rp-07-67.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, §§ 446, 481)

Rev. Proc. 2007-67

SECTION 1. PURPOSE
This revenue procedure modifies Rev. Proc. 97-27, 1997-1 C.B. 680, as modified
and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by
Rev. Proc. 2002-54, 2002-2 C.B. 432, which provides the general procedures for
obtaining the advance consent of the Commissioner of Internal Revenue to change a
method of accounting. This revenue procedure allows taxpayers, under certain
conditions, to request to revise the year of change for a Form 3115, Application for
Change in Accounting Method, that is pending in the national office, and modifies the
period for taking into account a net positive adjustment under § 481(a) of the Internal
Revenue Code when the Commissioner approves the taxpayer’s request to revise the
year of change.
SECTION 2. BACKGROUND
.01 Section 446(e) states that, except as otherwise provided, a taxpayer must
secure the consent of the Secretary before changing a method of accounting for federal

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income tax purposes. Section 1.446-1(e)(3)(i) of the Income Tax Regulations requires
that, in general, in order to obtain the Commissioner’s consent to a change in
accounting method, a taxpayer must file a Form 3115 during the taxable year in which
the taxpayer desires to make the proposed change.
.02 Rev. Proc. 97-27 provides the general procedures for obtaining the advance
consent of the Commissioner to change a method of accounting. See also Rev. Proc.
2007-1, 2007-1 I.R.B. 1 (or successor).
.03 Section 3.05 of Rev. Proc. 97-27 defines the year of change as the taxable
year for which a change in method of accounting is effective, that is, the first taxable
year the new accounting method is to be used. The year of change is also the first
taxable year for complying with the terms and conditions of the Commissioner’s consent
to change a method of accounting.
.04 Section 5.02(3)(a) of Rev. Proc. 97-27 provides, in general, that the § 481(a)
adjustment period is four taxable years for a net positive adjustment for an accounting
method change, and one taxable year for a net negative adjustment for an accounting
method change.
.05 In some instances a taxpayer’s Form 3115 filed under Rev. Proc. 97-27 may
be pending in the national office when the taxpayer prepares and files its federal income
tax return for the requested year of change. Therefore, the Service has determined that
it is appropriate, under certain conditions, to allow a taxpayer to request to revise the
year of change for a pending Form 3115.
SECTION 3. CHANGES TO REV. PROC. 97-27
.01 Section 5.02(3)(a) of Rev. Proc. 97-27 is modified to read as follows:

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(a) In general. Except as otherwise provided in sections 5.02(3)(b),
7.03, and 12.01(3) of this revenue procedure, the § 481(a) adjustment period is
four taxable years for a net positive adjustment for an accounting method
change, and one taxable year for a net negative adjustment for an accounting
method change.
.02 Rev. Proc. 97-27 is modified to renumber sections 12 through 15 as sections
13 through 16.
.03 Rev. Proc. 97-27 is modified by inserting new section 12 to read as follows:
SECTION 12. REQUEST TO REVISE THE YEAR OF CHANGE
.01 In general. The taxpayer may request, and the Service
ordinarily will allow, the taxpayer to revise the year of change for a Form
3115 that is pending in the national office to a subsequent taxable year,
but no later than the taxpayer’s current taxable year (with no additional
user fee), in lieu of submitting a new Form 3115 for the subsequent
taxable year, under the following conditions:
(1) The taxpayer must submit a written request pursuant to
section 12.04 of this revenue procedure to revise the year of change on or
after, but not before, the first day of the fourth month following the month
in which the taxpayer’s federal income tax return is due (without regard to
extension) for the original year of change requested on the Form 3115 (for
example, a calendar year C corporation must submit a written request on
or after, but not before, July 1 following the year of change requested on
the Form 3115);

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(2) The Form 3115 is pending in the national office on the
date of the request; and
(3) Unless the Commissioner has determined that the
requested change in accounting method will be made using a cut-off
method or a modified cut-off method --
(a) The taxpayer must agree, in writing, to accelerate
into the revised year of change the percentage of any net positive § 481(a)
adjustment the taxpayer would have taken into account for each prior
taxable year under section 5.02(3)(a) of this revenue procedure had the
taxpayer not revised the year of change (for example, if the year of
change is revised to the first succeeding taxable year, the taxpayer must
agree to take into account one-half of any net positive § 481(a) adjustment
in the revised year of change and one-fourth in each of its next two
taxable years); and
(b) The taxpayer must agree to provide the § 481(a)
adjustment (positive or negative) for the revised year of change within 21
calendar days (or a longer period if agreed to by the national office) after
the Service first notifies the taxpayer that its request to revise the year of
change is approved.
.02 Multiple applicants on one Form 3115. If the Form 3115 is for
an identical change in accounting method for more than one applicant, the
taxpayer must request to revise the year of change for all applicants to
which the Form 3115 relates.

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.03 Compelling circumstances.
(1) In general. In the case of a taxpayer that does not meet
the condition in section 12.01(1) of this revenue procedure, a taxpayer
with compelling circumstances may request to revise the year of change
for the Form 3115, in lieu of submitting a new Form 3115 for the proposed
revised year of change. The taxpayer must demonstrate those compelling
circumstances. An example of compelling circumstances would include
the following.
(2) Example. A calendar year partnership with 50 individual
partners timely files a Form 3115 under Rev. Proc. 97-27 for a change in
method of accounting for its 2007 taxable year. The partnership’s Form
1065, U.S. Return of Partnership Income, and Schedules K-1, Partner’s
Share of Income, Deductions, Credits, etc., and the partners’ Forms 1040,
U.S. Individual Income Tax Return, for the requested year of change are
all due April 15, 2008. On March 17, 2008, the partnership submits a
request to revise the year of change for its pending Form 3115 to its 2008
taxable year because the partnership’s Form 3115 is pending in the
national office. Because the Form 3115 is pending in the national office
30 days prior to the due date of the partners’ Forms 1040, the partnership
will be unable to provide timely Schedules K-1 that take into account the
proposed accounting method change before the partners prepare and file
their 2007 Forms 1040. Therefore, to avoid the potential for the 50
partners to be required to file amended 2007 Forms 1040 to take into

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account the partnership’s requested change in method of accounting for
the 2007 taxable year, once approved, the Service will ordinarily allow the
partnership to revise the year of change for its Form 3115 to its 2008
taxable year. If the accounting method change is approved for the
partnership’s 2008 taxable year, in lieu of taking into account any net
positive § 481(a) adjustment over four taxable years, the partnership must
take into account one-half of any net positive § 481(a) adjustment in its
2008 taxable year and one-fourth in each of its next two taxable years.
.04 Submitting a request for a revised year of change. A request
to revise the year of change for a Form 3115 pending in the national office
should include the name of the filer (and each applicant, if applicable) on
the Form 3115, the national office reference number (for example, CAM-
123456-07), the name of the national office contact person for the Form
3115 (if known), the due date (without extension) for the filer’s federal
income tax return for the year of change, and a statement agreeing to the
applicable requirements in section 12.01(3) of this revenue procedure.
The request must be accompanied by the penalties of perjury statement in
section 9.08(3) of Rev. Proc. 2007-1 (or successor) and should be
submitted to the applicable address in section 9.08(6) of Rev. Proc. 2007-
1 (or successor). Alternatively, the request may be faxed to a fax number
provided by the national office contact person for the Form 3115. If faxed,
a copy of the request and an original signed penalties of perjury statement

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must also be mailed or delivered to the applicable address in section
9.08(6) of Rev. Proc. 2007-1 (or successor).
.05 Notification of approval or denial. The national office will notify
the taxpayer, orally and later in writing, of the approval or denial of the
taxpayer’s request to revise the year of change for a pending Form 3115.
.06 Service’s discretion to deny a request. The Service reserves
the right to deny a taxpayer’s request for a revised year of change for a
pending Form 3115 in any situation in which the Service determines it
would not be in the best interest of sound tax administration to allow the
taxpayer to revise the year of change. A taxpayer is not entitled to a
conference with the Service if the request to revise the year of change for
a pending Form 3115 is denied.
SECTION 4. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 97-27 is modified.
SECTION 5. EFFECTIVE DATE
.01 In general. This revenue procedure is effective for Forms 3115 filed on or
after, or pending in the national office on, November 6, 2007.
.02 Transition rule for pending consent agreements. If on or before November
26, 2007, a taxpayer has received a letter ruling approving a change in accounting
method for which the taxpayer has not signed and returned the consent agreement and
the period of time for signing and returning the consent agreement (see section 8.11 of
Rev. Proc. 97-27) has not expired, the taxpayer may request to revise the year of
change for the change in accounting method under the provisions of this revenue

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procedure. The taxpayer must submit any such request to revise the year of change
prior to, and within the period of time for, signing and returning the consent agreement.
SECTION 6. DRAFTING INFORMATION
The principal author of this notice is Brenda D. Wilson of the Office of Associate
Chief Counsel (Income Tax and Accounting). For further information regarding this
notice, contact Ms. Wilson on (202) 622-4800 (not a toll-free call).