 125cafeteria plan and
none of the employees in the following ex-
amples are covered by a collective bargain-
ing agreement. All of the employees in the
following examples have the same HDHP
deductible for the same category of cover-
age.
Example 1. In 2009, Employer A contributes
$1,000 for the calendar year to the HSA of each full-
time nonhighly compensated employee who is an eli-
gible individual with self-only HDHP coverage. Em-
ployer A makes no contribution to the HSA of any
full-time highly compensated employee who is an eli-
gible individual with self-only HDHP coverage. Em-
ployer A’s HSA contributions for calendar year 2009
satisfy the comparability rules.
Example 2. In 2009, Employer B contributes
$2,000 for the calendar year to the HSA of each full-
time nonhighly compensated employee who is an eli-
gible individual with self-only HDHP coverage. Em-
ployer B also contributes $1,000 for the calendar year
to the HSA of each full-time highly compensated em-
ployee who is an eligible individual with self-only
HDHP coverage. Employer B’s HSA contributions
for calendar year 2009 satisfy the comparability rules.
Example 3. In 2009, Employer C contributes
$1,000 for the calendar year to the HSA of each full-
time nonhighly compensated employee who is an eli-
gible individual with self-only HDHP coverage. Em-
ployer C contributes $2,000 for the calendar year to
the HSA of each full-time highly compensated em-
ployee who is an eligible individual with self-only
HDHP coverage. Employer C’s HSA contributions
2008–36 I.R.B.685September 8, 2008

for calendar year 2009 do not satisfy the comparabil-
ity rules.
Example 4. In 2009, Employer D contributes
$1,000 for the calendar year to the HSA of each full-
time nonhighly compensated employee who is an eli-
gible individual with self-only HDHP coverage. Em-
ployer D also contributes $1,000 to the HSA of each
full-time highly compensated employee who is an el-
igible individual with self-only HDHP coverage. In
addition, the employer contributes an additional $500
to the HSA of each nonhighly compensated employee
who participates in a wellness program. The non-
highly compensated employees did not receive com-
parable contributions, and, therefore, Employer D’s
HSA contributions for calendar year 2009 do not sat-
isfy the comparability rules.
Example 5. In 2009, Employer E contributes
$1,000 for the calendar year to the HSA of each
full-time non-management nonhighly compensated
employee who is an eligible individual with family
HDHP coverage. Employer E also contributes $500
for the calendar year to the HSA of each full-time
management nonhighly compensated employee who
is an eligible individual with family HDHP cover-
age. The nonhighly compensated employees did not
receive comparable contributions, and, therefore,
Employer E’s HSA contributions for calendar year
2009 do not satisfy the comparability rules.
Q–3: May an employer make larger
HSA contributions for employees with self
plus two HDHP coverage than employees
with self plus one HDHP coverage even
if the employees with self plus two are
all highly compensated employees and the
employees with self plus one are all non-
highly compensated employees?
A–3: (a) Yes. Q&A–1 in §54.4980G–4
provides that an employer’s contribution
with respect to the self plus two category of
HDHP coverage may not be less than the
contribution with respect to the self plus
one category and the contribution with re-
spect to the self plus three or more cate-
gory may not be less than the contribution
with respect to the self plus two category.
Therefore, the comparability rules are not
violated if an employer makes a larger
HSA contribution for the self plus two
category of HDHP coverage than to self
plus one coverage, even if the employees
with self plus two coverage are all highly
compensated employees and the employ-
ees with self plus one coverage are all non-
highly compensated employees. Likewise,
the comparability rules are not violated if
an employer makes a larger HSA contri-
bution for the self plus three category of
HDHP coverage than to self plus two cov-
erage, even if the employees with self plus
three coverage are all highly compensated
employees and the employees with self
plus two coverage are all nonhighly com-
pensated employees.
(b)Example. The following example il-
lustrates the rules in paragraph (a) of this
Q&A–3. In the following examples, no
contributions are made through a section
125 cafeteria plan and none of the employ-
ees are covered by a collective bargaining
agreement.
Example. In 2009, Employer F contributes
$1,000 for the calendar year to the HSA of each
full-time employee who is an eligible individual with
self plus one HDHP coverage. Employer F con-
tributes $1,500 for the calendar year to the HSA of
each employee who is an eligible individual with self
plus two HDHP coverage. The deductible for both
the self plus one HDHP and the self plus two HDHP
is $2,000. Employee A, an eligible individual, is
a nonhighly compensated employee with self plus
one coverage. Employee B, an eligible individual, is
a highly compensated employee with self plus two
coverage. For the 2009 calendar year, Employer F
contributes $1,000 to Employee A’s HSA and $1,500
to Employee B’s HSA. Employer F’s HSA contribu-
tions satisfy the comparability rules.
Par. 10. Section 54.4980G–7 is added
to read as follows:
§54.4980G–7 Special comparability
rules for qualified HSA distributions
contributed to HSAs on or after December
20, 2006 and before January 1, 2012.
Q–1: How do the comparability rules
of section 4980G apply to qualified HSA
distributions under section 106(e)(2)?
A–1: The comparability rules of sec-
tion 4980G do not apply to amounts con-
tributed to employee HSAs through qual-
ified HSA distributions. However, in or-
der to satisfy the comparability rules, if
an employer offers qualified HSA distri-
butions, as defined in section 106(e)(2), to
any employee who is an eligible individual
covered under any HDHP, the employer
must offer qualified HSA distributions to
all employees who are eligible individu-
als covered under any HDHP. However, if
an employer offers qualified HSA distribu-
tions only to employees who are eligible
individuals covered under the employer’s
HDHP, the employer is not required to of-
fer qualified HSA distributions to employ-
ees who are eligible individuals but are not
covered under the employer’s HDHP.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 15, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 16, 2008, 73 F.R. 40793)
September 8, 20086862008–36 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2008–36 I.R.B.iSeptember 8, 2008

Numerical Finding List
1
Bulletins 2008–27 through 2008–36
Announcements:
2008-62, 2008-27 I.R.B.74
2008-63, 2008-28 I.R.B.114
2008-64, 2008-28 I.R.B.114
2008-65, 2008-31 I.R.B.279
2008-66, 2008-29 I.R.B.164
2008-67, 2008-29 I.R.B.164
2008-68, 2008-30 I.R.B.244
2008-69, 2008-32 I.R.B.318
2008-70, 2008-32 I.R.B.318
2008-71, 2008-32 I.R.B.321
2008-72, 2008-32 I.R.B.321
2008-73, 2008-33 I.R.B.391
2008-74, 2008-33 I.R.B.392
2008-75, 2008-33 I.R.B.392
2008-76, 2008-33 I.R.B.393
2008-77, 2008-33 I.R.B.394
2008-78, 2008-34 I.R.B.453
2008-79, 2008-35 I.R.B.568
Notices:
2008-55, 2008-27 I.R.B.11
2008-56, 2008-28 I.R.B.79
2008-57, 2008-28 I.R.B.80
2008-58, 2008-28 I.R.B.81
2008-59, 2008-29 I.R.B.123
2008-60, 2008-30 I.R.B.178
2008-61, 2008-30 I.R.B.180
2008-62, 2008-29 I.R.B.130
2008-63, 2008-31 I.R.B.261
2008-64, 2008-31 I.R.B.268
2008-65, 2008-30 I.R.B.182
2008-66, 2008-31 I.R.B.270
2008-67, 2008-32 I.R.B.307
2008-68, 2008-34 I.R.B.418
2008-69, 2008-34 I.R.B.419
2008-70, 2008-36 I.R.B.575
2008-71, 2008-35 I.R.B.462
Proposed Regulations:
REG-164965-04, 2008-34 I.R.B.450
REG-143453-05, 2008-32 I.R.B.310
REG-142680-06, 2008-35 I.R.B.565
REG-120476-07, 2008-36 I.R.B.680
REG-129243-07, 2008-27 I.R.B.32
REG-138355-07, 2008-32 I.R.B.311
REG-142040-07, 2008-34 I.R.B.451
REG-149405-07, 2008-27 I.R.B.73
REG-100464-08, 2008-32 I.R.B.313
REG-101258-08, 2008-28 I.R.B.111
REG-102122-08, 2008-31 I.R.B.278
REG-115457-08, 2008-33 I.R.B.390
Proposed Regulations— Continued:
REG-121698-08, 2008-29 I.R.B.163
Revenue Procedures:
2008-32, 2008-28 I.R.B.82
2008-33, 2008-28 I.R.B.93
2008-34, 2008-27 I.R.B.13
2008-35, 2008-29 I.R.B.132
2008-36, 2008-33 I.R.B.340
2008-37, 2008-29 I.R.B.137
2008-38, 2008-29 I.R.B.139
2008-39, 2008-29 I.R.B.143
2008-40, 2008-29 I.R.B.151
2008-41, 2008-29 I.R.B.155
2008-42, 2008-29 I.R.B.160
2008-43, 2008-30 I.R.B.186
2008-44, 2008-30 I.R.B.187
2008-45, 2008-30 I.R.B.224
2008-46, 2008-30 I.R.B.238
2008-47, 2008-31 I.R.B.272
2008-48, 2008-36 I.R.B.586
2008-49, 2008-34 I.R.B.423
2008-50, 2008-35 I.R.B.464
2008-51, 2008-35 I.R.B.562
2008-52, 2008-36 I.R.B.587
2008-53, 2008-36 I.R.B.678
Revenue Rulings:
2008-32, 2008-27 I.R.B.6
2008-33, 2008-27 I.R.B.8
2008-34, 2008-28 I.R.B.76
2008-35, 2008-29 I.R.B.116
2008-36, 2008-30 I.R.B.165
2008-37, 2008-28 I.R.B.77
2008-38, 2008-31 I.R.B.249
2008-39, 2008-31 I.R.B.252
2008-40, 2008-30 I.R.B.166
2008-41, 2008-30 I.R.B.170
2008-42, 2008-30 I.R.B.175
2008-43, 2008-31 I.R.B.258
2008-44, 2008-32 I.R.B.292
2008-45, 2008-34 I.R.B.403
2008-46, 2008-36 I.R.B.572
Treasury Decisions:
9401, 2008-27 I.R.B.1
9402, 2008-31 I.R.B.254
9403, 2008-32 I.R.B.285
9404, 2008-32 I.R.B.280
9405, 2008-32 I.R.B.293
9406, 2008-32 I.R.B.287
9407, 2008-33 I.R.B.330
9408, 2008-33 I.R.B.323
9409, 2008-29 I.R.B.118
9410, 2008-34 I.R.B.414
9411, 2008-34 I.R.B.398
Treasury Decisions— Continued:
9413, 2008-34 I.R.B.404
9414, 2008-35 I.R.B.454
9415, 2008-36 I.R.B.570
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin
2008–26, dated June 30, 2008.
September 8, 2008ii2008–36 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–27 through 2008–36
Announcements:
2008-64
Corrected by
Ann. 2008-71, 2008-32 I.R.B.321
2008-72
Corrected by
Ann. 2008-78, 2008-34 I.R.B.453
Notices:
99-48
Superseded by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2000-9
Obsoleted by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
2004-2
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2004-50
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2006-88
Modified and superseded by
Notice 2008-60, 2008-30 I.R.B.178
2007-22
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
Proposed Regulations:
REG-129243-07
Corrected by
Ann. 2008-75, 2008-33 I.R.B.392
REG-151135-07
Hearing scheduled by
Ann. 2008-64, 2008-28 I.R.B.114
REG-101258-08
Corrected by
Ann. 2008-73, 2008-33 I.R.B.391
Revenue Procedures:
92-25
Superseded by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
92-83
Obsoleted by
Rev. Proc. 2008-37, 2008-29 I.R.B.137
2001-10, section 6.02(1)(a)
Modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Revenue Procedures— Continued:
2001-42
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2002-9
Clarified, modified, amplified, and superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Modified and amplified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
2002-28, section 7.02(1)(a)
Modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2005-29
Superseded by
Rev. Proc. 2008-49, 2008-34 I.R.B.423
2006-27
Modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2006-29
Superseded by
Rev. Proc. 2008-34, 2008-27 I.R.B.13
2006-34
Superseded by
Rev. Proc. 2008-44, 2008-30 I.R.B.187
2007-14
Superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2007-19
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2007-42
Superseded by
Rev. Proc. 2008-32, 2008-28 I.R.B.82
2007-43
Superseded by
Rev. Proc. 2008-33, 2008-28 I.R.B.93
2007-49
Section 3 modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2007-50
Superseded by
Rev. Proc. 2008-36, 2008-33 I.R.B.340
2007-70
Modified by
Ann. 2008-63, 2008-28 I.R.B.114
2007-72
Amplified and superseded by
Rev. Proc. 2008-47, 2008-31 I.R.B.272
2008-12
Modified and superseded by
Rev. Proc. 2008-35, 2008-29 I.R.B.132
Revenue Procedures— Continued:
2008-43
Modified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Revenue Rulings:
67-213
Amplified by
Rev. Rul. 2008-40, 2008-30 I.R.B.166
71-234
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
76-273
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
77-480
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
82-105
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
91-17
Amplified by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
Rev. Proc. 2008-42, 2008-29 I.R.B.160
Superseded in part by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2005-6
Amplified by
Rev. Proc. 2008-38, 2008-29 I.R.B.139
2008-12
Amplified by
Rev. Rul. 2008-38, 2008-31 I.R.B.249
Clarified by
Ann. 2008-65, 2008-31 I.R.B.279
Treasury Decisions:
9391
Corrected by
Ann. 2008-74, 2008-33 I.R.B.392
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008.
2008–36 I.R.B.iiiSeptember 8, 2008

September 8, 20082008–36 I.R.B.

2008–36 I.R.B.September 8, 2008

September 8, 20082008–36 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under
related topics, select More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224
Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300