rp-26-32.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 I, §§ 174, 174A, 446, 460; 1.446-1, 1.460-4)

Rev. Proc. 2026-32

SECTION 1. PURPOSE
This revenue procedure modifies section 7 of Rev. Proc. 2025-23, 2025-24 I.R.B.
1476, as modified by Rev. Proc. 2025-28, 2025-38 I.R.B. 393, with respect to the
procedures under § 446 of the Internal Revenue Code (Code)
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and § 1.446-1(e) for
obtaining automatic consent of the Commissioner of Internal Revenue (Commissioner)
to change methods of accounting for research or experimental expenditures (i) to
comply with § 174, as in effect after amendment by § 13206(a) of Public Law 115-97,
131 Stat 2054 (Dec. 22, 2017), commonly known as the Tax Cuts and Jobs Act (TCJA),
and prior to amendment by § 70302(b)(1) of Public Law 119-21, 139 Stat. 189, 239 (July

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

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4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), and (ii) to
comply with §§ 174 and 174A, as amended and enacted by the OBBBA, respectively.
This revenue procedure also modifies section 19 of Rev. Proc. 2025-23 with respect
to the procedures under § 446 and § 1.446-1(e) for obtaining automatic consent of the
Commissioner to change methods of accounting for contracts entered into in taxable
years beginning after July 4, 2025, to comply with § 460(e), as amended by the OBBBA.
SECTION 2. BACKGROUND
.01 Certain references used in section 2 of this revenue procedure.
(1) References to § 70302 of the OBBBA. All references hereinafter in section 2 of
this revenue procedure to “OBBBA § 70302” refer to provisions of § 70302 of the
OBBBA.
(2) References to § 70430 of the OBBBA. All references hereinafter in section 2 of
this revenue procedure to “OBBBA § 70430” refer to provisions of § 70430 of the
OBBBA.
(3) References to § 174. All references hereinafter in section 2 of this revenue
procedure to “TCJA § 174” refer to § 174, as in effect after amendment by § 13206(a) of
the TCJA, and prior to amendment by OBBBA § 70302(b)(1). All references hereinafter
in section 2 of this revenue procedure to “§ 174” refer to § 174 as amended by OBBBA
§ 70302(b)(1).
(4) References to research or experimental expenditures. All references
hereinafter in section 2 of this revenue procedure to “specified research or experimental
expenditures” and “SRE expenditures” refer to research or experimental expenditures
paid or incurred in taxable years beginning after December 31, 2021, and before

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January 1, 2025, under TCJA § 174. All references hereinafter in section 2 of this
revenue procedure to “domestic research or experimental expenditures under TCJA
§ 174” refer to SRE expenditures other than SRE expenditures attributable to foreign
research (within the meaning of § 41(d)(4)(F)).
.02 Treatment of research or experimental expenditures under TCJA § 174.
(1) In general. For expenditures paid or incurred in taxable years beginning after
December 31, 2021, TCJA § 174 requires taxpayers to charge SRE expenditures to
capital account and allows amortization deductions of such capitalized expenditures
ratably over 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 (within the meaning of § 41(d)(4)(F)), beginning with the midpoint of the
taxable year in which such expenditures are paid or incurred. The procedures in
sections 7.01 and 7.03 of Rev. Proc. 2025-23, as modified by this revenue procedure,
provide automatic changes in method of accounting for SRE expenditures under TCJA
§ 174 for amounts paid or incurred in taxable years beginning before January 1, 2025.
(2) Treatment of foreign research or experimental expenditures under § 174.
OBBBA § 70302(b)(1) amended TCJA § 174 to provide that § 174 applies only to
foreign research or experimental expenditures and that such expenditures continue to
be charged to capital account and amortized ratably over a 15-year period beginning
with the midpoint of the taxable year in which such expenditures are paid or incurred.
Under § 174(b), as amended by OBBBA § 70302(b)(1)(B), “foreign research or
experimental expenditures” are research or experimental expenditures that are paid or
incurred by the taxpayer during a taxable year in connection with the taxpayer’s trade or

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business that are attributable to foreign research (within the meaning of § 41(d)(4)(F)).
OBBBA § 70302(e)(1) provides that the OBBBA amendments to TCJA § 174 apply to
amounts paid or incurred in taxable years beginning after December 31, 2024.
(3) Treatment of domestic research or experimental expenditures under § 174A.
OBBBA § 70302(a) amended part VI of subchapter B of chapter 1 of the Code by
adding § 174A applicable to taxable years beginning after December 31, 2024. Section
174A(a) provides that, notwithstanding § 263, a deduction is allowed for any domestic
research or experimental expenditures that are paid or incurred by the taxpayer during
the taxable year. Section 174A(b) provides that, for purposes of § 174A, the term
“domestic research or experimental expenditures” means research or experimental
expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or
business other than such expenditures that are attributable to foreign research (within
the meaning of § 41(d)(4)(F)). Section 174A(c)(1) allows a taxpayer to make an
election, in the case of domestic research or experimental expenditures that would (but
for § 174A(a)) be chargeable to capital account but not chargeable to property of a
character that is subject to the allowance under § 167 (relating to allowance for
depreciation, etc.) or § 611 (relating to allowance for depletion), to charge such
expenditures to capital account and amortize such expenditures ratably over a period of
not less than 60 months, beginning with the month in which the taxpayer first realizes
benefits from such expenditures. Under § 174A(c)(1), such election is made in
accordance with regulations or other guidance provided by the Secretary of the
Treasury or the Secretary’s delegate (Secretary). Section 174A(c)(2) provides that the
election described in § 174A(c)(1) may be made for any taxable year, but only if made

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no later than the time prescribed by law for filing the return for such taxable year
(including extensions thereof). The procedures in section 6 of Rev. Proc. 2025-28
provide guidance on making an election under § 174A(c) for expenditures paid or
incurred in taxable years beginning after December 31, 2024. OBBBA § 70302(e)(1)
provides that, generally, the amendments made by OBBBA § 70302 to add § 174A to
the Code apply to amounts paid or incurred in taxable years beginning after December
31, 2024.
.03 Treatment of Certain Construction Contracts under § 460.
(1) Section 460 in general. Section 460(a) generally requires taxpayers to use the
percentage-of-completion method to determine taxable income from a long-term
contract. Section 460(f)(1) defines a “long-term contract” as any contract for the
manufacture, building, installation, or construction of property if such contract is not
completed within the taxable year in which such contract is entered into. Under
§ 460(e), the requirement to use the percentage-of-completion method and comply with
associated rules does not apply to certain types of construction contracts (exempt
construction contracts). Section 460(e)(3) defines a “construction contract” as any
contract for the building, construction, reconstruction, or rehabilitation of, or the
installation of any integral component to, or improvements of, real property.
(2) Treatment of home construction contracts, residential construction contracts,
and other construction contracts prior to OBBBA.
(a) Exempt construction contracts. Prior to amendment by the OBBBA,
§ 460(e)(1)(A) exempted taxpayers from the requirement to use the percentage-of-
completion method for home construction contracts. Section 460(e)(1)(B) exempted

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taxpayers (other than a tax shelter prohibited from using the cash receipts and
disbursements method of accounting under § 448(a)(3)) from the requirement to use the
percentage-of-completion method for any other construction contract if (i) the taxpayer
estimated at the time the contract was entered into that the contract would be
completed within the 2-year period beginning on the contract commencement date, and
(ii) the taxpayer met the gross receipts test of § 448(c) for the taxable year in which the
contract was entered into (small taxpayer exception).
(b) Home construction contracts. Section 460(e)(4)(A), as previously contained
in § 460(e)(5)(A) prior to amendment by the OBBBA, defines the term “home
construction contract” as any construction contract if 80 percent of the estimated total
contract costs (as of the close of the taxable year in which the contract was entered
into) are reasonably expected to be attributable to the building, construction,
reconstruction, or rehabilitation of (i) dwelling units in buildings containing four or fewer
units and (ii) improvements to real property directly related to the dwelling units and
located on the site of the dwelling units. For purposes of § 460(e)(4)(A)(i), as previously
contained in § 460(e)(5)(A)(i) prior to amendment by the OBBBA, each townhouse or
rowhouse is treated as a separate building. Taxpayers were permitted to account for
home construction contracts using any exempt contract method under § 1.460-4(c).
Permissible exempt contract methods include the percentage-of-completion method, the
exempt-contract percentage-of-completion-method (as described in § 1.460-4(c)(2)), the
completed contract method (as described in § 1.460-4(d)), and any other permissible
method. Under § 460(e)(1), taxpayers were required to apply § 263A to home
construction contracts not accounted for under the percentage-of-completion method

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unless (i) the taxpayer estimated at the time the contract was entered into that the
contract would be completed within the 2-year period beginning on the contract
commencement date, and (ii) the taxpayer met the gross receipts test of § 448(c) for the
taxable year in which the contract was entered into.
(c) Residential construction contracts. Section 460(e)(4)(B), as previously
contained in § 460(e)(5)(B) prior to amendment by the OBBBA, defines the term
“residential construction contract” as any contract that would be a home construction
contract but for the limit on the number of dwelling units in a building. Under
§ 460(e)(4), prior to its repeal by the OBBBA, taxpayers with residential construction
contracts that were not home construction contracts were permitted to account for such
contracts using the percentage-of-completion/capitalized-cost method under which the
percentage-of-completion method was used for 70 percent of contract income and
contract costs and an exempt contract method was used for 30 percent of contract
income and contract costs.
(2) OBBBA amendments to § 460(e). The OBBBA did not modify the definitions of
home construction contract or residential construction contract under § 460(e). OBBBA
§ 70430(a)(1)(A) amended § 460(e)(1)(A) to extend the home construction contract
exception to the requirement to use the percentage-of-completion method to apply to all
residential construction contracts. Similarly, OBBBA § 70430(a)(1)(B) amended
§ 460(e)(1) to extend the requirement to apply § 263A to a home construction contract
that is not accounted for under the percentage-of-completion method to apply to all
residential construction contracts unless (i) the taxpayer estimates at the time the
contract is entered into that the contract will not be completed within the 2-year period

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beginning on the contract commencement date (3-year period beginning on the contract
commencement date for residential construction contracts that are not home
construction contracts), and (ii) the taxpayer meets the gross receipts test of § 448(c)
for the taxable year in which the contract is entered into. OBBBA § 70430(a)(2)
removed § 460(e)(4) from the Code, thereby eliminating the ability to use the
percentage-of-completion/capitalized-cost method for residential construction contracts.
OBBBA § 70430(c) provides that the amendments to § 460(e) are effective for contracts
entered into in taxable years beginning after July 4, 2025.
.04 Procedural guidance under Rev. Proc. 2025-28.
(1) Revenue Procedure 2025-28 was released on August 28, 2025, to provide
procedures for making certain elections under OBBBA § 70302(f) with respect to
domestic research or experimental expenditures. Rev. Proc. 2025-28 also modifies
procedures under § 446 and § 1.446-1(e) for obtaining automatic consent to change
methods of accounting for research or experimental expenditures under TCJA § 174
and §§ 174 and 174A.
(2) Section 7 of Rev. Proc. 2025-28 modifies section 7 of Rev. Proc. 2025-23 in
three ways. First, section 7.01 of Rev. Proc. 2025-23 is modified to provide a change in
method of accounting for domestic research or experimental expenditures under TCJA
§ 174. Second, section 7.02 of Rev. Proc. 2025-23 is modified to provide a change in
method of accounting for domestic research or experimental expenditures under § 174A
and to make certain transition method changes under the OBBBA. Third, section 7.03
of Rev. Proc. 2025-23 is added to provide a change in method of accounting for foreign
SRE expenditures under TCJA § 174 and foreign research or experimental

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expenditures under § 174.
.05 Changing methods of accounting under § 446(e).
(1) In general. 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) provides, 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 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) Current guidance on changing methods of accounting. 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. 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. 2025-23 contains the current List of Automatic Changes.

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(3) Changes in method of accounting for research or experimental expenditures
under TCJA § 174, § 174, and § 174A.
(a) A change in the treatment of SRE expenditures to comply with TCJA § 174 is
a change in method of accounting to which §§ 446(e) and 481, and the corresponding
regulations, apply. Similarly, a change in a taxpayer’s treatment of foreign or domestic
research or experimental expenditures to comply with § 174 or § 174A, respectively, or
to use certain transition options provided in OBBBA § 70302(f), is a change in method of
accounting to which §§ 446(e) and 481, and the corresponding regulations, apply.
(b) A taxpayer that changes its method of accounting to comply with TCJA § 174,
§ 174, or § 174A must use the accounting method change procedures in Rev. Proc.
2015-13 or its successor.
(c) Section 3.01 and .02 of this revenue procedure modify section 7.01 of Rev.
Proc. 2025-23 (relating to a change in method of accounting for domestic research or
experimental expenditures under TCJA § 174) as follows:
(i) To provide that, if a taxpayer previously changed to the recovery of
unamortized amount method described in section 7.02(2)(f) of Rev. Proc. 2025-23 for a
prior taxable year, the taxpayer’s § 481(a) adjustment for a change under section 7.01
of Rev. Proc. 2025-23 must reflect application of the taxpayer’s recovery of unamortized
amount method;
(ii) To provide that, if a taxpayer makes both a change under section 7.01 and
section 7.02(2)(f) of Rev. Proc. 2025-23 for its first taxable year beginning after
December 31, 2024, the § 481(a) adjustment period for any net positive § 481(a)
adjustment resulting from the change under section 7.01 of Rev. Proc. 2025-23 is the

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same amortization period elected by the taxpayer under its recovery of unamortized
amount method (that is, the net positive § 481(a) adjustment is taken into account either
in full in the first taxable year beginning after December 31, 2024, or ratably over the 2-
taxable year period beginning with the first taxable year beginning after December 31,
2024);
(iii) To provide that, if a taxpayer previously made a change under section
7.02(2)(f) of Rev. Proc. 2025-23 for a taxable year prior to its year of change for a
change under section 7.01 of Rev. Proc. 2025-23, the § 481(a) adjustment period for
any net positive § 481(a) adjustment resulting from the change under section 7.01 of
Rev. Proc. 2025-23 is taken into account over the amortization period remaining under
the taxpayer’s recovery of unamortized amount method; and
(iv) To extend the waiver of the eligibility rules in section 5.01(d) and (f) of Rev.
Proc. 2015-13 for any change in method of accounting described in section 7.01(1)(a) of
Rev. Proc. 2025-23 for any taxable year beginning before 2028.
(d) Section 3.03 of this revenue procedure modifies section 7.02 of Rev. Proc.
2025-23 (relating to a change in method of accounting for domestic research or
experimental expenditures under the OBBBA, including certain transition options) to
extend the waiver of the eligibility rules in section 5.01(d) and (f) of Rev. Proc. 2015-13
for any change in method of accounting described in section 7.02(3) of Rev. Proc. 2025-
23 for any taxable year beginning before 2028.
(e) Section 3.04 and .05 of this revenue procedure modify section 7.03 of Rev.
Proc. 2025-23 (relating to a change in method of accounting for foreign research or
experimental expenditures) as follows:

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(i) To remove the limitation on the applicability of a change in method of
accounting for foreign research or experimental expenditures to comply with § 174 that
currently limits such change to taxable years beginning before January 1, 2026; and
(ii) To extend the waiver of the eligibility rules in section 5.01(d) and (f) of Rev.
Proc. 2015-13 for any change in method of accounting described in section 7.03(1)(a) of
Rev. Proc. 2025-23 for any taxable year beginning before 2028.
(4) Changes in method of accounting for residential construction contracts under
OBBBA.
(a) A change from the percentage-of-completion method described in § 1.460-
4(b) or the percentage-of-completion/capitalized-cost method described in § 1.460-4(e)
to an exempt contract method described in § 1.460-4(c) for residential construction
contracts to comply with § 460(e)(1)(A) is a change in method of accounting to which
§§ 446(e) and 481, and the corresponding regulations, apply. Similarly, a change to
start or stop capitalizing costs under § 263A for residential construction contracts to
comply with § 460(e)(1) is a change in method of accounting to which §§ 446(e) and
481, and the corresponding regulations, apply.
(b) A taxpayer that changes its method of accounting to comply with § 460(e)(1)
or to start or stop capitalizing costs under § 263A pursuant to § 460(e)(1) must use the
accounting method change procedures in Rev. Proc. 2015-13 (or its successor).
(c) Section 4.01 of this revenue procedure modifies section 19.01 of Rev. Proc.
2025-23 to allow a taxpayer to obtain automatic consent to stop capitalizing costs under
§ 263A for residential construction contracts that meet the requirements of
§ 460(e)(1)(B)(i) and (ii).

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(d) Section 4.02 of this revenue procedure adds section 19.03 of Rev. Proc.
2025-23, to allow a taxpayer to obtain automatic consent to change its method of
accounting for residential construction contracts that are entered into in taxable years
beginning after July 4, 2025, (1) from the percentage-of-completion method of
accounting or the percentage-of-completion/capitalized-cost method of accounting to an
exempt contract method of accounting, or (2) to start capitalizing costs under § 263A for
contracts that do not meet the requirements of § 460(e)(1)(B)(i) and (ii).
SECTION 3. MODIFICATION OF SECTION 7 OF REV. PROC. 2025-23
.01 Modification of section 7.01(3)(a) of Rev. Proc. 2025-23. Section 7.01(3)(a) of
Rev. Proc. 2025-23 is modified to read as follows:
(a) Modified § 481(a) adjustment and cut-off.
(i) In general. Except as provided in section 7.01(3)(a)(ii) of this revenue
procedure, the change under section 7.01(1)(a) of this revenue procedure 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, and before January 1,
2025. If the taxpayer previously changed to the recovery of unamortized amounts
method described in section 7.02(2)(f) of this revenue procedure for a prior taxable year,
the § 481(a) adjustment for the change under this section 7.01 must reflect application
of the taxpayer’s recovery of unamortized amount method.
(ii) Exception for negative modified § 481(a) adjustment. If a change described
in section 7.01(3)(a)(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.

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(iii) Section 481(a) adjustment period.
(A) Concurrent change to the recovery of unamortized amount method. If a
taxpayer makes both a change under this section 7.01 and a change to the recovery of
unamortized amount method described in section 7.02(2)(f) of this revenue procedure
for its first taxable year beginning after December 31, 2024, the § 481(a) adjustment
period for any net positive § 481(a) adjustment for the change under this section 7.01 is
the same amortization period elected by the taxpayer under the recovery of
unamortized amount method; that is, the net positive § 481(a) adjustment is either taken
into account in full in the first taxable year beginning after December 31, 2024, or
ratably over the 2-taxable year period beginning with the first taxable year beginning
after December 31, 2024.
(B) Previous change to the recovery of unamortized amount method. If the
taxpayer previously changed to the recovery of unamortized amounts method described
in section 7.02(2)(f) of this revenue procedure for a prior taxable year, any net positive
§ 481(a) adjustment for the change under this section 7.01 is taken into account over
the amortization period that remains under the taxpayer’s recovery of unamortized
amount method.
.02 Modification of section 7.01(5) of Rev. Proc. 2025-23. Section 7.01(5) of Rev.
Proc. 2025-23 is modified to read as follows:
(5) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply to a change described in section 7.01(1)(a) of
this revenue procedure for any taxable year beginning before January 1, 2028.

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(b) Changes made in successive taxable years. A taxpayer may make a
change described in section 7.01(1)(a) of this revenue procedure for which it has used
an impermissible method of accounting for only one taxable year (that is, for which it
has used an impermissible method of accounting in the taxable year prior to the year of
change).
.03 Modification of section 7.02(7) of Rev. Proc. 2025-23. Section 7.02(7) of Rev.
Proc. 2025-23 is modified to read as follows:
(7) Certain eligibility rules inapplicable. The eligibility rules in section 5.01(1)(d)
and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a change described in
section 7.02(3) of this revenue procedure for any taxable year beginning before January
1, 2028.
.04 Modification of section 7.03(1)(a) of Rev. Proc. 2025-23. Section 7.03(1)(a) of
Rev. Proc. 2025-23 is modified to read as follows:
(1) Description of change.
(a) In general. This change applies to a taxpayer (applicant) that wants to
change its method of accounting for foreign SRE expenditures or foreign research or
experimental expenditures, as applicable, paid or incurred in taxable years beginning
after December 31, 2021, to:
(i) comply with TCJA § 174 for expenditures paid or incurred in taxable years
beginning before January 1, 2025;
(ii) rely on interim guidance provided in section 3, 4, 5, 6, or 7 of Notice 2023-
63, 2023-39 I.R.B. 919, as modified by Notice 2024-12, 2024-5 I.R.B. 616; or
(iii) comply with the changes made to § 174 by the OBBBA for expenditures

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paid or incurred in taxable years beginning after December 31, 2024.
.05 Modification of section 7.03(5) of Rev. Proc. 2025-23. Section 7.03(5) of Rev.
Proc. 2025-23 is modified to read as follows:
(5) Certain eligibility rules inapplicable.
(a) In general. The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply to a change described in section 7.03(1)(a) of
this revenue procedure made by a taxpayer for any taxable year beginning before
January 1, 2028.
(b) Changes made in successive taxable years. A taxpayer may make a change
described in section 7.03(1)(a) of this revenue procedure for which it has used an
impermissible method of accounting for only one taxable year (that is, for which the
taxpayer has used an impermissible method of accounting in the taxable year prior to
the year of change).
SECTION 4. MODIFICATION OF SECTION 19 OF REV. PROC. 2025-23
.01 Section 19.01 is modified to read as follows:
.01 Small business taxpayer exceptions from requirement to account for certain long-
term construction contracts under § 460 or to capitalize costs under § 263A for certain
contracts.
(1) Description of change. This change applies to a taxpayer that wants to change
its method of accounting:
(a) For exempt construction contracts described in § 460(e)(1)(B), from the
percentage-of-completion method of accounting described in § 1.460-4(b) to an exempt
contract method of accounting described in § 1.460-4(c);

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(b) For contracts entered into in taxable years beginning on or before July 4,
2025, to stop capitalizing costs under § 263A for home construction contracts described
in § 460(e)(1)(A), as in effect prior to amendment by Public Law 119-21, 139 Stat. 189
(July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), that meet
the requirements of § 460(e)(1)(B)(i) and (ii); or
(c) For contracts entered into in taxable years beginning after July 4, 2025, to
stop capitalizing costs under § 263A for residential construction contracts described in
§ 460(e)(1)(A), as amended by the OBBBA, that meet the requirements of
§ 460(e)(1)(B)(i) and (ii).
(2) Inapplicability. This change does not apply in the first taxable year in which a
taxpayer enters into a particular type of contract for which the taxpayer may adopt a
permissible method of accounting. For example, the change described in section
19.01(1)(a) of this revenue procedure does not apply in the first taxable year in which
the taxpayer enters into a nonresidential long-term construction contract that meets the
requirements of § 460(e)(1)(B). In such case, the adoption of a permissible exempt
contract method of accounting described in § 1.460-4(c) for such contract is not a
change in method of accounting under § 446(e) and § 1.446-1(e)(2). See Rev. Rul. 92-
28, 1992-1 C.B. 153.
(3) Manner of making change. This change is made on a cut-off basis and applies
only to contracts entered into on or after the first day of the year of change that are
subject to the method change. Accordingly, a § 481(a) adjustment is neither permitted
nor required.
(4) Reduced filing requirement. A taxpayer is required to complete only the

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following information on Form 3115 (Rev. December 2022) to make this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except line 16;
(e) Part IV, line 25; and
(f) Schedule D, Part I.
(5) Certain eligibility rules inapplicable. The eligibility rules in section 5.01(1)(d)
and (f) of Rev. Proc. 2015-13 do not apply to a change described in section 19.01(1)(c)
of this revenue procedure for the taxpayer's first or second taxable year beginning after
July 4, 2025.
(6) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change under this section 19.01 is
“236.”
(7) Contact information. For further information regarding changes under this
section, contact Michael Finn at (202) 317-4718 (not a toll-free number).
.02 Section 19.03 of Rev. Proc. 2025-23 is added to read as follows:
.03 Certain residential construction contracts excepted from the requirement under
§ 460 and subject to capitalization under § 263A.
(1) Description of change. This change applies to a taxpayer that wants to change
its method of accounting for residential construction contracts (as defined in
§ 460(e)(4)(B)) that are entered into in taxable years beginning after July 4, 2025:
(a) From the percentage-of-completion method of accounting described in

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§ 1.460-4(b) or the percentage-of-completion/capitalized-cost method of accounting
described in § 1.460-4(e) to an exempt contract method of accounting described in
§ 1.460-4(c); or
(b) To start capitalizing costs under § 263A for contracts that do not meet the
requirements of § 460(e)(1)(B)(i) and (ii).
(2) Inapplicability. This change does not apply in the first taxable year in which a
taxpayer enters into a particular type of contract for which the taxpayer may adopt a
permissible method of accounting. For example, the change described in section
19.03(1)(a) of this revenue procedure does not apply in the first taxable year in which a
taxpayer enters into a residential construction contract as defined in § 460(e)(4)(B). In
such cases, the adoption of a permissible exempt contract method of accounting
described in § 1.460-4(c) for such contracts is not a change in method of accounting
under § 446(e) and § 1.446-1(e)(2).
(3) Manner of making change. This change is made on a cut-off basis and applies
only to contracts entered into on or after the first day of the year of change that are
subject to the method change. Accordingly, a § 481(a) adjustment is neither permitted
nor required.
(4) Reduced filing requirement. A taxpayer is required to complete only the
following information on Form 3115 (Rev. December 2022) to make this change:
(a) The identification section of page 1 (above Part I);
(b) The signature section at the bottom of page 1;
(c) Part I;
(d) Part II, all lines except line 16;

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(e) Part IV, line 25; and
(f) Schedule D, Part I.
(5) Transition rule. If, on or before September 21, 2026, a taxpayer filed a Federal
income tax return for a taxable year beginning after July 4, 2025, the taxpayer is
deemed to have complied with the general procedures under § 446(e), § 1.446-1(e),
and this section 19.03 to change its method of accounting for contracts described in
section 19.03(1) of this revenue procedure if the taxpayer properly applied the methods
of accounting provided in section 19.03(1)(a) or (b), respectively, of this revenue
procedure for such taxable year.
(6) Certain eligibility rules inapplicable. The eligibility rules in section 5.01(1)(d)
and (f) of Rev. Proc. 2015-13 do not apply to a change described in this section 19.03
for the taxpayer's first or second taxable year beginning after July 4, 2025.
(7) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change under this section 19.03 is
“275.”
(8) Contact information. For further information regarding changes under this
section, contact Michael Finn at (202) 317-4718 (not a toll-free number).
SECTION 5. EFFECT ON OTHER DOCUMENTS
This revenue procedure modifies sections 7 and 19 of Rev. Proc. 2025-23.
SECTION 6. EFFECTIVE DATE
.01 In general. Except as otherwise provided in this section 6, sections 7, 19.01, and
19.03 of Rev. Proc. 2025-23, as modified by this revenue procedure, are effective for a
Form 3115 filed after September 4, 2026.

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.02 Transition rule for taxpayers that properly file the duplicate copy of Form 3115 on
or before November 15, 2026, for a change described in sections 7 and 19.01 of Rev.
Proc. 2025-23, prior to modification by this revenue procedure.
(1) In general. If, on or before November 15, 2026, a taxpayer properly files the
duplicate copy of a Form 3115 for a change described in section 7 or 19.01 of Rev.
Proc. 2025-23, prior to modification by this revenue procedure, the Form 3115 is not
subject to the effective date provided in section 6.01 of this revenue procedure.
(2) Option to implement change as described in sections 7 and 19.01 of Rev. Proc.
2025-23, as modified by this revenue procedure. If, on or before November 15, 2026, a
taxpayer properly files the duplicate copy of a Form 3115 for a change in method of
accounting described in section 7 or 19.01 of Rev. Proc. 2025-23, prior to modification
by this revenue procedure, that continues to be eligible for the automatic change
procedures under section 7 or 19.01 of Rev. Proc. 2025-23, as modified by this revenue
procedure, but has not filed its timely filed (including extensions) original Federal
income tax return for the year of change implementing the change, the taxpayer may
choose to implement the change as described in either (1) section 7 or 19.01 of Rev.
Proc. 2025-23, prior to modification by this revenue procedure, or (2) section 7 or 19.01
of Rev. Proc. 2025-23, as modified by this revenue procedure, but not both.
(a) Procedure to implement change as described in section 7 or 19.01 of Rev.
Proc. 2025-23, prior to modification by this revenue procedure. A taxpayer who meets
the requirements of section 6.02(2) of this revenue procedure and chooses to
implement the change as described in section 7 or 19.01 of Rev. Proc. 2025-23, prior to
modification by the revenue procedure, is not required to resubmit a duplicate copy of

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the Form 3115 to the IRS in Ogden, UT. However, if requested by the Director, the
taxpayer must provide written substantiation that the duplicate copy of the Form 3115
was filed on or before November 15, 2026, pursuant to section 6.03(1)(a)(i)(B) of Rev.
Proc. 2015-13. Such written substantiation may include proof of mailing or faxing, as
appropriate, of the duplicate copy of the Form 3115.
(b) Procedure to implement the change as described in section 7 or 19.01 of
Rev. Proc. 2025-23, as modified by this revenue procedure. A taxpayer who meets the
requirements of section 6.02(2) of this revenue procedure and chooses to implement
the change as described in section 7 or 19.01 of this Rev. Proc. 2025-23, as modified by
this revenue procedure, must resubmit a duplicate copy (with signature) of the Form
3115 to the IRS in Ogden, UT, for the year of change under this revenue procedure,
pursuant to the requirements of section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13. The
resubmitted duplicate copy must include the following statement on the top of page 1 of
the Form 3115: “FILED UNDER REV. PROC. 2026-32, AS PROVIDED IN SECTION
6.02(2)(b) OF REV. PROC. 2026-32”. For purposes of the eligibility rules in section 5 of
Rev. Proc. 2015-13, the duplicate copy of the resubmitted Form 3115 will be considered
filed as of the date the taxpayer originally filed the duplicate copy of the Form 3115
requesting the change under Rev. Proc. 2025-23, prior to modification by this revenue
procedure. This section 6.02(2)(b) does not extend the date the taxpayer must file
either the resubmitted duplicate copy or original Form 3115 under section 6.03(1)(a) of
Rev. Proc. 2015-13. If requested by the Director, the taxpayer must provide written
substantiation that the duplicate copy of the Form 3115 requesting the change under
Rev. Proc. 2025-23, prior to modification by this revenue procedure, was filed on or

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before November 15, 2026, pursuant to section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13.
Such written substantiation may include proof of mailing or faxing, as appropriate, of the
duplicate copy of the Form 3115.
.03 Limited time period to convert a Form 3115 filed under the non-automatic change
procedures in Rev. Proc. 2015-13.
(1) If, before September 21, 2026, a taxpayer properly filed a Form 3115 under the
non-automatic change procedures in Rev. Proc. 2015-13 requesting the
Commissioner's consent for a change in method of accounting described in section 7,
19.01, or 19.03 of Rev. Proc. 2025-23, as modified by this revenue procedure, and the
Form 3115 is pending with the national office on September 21, 2026, the taxpayer may
choose to make the change in method of accounting under the automatic change
procedures in Rev. Proc. 2015-13 if the taxpayer is otherwise eligible to use the
automatic method changes described in section 7, 19.01, or 19.03 of Rev. Proc. 2025-
23, as modified by this revenue procedure, and the automatic change procedures in
Rev. Proc. 2015-13. The taxpayer must notify the national office contact person for the
Form 3115 (if unknown, fax the notification to 855-576-2341 or send the notification to
the attention of Management Assistant (OA), CC:ITA:B07, Room 4136, at the address
specified in section 9.08(6) of Rev. Proc. 2026-1, 2026-1 I.R.B. 1 (or any successor)), of
the taxpayer's intent to make the change in method of accounting under the automatic
change procedures in Rev. Proc. 2015-13 before the later of (a) October 21, 2026, or
(b) the issuance of a letter ruling granting or denying consent for the change. The
notification should indicate that the taxpayer chooses to convert the Form 3115 to the
automatic change procedures in Rev. Proc. 2015-13. If the taxpayer timely notifies the

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national office that it chooses to convert the Form 3115 to the automatic change
procedures in Rev. Proc. 2015-13, the national office will send a letter to the taxpayer
acknowledging its request and will return the user fee submitted with the Form 3115.
(2) A taxpayer converting a Form 3115 to the automatic change procedures in Rev.
Proc. 2015-13 for a change in method of accounting described in section 7, 19.01, or
19.03 of Rev. Proc. 2025-23, as modified by this revenue procedure, must resubmit a
Form 3115 that conforms to the automatic change procedures, with a copy of the
national office letter sent acknowledging the taxpayer’s request attached, to the IRS in
accordance with section 9.06 of Rev. Proc. 2026-1 (or its successor), by the earlier of
(a) the 30th calendar day after the date of the national office’s letter acknowledging the
taxpayer’s request or (b) the date the taxpayer is required to file the duplicate copy of
the Form 3115 under section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13. See section
6.03(3) of Rev. Proc. 2015-13 regarding additional required copies of Form 3115.
(3) For purposes of the eligibility rules in section 5 of Rev. Proc. 2015-13, the
duplicate copy of the timely resubmitted Form 3115 will be considered filed as of the
date the taxpayer originally filed the converted Form 3115 under the non-automatic
change procedures in Rev. Proc. 2015-13. This section 6.03 does not extend the date
the taxpayer must file the original (converted) Form 3115 under section 6.03(1)(a)(i)(A)
of Rev. Proc. 2015-13.
(4) A Form 3115 filed under the non-automatic change procedures in Rev. Proc.
2015-13 before September 21, 2026, for a change in method of accounting described in
sections 7, 19.01 and 19.03 of Rev. Proc. 2025-23, as modified by this revenue
procedure, will be disregarded for purposes of the prior five-year change rules in section

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5.04 and 5.05 of Rev. Proc. 2015-13 if the taxpayer converts the Form 3115 to the
automatic change procedures pursuant to this section 6.03.
SECTION 7. PAPERWORK REDUCTION ACT
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the approval of the Office of Management and
Budget (OMB) before collecting information from the public, whether such collection of
information is mandatory, voluntary, or required to obtain or retain a benefit. 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 Office of
Management and Budget.
The collections of information in this revenue procedure are in section 3. This
information is necessary and will be used to determine whether the taxpayer properly
changed to an exempt contract method for exempt construction contracts under § 460
and properly changed to start or stop capitalizing costs to exempt construction contracts
under § 263A.
These collection requirements are included in the OMB Control Number 1545-
0074 for individual filers, 1545-0123 for business filers, 1545-0092 for trust and estate
filers, and 1545-0047 for tax-exempt filers, in accordance with the PRA (44 U.S.C.
3507).
SECTION 8. DRAFTING INFORMATION
The principal author of this revenue procedure is Michael Finn from the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
a change under § 174 or § 174A, please contact Bruce Chang from the Office of

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Associate Chief Counsel (Income Tax & Accounting) at (202) 317-4870 (not a toll-free
number). For further information regarding this revenue procedure or a change under
§ 460, please contact Mr. Finn at (202) 317-4718 (not a toll-free number).