rp-24-09.pdf

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Part III

Administrative, Procedural, and Miscellaneous

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

Rev. Proc. 2024-9

SECTION 1. PURPOSE
This revenue procedure modifies sections 7 and 19 of Rev. Proc. 2023-24, 2023-28
I.R.B. 1207, to provide procedures under § 446 of the Internal Revenue Code (Code)
1

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

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

2
after December 31, 2021, and continues to apply to costs of developing computer
software paid or incurred in any taxable year beginning on or before December 31,
2021. References in this revenue procedure to “former § 174” refer to that section as in
effect for research or experimental expenditures paid or incurred in taxable years
beginning before January 1, 2022, that is, prior to the effective date of the amendments
made to § 174 by § 13206(a) of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017),
commonly referred to as the Tax Cuts and Jobs Act (TCJA). References to “§ 174” in
this revenue procedure refer to § 174 as amended by the TCJA.
SECTION 2. BACKGROUND
.01 Treatment of research and experimental expenditures under former § 174.

Former § 174 allowed taxpayers to elect to deduct research or experimental
expenditures paid or incurred in connection with a trade or business as current
expenses, to capitalize and amortize such expenditures over a period of not less than
60 months, or to charge such expenditures to capital account.
.02 Treatment of SRE expenditures under § 174.

(1) Section 13206(a) of the TCJA amended former § 174 for amounts paid or
incurred in taxable years beginning after December 31, 2021. For amounts paid or
incurred in taxable years beginning after December 31, 2021, that meet the definition of
specified research or experimental (SRE) expenditures under § 174(b), § 174(a)(1)
disallows deductions for such amounts, except as provided in § 174(a)(2). Section
174(a)(2) requires taxpayers to charge SRE expenditures to capital account and allows
amortization deductions of such capitalized expenditures ratably over the applicable
§ 174 amortization period, beginning with the midpoint of the taxable year in which such

3
expenditures are paid or incurred. As used in this revenue procedure, the term
“applicable § 174 amortization period” refers to a 5-year period in the case of SRE
expenditures attributable to domestic research, or a 15-year period in the case of SRE
expenditures attributable to foreign research. Section 13206(a) of the TCJA also made
other amendments to former § 174, including amendments to treat any cost to develop
computer software as an SRE expenditure and to prevent the accelerated recovery of
unamortized SRE expenditures on account of the disposition, retirement, or
abandonment of property with respect to which such expenditures were paid or
incurred. For additional background on former § 174 and the TCJA amendments to
former § 174, see section 2 of Notice 2023-63.
(2) Section 13206(b) of the TCJA requires taxpayers to treat the amendments
made by section 13206(a) of the TCJA as a change in method of accounting for
purposes of § 481 that is (i) initiated by the taxpayer, (ii) made with the consent of the
Secretary of the Treasury or her delegate, and (iii) applied on a cut-off basis to SRE
expenditures paid or incurred in taxable years beginning after December 31, 2021.
Thus, no adjustments under § 481(a) are required or permitted with respect to research
or experimental expenditures paid or incurred in taxable years beginning before January
1, 2022.
.03 Treatment of SRE expenditures under § 460. Section 460(a) generally requires
use of the percentage-of-completion method (PCM) to account for taxable income from
a long-term contract. Section 1.460-4(b)(2)(i) provides that under the PCM, the portion
of the contract price a taxpayer must report in a taxable year corresponds to the ratio of
incurred allocable contract costs to total estimated allocable contract costs. This ratio

4
represents the portion of a contract considered completed for purposes of the PCM.
Under the PCM, a taxpayer generally deducts allocable contract costs as they are
incurred. Thus, under § 1.460-4(b)(2)(iv), an increase in the percentage of the contract
price to be reported is generally matched by deduction of the incurred costs that cause
the increase. Under the current § 460 regulations in § 1.460-5(b)(2)(vi), allocable
contract costs include research or experimental expenses, other than independent
research and development expenses. Thus, when these expenses are incurred, they
increase the portion of a contract considered completed and the percentage of the
contract price required to be reported. The current § 460 regulations were drafted with
respect to taxable years in which a taxpayer could currently deduct research or
experimental expenses under former § 174. Section 174(a) requires that SRE
expenditures be charged to capital account and deducted over the applicable § 174
amortization period. As a result, under the current § 460 regulations, incurred SRE
expenditures increase the percentage of the contract price required to be reported,
although § 174(a) prevents a corresponding current deduction of those incurred SRE
expenditures.
.04 Procedural guidance under Rev. Proc. 2023-11.

(1) On December 29, 2022, the Department of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS) issued Rev. Proc. 2023-11, 2023-3 I.R.B. 417,
modifying and superseding Rev. Proc. 2023-8, 2023-3 I.R.B. 407, to provide procedures
to obtain automatic consent to change methods of accounting for SRE expenditures to
comply with § 174. The change in method of accounting provided by Rev. Proc. 2023-
11 was subsequently included in section 7.02 of Rev. Proc. 2023-24.

5
(2) Section 7.02(4)(a) of Rev. Proc. 2023-24 implements the requirement imposed
by § 13206(b) of the TCJA that a taxpayer must make a change in method of
accounting to comply with § 174 on a cut-off basis if the change is made for the
taxpayer’s first taxable year beginning after December 31, 2021. Section 7.02(4)(a) of
Rev. Proc. 2023-24 also provides that the requirement of § 1.446-1(e)(3)(i) to file a
Form 3115, Application for Change in Accounting Method, is waived, and a statement in
lieu of a Form 3115 is authorized for the change in method of accounting for which the
year of change is the first taxable year beginning after December 31, 2021. However,
section 7.02(4)(b) of Rev. Proc. 2023-24 provides that a taxpayer making the change for
a taxable year subsequent to the taxpayer’s first taxable year beginning after December
31, 2021, is required to make that change with a modified § 481(a) adjustment that
takes into account only SRE expenditures paid or incurred in taxable years beginning
after December 31, 2021, and is required to file a Form 3115.
(3) Section 7.02(6) of Rev. Proc. 2023-24 waives the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 (regarding changes made in the previous 5 years for
the same item) for changes to comply with § 174 for the taxpayer’s first taxable year
beginning after December 31, 2021.
(4) Section 7.02(7) of Rev. Proc. 2023-24 provides that a taxpayer that changes its
method of accounting for SRE expenditures under Rev. Proc. 2023-24 will receive
limited audit protection. Specifically, audit protection will not apply for expenditures paid
or incurred in taxable years beginning on or before December 31, 2021. Audit
protection also will not apply for expenditures paid or incurred in taxable years
beginning after December 31, 2021, if a change in method of accounting is made for the

6
taxable year immediately subsequent to the first taxable year beginning after December
31, 2021.
.05 Interim guidance under Notice 2023-63.

(1) Notice 2023-63 was issued on September 8, 2023, to announce that the
Treasury Department and the IRS intend to issue proposed regulations addressing
(1) the capitalization and amortization of SRE expenditures under § 174, (2) the
treatment of SRE expenditures under § 460, and (3) the application of § 482 to cost
sharing arrangements involving SRE expenditures. Sections 3 through 9 of Notice
2023-63 provide interim guidance regarding issues intended to be addressed by
forthcoming proposed regulations. Section 3 of Notice 2023-63 provides interim
guidance regarding the requirement to capitalize and amortize SRE expenditures, SRE
expenditures attributable to foreign research, and the determination of the midpoint of a
taxable year (including a short taxable year). Section 4 of Notice 2023-63 provides
interim guidance regarding the definition of SRE expenditures and SRE activities, the
types of expenditures that are SRE expenditures, the allocation of such expenditures to
SRE activities, and the consistent treatment of SRE expenditures under other provisions
of the Code. Section 5 of Notice 2023-63 provides interim guidance regarding activities
that constitute software development, expenditures in connection with which are SRE
expenditures. Section 6 of Notice 2023-63 provides interim guidance regarding the
treatment of expenditures for research performed under a contract. Section 7 of Notice
2023-63 provides interim guidance regarding the treatment of unamortized SRE
expenditures if the property with respect to which such expenditures were paid or
incurred is disposed of, retired, or abandoned. Section 8 of Notice 2023-63 provides

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

8
of Rev. Proc. 2000-50 is removed as obsolete. Section 5 of Rev. Proc. 2000-50
continues to apply to amounts paid or incurred in taxable years beginning on or before
December 31, 2021. Section 3 of this revenue procedure clarifies section 9.01 of Rev.
Proc. 2023-24 to provide that section 5 of Rev. Proc. 2000-50 is obsolete for costs of
developing computer software paid or incurred in any taxable year beginning after
December 31, 2021, and continues to apply to costs of developing computer software
paid or incurred in any taxable year beginning on or before December 31, 2021.
.06 Changing methods of accounting under section 446(e).

(1) Except as otherwise expressly provided in the Code and the regulations
thereunder, § 446(e) and § 1.446-1(e)(2) require a taxpayer to secure the consent of the
Commissioner before changing a method of accounting for Federal income tax
purposes. Section 1.446-1(e)(3)(i) states, in part, that except as otherwise provided
under the authority of § 1.446-1(e)(3)(ii), to secure the Commissioner’s consent to a
taxpayer’s change in method of accounting the taxpayer generally must file a Form
3115, Application for Change in Accounting Method, with the Commissioner during the
taxable year in which the taxpayer desires to make the change in method of accounting.
Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative
procedures under which taxpayers will be permitted to change their method of
accounting. The administrative procedures will prescribe those terms and conditions
necessary to obtain the Commissioner’s consent to effect the change and to prevent
amounts from being duplicated or omitted.
(2) Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and modified by Rev. Proc.
2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2021-34, 2021-35 I.R.B.

9
337, Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, Rev. Proc. 2017-59, 2017-48 I.R.B. 543,
and section 17.02(b) and (c) of Rev. Proc. 2016-1, 2016-1 I.R.B. 1, sets forth the
general administrative procedures by which a taxpayer may obtain the automatic
consent of the Commissioner to change a method of accounting described in the List of
Automatic Changes. Rev. Proc. 2023-24 contains the current List of Automatic
Changes.
(3) A change in a taxpayer’s treatment of expenditures paid or incurred in taxable
years beginning after December 31, 2021, to rely on the interim guidance in sections 3
through 7 of Notice 2023-63 is generally a change in method of accounting to which
§§ 446(e) and 481, and the corresponding regulations, apply. Further, a change to rely
on the interim guidance in section 8 of Notice 2023-63 in determining income from a
long-term contract under the PCM is generally a change in method of accounting to
which §§ 446(e) and 481, and the corresponding regulations, apply. A taxpayer that
changes its method of accounting to rely on the interim guidance in sections 3 through 8
of Notice 2023-63 must use the accounting method change procedures in Rev. Proc.
2015-13 or its successor. Section 3 of this revenue procedure modifies Rev. Proc.
2023-24 to, among other things, allow taxpayers to obtain automatic consent to change
their method of accounting to rely on the interim guidance provided in sections 3
through 8 of Notice 2023-63 for taxable years beginning after December 31, 2021.
(4) Pursuant to section 2.07 of Rev. Proc. 2015-13, if a change in method of
accounting is made without a § 481(a) adjustment (for example, on a cut-off basis), in
general, only the items subject to the method change arising on or after the beginning of
the year of change, or other operative date, are accounted for under the method of

10
accounting for which consent is granted. Any items arising before the year of change,
or other operative date, continue to be accounted for under the taxpayer’s former
method of accounting. If a change in method of accounting is made on a cut-off basis,
no amounts are duplicated or omitted, and therefore, a § 481(a) adjustment is not
necessary or permitted.
(5) In accordance with § 13206(b) of the TCJA, a change in a taxpayer’s method of
accounting to comply with § 174, including a change to rely on the interim guidance in
sections 3 through 7 of Notice 2023-63, for the first taxable year that the amendments
made by § 13206(a) of the TCJA are effective, must be made on a cut-off basis. The
procedures in section 3 of this revenue procedure provide that an automatic change in
method of accounting to comply with § 174, including a change in method of accounting
to rely on the interim guidance in sections 3 through 7 of Notice 2023-63, may be made
by filing a statement with the taxpayer’s original Federal income tax return for the first
taxable year in which § 174 becomes effective, in lieu of a Form 3115. If a change in
method of accounting to comply with § 174, including a change in method of accounting
to rely on the interim gudiance in sections 3 through 7 of Notice 2023-63, is made for a
taxable year subsequent to the taxable year of the taxpayer in which § 174 becomes
effective, the change is made by filing a Form 3115, with a modified § 481(a)
adjustment that takes into account only expenditures paid or incurred in taxable years
beginning after December 31, 2021.
(6) Under § 1.460-5(g), a change in a taxpayer’s method of allocating costs to its
long-term contracts must be made on a cut-off basis, with the change applying only to
contracts entered into on or after the year of change. The Treasury Department and the

11
IRS, however, intend to amend the regulation to permit changes made to rely on section
8 of Notice 2023-63 to be made on the same cut-off basis or modified cut-off basis, as
applicable, as changes made to rely on sections 3 through 7 of the notice (that is,
changes applicable to allocable contract costs paid or incurred in taxable years
beginning after December 31, 2021).
(7) A taxpayer that changes its method of accounting under section 7.02 of Rev.
Proc. 2023-24, as modified by section 3 of this revenue procedure, will receive limited
audit protection under section 8.01 of Rev. Proc. 2015-13. Consistent with current
section 7.02(7) of Rev. Proc. 2023-24, audit protection will not apply for expenditures
paid or incurred in taxable years beginning on or before December 31, 2021. Audit
protection also will not apply for expenditures paid or incurred in the taxpayer’s first
taxable year beginning after December 31, 2021, if a change in method of accounting to
comply with § 174, including a change in method of accounting to rely on the interim
gudiance in sections 3 through 7 of Notice 2023-63, is made for the taxpayer’s taxable
year immediately subsequent to such taxable year and the taxpayer did not make a
change in method of accounting for such expenditures for its first taxable year beginning
after December 31, 2021.
(8) A taxpayer that changes its method of accounting under section 19.02 of Rev.
Proc. 2023-24, as added by section 3 of this revenue procedure, to change its method
of accounting under § 460 to rely on the interim guidance provided in section 8 of Notice
2023-63 will receive limited audit protection under section 8.01 of Rev. Proc. 2015-13.
Consistent with section 7.02(7) of Rev. Proc. 2023-24, audit protection will not apply for
expenditures paid or incurred in taxable years beginning on or before December 31,

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2021.
SECTION 3. MODIFICATIONS TO REV. PROC. 2023-24

.01 Modification of section 7 of Rev. Proc. 2023-24. Section 7.02 of Rev. Proc.
2023-24, is modified to read as follows:
.02 C
hange in Method of Accounting for SRE Expenditures.
(1) Description of change.
(a) In general. This change applies to a taxpayer that wants to change its
method of accounting for expenditures paid or incurred in taxable years beginning after
December 31, 2021, to:
(i) comply with § 174, as amended by § 13206(a) of the TCJA; or
(ii) rely on interim guidance provided in sections 3, 4, 5, 6, or 7 of Notice
2023-63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-3 I.R.B. ___.
(b) References to § 174. Unless otherwise stated, references to “§ 174” in
this section 7.02 refer to § 174 as amended by § 13206(a) of the TCJA. Section
13206(e) of the TCJA provides that the amendments made by § 13206 of the TCJA
apply to amounts paid or incurred in taxable years beginning after December 31, 2021.

(c) Changes included in section 7.02(1)(a) of this revenue procedure. The
changes described in section 7.02(1)(a) of this revenue procedure include, among other
changes, a change:
(i) from capitalizing specified research or experimental (SRE) expenditures,
as defined in § 174(b) and section 4.02(2) of Notice 2023-63, as applicable, to
inventoriable property or depreciable property and recovering such expenditures
through cost of goods sold or depreciation, respectively, to capitalizing and amortizing

13
such expenditures under § 174(a) or section 3.02 of Notice 2023-63, as applicable; and
(ii) from treating an expenditure that does not meet the definition of an SRE
expenditure as an SRE expenditure subject to capitalization and amortization under
§ 174(a) or section 3.02 of Notice 2023-63, as applicable, to treating that expenditure
under the appropriate provision of the Code.
(2) Inapplicability. The change described in section 7.02(1)(a) of this revenue
procedure does not apply to:
(a) a change in the treatment of acquired, leased, or licensed computer
software under Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-
16, 2007-1 C.B. 358 (see section 9.01 of this revenue procedure);
(b) a change in the treatment of research or experimental expenditures under
former § 174 (that is, § 174 as in effect prior to the amendments made by § 13206(a) of
the TCJA), or software development expenditures, paid or incurred in taxable years
beginning before January 1, 2022 (see sections 7.01 and 9.01 of this revenue
procedure, respectively); or
(c) a change from treating SRE expenditures paid or incurred by a taxpayer
that transfers related property (that is, property with respect to which such SRE
expenditures were paid or incurred) in a § 351 exchange as amortizable by the
transferee corporation following such exchange to treating such SRE expenditures as
amortizable by the transferor following such exchange (as such a change is not a
change in method of accounting).
(3) Manner of making change.
(a) Year of change is the first taxable year beginning after December 31,

14
2021.
(i) Cut-off basis. A change under section 7.02(1)(a) of this revenue
procedure for the taxpayer’s first taxable year beginning after December 31, 2021, is
implemented on a cut-off basis.
(ii) S
tatement in lieu of a Form 3115 for first taxable year beginning after
December 31, 2021. The requirement of § 1.446-1(e)(3)(i) to file a Form 3115,
Application for Change in Accounting Method, is waived, and a statement in lieu of a
Form 3115 is authorized for the change in method of accounting under section
7.02(1)(a) of this revenue procedure for which the year of change is the taxpayer’s first
taxable year beginning after December 31, 2021. Notwithstanding the definition of
Form 3115 in section 3.07 of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in
lieu of a Form 3115 that is permitted under this section 7.02(3)(a)(ii) is considered a
Form 3115 for purposes of the automatic change procedures of Rev. Proc. 2015-13.
The requirement to file the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-
13, is waived. The statement must include the following information for each applicant:
(A) the name and employer identification number or social security
number, as applicable, of the applicant that has paid or incurred expenditures after
December 31, 2021;
(B) the beginning and ending dates of the first taxable year in which the
change described in section 7.02(1)(a) takes effect for the applicant (year of change);
(C) the designated automatic accounting method change number for this
change (see section 7.02(7) of this revenue procedure);
(D) a general description of the type of expenditures included as SRE

15
expenditures;
(E) the amount of SRE expenditures paid or incurred by the applicant
during the year of change; and
(F) a declaration that the applicant is changing its method of accounting to
capitalize SRE expenditures to a SRE capital account, and amortize the capitalized
amount over either a 5-year period for domestic research or a 15-year period for foreign
research (as applicable), beginning with the mid-point of the taxable year in which such
expenditures are paid or incurred in accordance with § 174 or sections 3 through 7 of
Notice 2023-63, as applicable. Also, the declaration must state that the applicant is
making the change on a cut-off basis.
(b) Year of change later than the first taxable year beginning after December
31, 2021.
(i) Modified § 481(a) adjustment and cut-off .
(A) In general. Except as provided in section 7.02(3)(b)(i)(B) of this
revenue procedure, the change under section 7.02(1)(a) of this revenue procedure for a
year of change later than the first taxable year beginning after December 31, 2021, is
made with a modified § 481(a) adjustment that takes into account only expenditures
paid or incurred in taxable years beginning after December 31, 2021.
(B) E
xception for negative modified § 481(a) adjustment. If a change
described in section 7.02(3)(b)(i)(A) of this revenue procedure results in a modified
§ 481(a) adjustment that is negative, the taxpayer may instead choose to implement the
change on a cut-off basis.
(ii) F
orm 3115 and required statement. In completing a Form 3115,

16
Application for Change in Accounting Method, to make the change in method of
accounting under section 7.02(1)(a) of this revenue procedure for a year of change later
than the first taxable year beginning after December 31, 2021, a taxpayer must include
on an attachment to the Form 3115:
(A) a general description of the type of expenditures included as SRE
expenditures;
(B) the taxable year(s) in which the expenditures subject to the
change were paid or incurred by the applicant; and
(C) a declaration that provides the reason for which the applicant is
changing its method of accounting under section 7.02(1)(a) of this revenue procedure.
The declaration must also state whether the applicant is making the change on a cut-off
basis under section 7.02(3)(b)(i)(B) of this revenue procedure or with a modified
§ 481(a) adjustment that takes into account only expenditures paid or incurred in
taxable years beginning after December 31, 2021, under section 7.02(3)(b)(i)(A) of this
revenue procedure.

(4) Transition rule. A taxpayer who filed a Federal tax return on or before
January 17, 2023, for a taxable year beginning after December 31, 2021, is deemed to
have complied with the § 446 method change procedures and section 7.02 of this
revenue procedure to change its method of accounting for expenditures paid or incurred
in the first taxable year beginning after December 31, 2021, to comply with § 174 if the
taxpayer:
(a) reported the amount of SRE expenditures paid or incurred for such taxable
year on Part VI of Form 4562, Depreciation and Amortization, filed with the Federal tax

17
return, and
(b) properly capitalized and amortized such SRE expenditures in accordance
with § 174 for such taxable year.
(5) Certain eligibility rule inapplicable.
(a) In general. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a change described in section 7.02(1)(a) of this
revenue procedure for the taxpayer’s first or second taxable year beginning after
December 31, 2021.
(b) C
hanges made in successive taxable years. A taxpayer may make a
change described in section 7.02(1)(a) of this revenue procedure for its second taxable
year beginning after December 31, 2021, regardless of whether the taxpayer made, or
purported to make, a change for the same item for its first taxable year beginning after
December 31, 2021.

(6) Limited audit protection. A taxpayer does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for a change under section 7.02(1)(a) of this
revenue procedure with respect to expenditures paid or incurred in taxable years
beginning on or before December 31, 2021. Additionally, a taxpayer does not receive
audit protection under section 8.01 of Rev. Proc. 2015-13 for a change under section
7.02(1)(a) of this revenue procedure in the second taxable year beginning after
December 31, 2021, with respect to expenditures paid or incurred in the first taxable
year beginning after December 31, 2021, if the taxpayer did not make, or attempt to
make, a change described in section 7.02(1)(a) for the first taxable year beginning after
December 31, 2021. See section 8.02(2) of Rev. Proc. 2015-13.

18
(7) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change under section 7.02(1)(a)(i)
of this revenue procedure is “265.” The designated automatic accounting method
change under section 7.02(1)(a)(ii) of this revenue procedure is “270.”

(8) No inference relating to expenditures paid or incurred in taxable years prior
to the first taxable year in which § 174 becomes effective. No inference may be drawn
from section 7.02 of this revenue procedure regarding the treatment of expenditures
paid or incurred in, and changes in methods of accounting for, taxable years in which
former § 174 was in effect, including issues relating to the application of
§§ 1.174-1,
1.174-2, 1.174-3, and 1.174-4 for taxable years in which former § 174 was in effect.
(9) No ruling on method used. The consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under section 7.02(1)(a)(i) of this revenue procedure
is not a determination by the Commissioner that the new method of accounting is a
permissible method of accounting, nor does it create any presumption that the new
method of accounting is a permissible method of accounting. The director will ascertain
whether the new method of accounting is a permissible method of accounting.
(10) C
ontact information. For further information regarding a change under this
section, contact Bruce Chang at (202) 317-4870 (not a toll-free number).
.
02 Clarification of section 9 of Rev. Proc. 2023-24. Section 9.01 of Rev. Proc. 2023-
24 is clarified to provide that section 5 of Rev. Proc. 2000-50 (costs of developing
computer software) applies to costs of developing computer software paid or incurred in
any taxable year beginning on or before December 31, 2021.
(1) Section 9.01(1) of Rev. Proc. 2023-24 is clarified to read as follows:

19
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting for the costs of computer software to a method
described in Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16,
2007-1 C.B. 358. Section 5 of Rev. Proc. 2000-50 describes the methods applicable to
the costs of developing computer software. Section 6 of Rev. Proc. 2000-50 describes
the method applicable to the costs of acquired computer software. Section 7 of Rev.
Proc. 2000-50 describes the method applicable to leased or licensed computer
software. Section 13206 of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017),
commonly referred to as the Tax Cuts and Jobs Act (TCJA), amended § 174 to treat the
costs of software development as research or experimental expenditures, effective for
amounts paid or incurred in taxable years beginning after December 31, 2021. Section
12 of Notice 2023-63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, provides that,
as a result of the TCJA amendments to § 174 and the rules in sections 3 through 5 of
Notice 2023-63, section 5 of Rev. Proc. 2000-50 is obsolete for costs of developing
software paid or incurred taxable years beginning after December 31, 2021.
Accordingly, section 5 of Rev. Proc. 2000-50 (costs of developing computer software)
applies only to costs of developing computer software paid or incurred in any taxable
year beginning on or before December 31, 2021.
(2) Section 9.01(3) of Rev. Proc. 2023-24 is clarified to read as follows:
(3) Inapplicability. This change does not apply to costs of developing computer
software that are paid or incurred in taxable years beginning after December 31, 2021.
.
03 Modification of section 19 of Rev. Proc. 2023-24. Section 19 of Rev. Proc. 2023-
24 is modified to add new section 19.02 to read as follows:

20
.02 Change to rely on the interim guidance provided in section 8 of Notice 2023-
63, 2023-39 I.R.B. 919.
(1) Description of change. This change applies to a taxpayer that wants to
change its method of accounting under § 460 to rely on the interim guidance provided in
section 8 of Notice 2023-63, 2023-39 I.R.B. 919, so that the costs allocable to a long-
term contract accounted for using the PCM include amortization deductions of specified
research or experimental (SRE) expenditures, as defined in § 174(b) and section
4.02(2) of Notice 2023-63, as applicable, under § 174(a)(2)(B), rather than the
capitalized amount of such expenditures, and the amortization deductions of such
expenditures is treated as incurred for purposes of determining the percentage of
contract completion in the taxable year the amortization is deducted. For purposes of
determining the percentage of contract completion, estimated total allocable contract
costs include either (1) all amortization of SRE expenditures that directly benefit or are
incurred by reason of the performance of the long-term contract, or (2) only that portion
of such amortization expected to be incurred and deducted during the term of the
contract. A taxpayer using the first alternative is required to report any portion of the
contract price not previously reported by the taxable year following the taxable year in
which the contract is completed, notwithstanding that some portion of the SRE
expenditures remain unamortized. See § 460(b)(1).
(2) Inapplicability. This change does not apply to:
(a) A change in method of accounting under § 460 with respect to
expenditures capitalized under § 59(e)(2)(B), or under § 174(b) prior to its amendment
by § 13206(a) of the TCJA.

21
(b) A change in method of accounting for independent research and
development expenditures, as defined in § 460(c)(5), which are not allocable contract
costs.
(c) Any contract not accounted for under the PCM, as described in § 460(b)(1)
and § 1.460-4(b)(2), as of the beginning of the year of change.
(3) Manner of making change.
(a) Cut-off basis. A change under section 19.02(1) of this revenue procedure
for the taxpayer’s first taxable year beginning after December 31, 2021, applies to the
§ 460 treatment of SRE expenditures paid or incurred in taxable years beginning after
December 31, 2021. Accordingly, such change is made on a cut-off basis, and applies
to all long-term contracts for which an SRE expenditure is an allocable contract cost,
including long-term contracts entered into before the beginning of the year of change. A
taxpayer making this change does not recompute its taxable income under § 1.460-4(b)
for any taxable year beginning on or before December 31, 2021.
(b) M
odified § 481(a) adjustment or cut-off basis.
(i) In general. Except as provided in section 19.02(3)(b)(ii) of this revenue
procedure, a change under section 19.02(1) of this revenue procedure for a year of
change later than the first taxable year beginning after December 31, 2021, is made
with a modified § 481(a) adjustment that takes into account the § 460 treatment of SRE
expenditures paid or incurred in taxable years beginning after December 31, 2021.
Such change applies to all long-term contracts for which an SRE expenditure is an
allocable contract cost, including long-term contracts entered into before the beginning
of the year of change.

22
(ii) Exception for negative modified § 481(a) adjustment. If a change
described in section 19.02(3)(b)(i) of this revenue procedure results in a modified
§ 481(a) adjustment that is negative, the taxpayer may instead choose to implement
the change on a cut-off basis.
(4) C
ertain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change described in section
19.02(1) of this revenue procedure for the taxpayer’s first or second taxable year
beginning after December 31, 2021.
(5) Li
mited audit protection. A taxpayer does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for a change under section 19.02(1) of this revenue
procedure with respect to the § 460 treatment of expenditures paid or incurred in
taxable years beginning on or before December 31, 2021.
(6) D
esignated automatic accounting method change number. The designated
automatic accounting method change number for a change under section 19.02 of this
revenue procedure is “271.”
(7) C
ontact information. For further information regarding a change under
section 19.02 of this revenue procedure, contact John Aramburu at (202) 317-7006 (not
a toll-free number).
SECTION 4. EFFECT ON OTHER DOCUMENTS

This revenue procedure modifies sections 7 and 19, and clarifies section 9, of Rev.
Proc. 2023-24.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for Forms 3115 filed on or after December 22,

23
2023.
SECTION 6. PAPERWORK REDUCTION ACT
The collection of information contained in this revenue procedure has been reviewed
and approved by the Office of Management and Budget under OMB control numbers
1545-0074 for individual filers and 1545-0123 for business filers, in accordance with the
Paperwork Reduction Act (44 U.S.C. § 3507(d)). An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of information unless
the collection of information displays a valid OMB control number. The collection of
information in this revenue procedure is in section 3, which adds section 7.02(3)(a)(ii)
and (3)(b)(ii) to Rev. Proc. 2023-24. This information is necessary and will be used to
determine whether the taxpayer properly changed to a permitted method of accounting.
The collections of information are required for a taxpayer to obtain consent to change its
method of accounting.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Bruce Chang of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure, please contact Mr. Chang at (202) 317-4870 (not a toll-free
number).