Internal Revenue Bulletin 2007-4 (PDF rendition): IRS Revenue Rulings

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

Bulletin No. 200
7-4
January 22, 2007
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2007–3, page 350.
Executory contract liabilities.This ruling provides guidance
on when a taxpayer using an accrual method of accounting
incurs a liability for services or insurance under section 461 of
the Code.
Rev. Rul. 2
007–4, page 351.
Section 12
74A – Inflation adjusted numbers for 2007.
This rulin
g provides the dollar amounts, increased by the
2007 infla
tion adjustment, for section 1274A of the Code.
Rev. Rul.
2005–76 supplemented and superseded.
Notice 2007–10, page 354.
This notice announces that the IRS and Treasury will amend
regulations section 30l.7701–2(b)(8) to include a Bulgarian en-
tity on the list of entities always treated as corporations under
section 7701 of the Code.
Rev. Proc. 2007–12, page 354.
This procedure supersedes Rev. Proc. 98–20, 1998–1 C.B.
549, and sets forth the acceptable form of the written assur-
ances (certification) that a real estate reporting person must
obtain from the seller of a principal residence to except the sale
or exchange of such principal residence from the information
reporting requirements for real estate transactions under sec-
tion 6045(e)(5) of the Code. Rev. Proc. 98–20 superseded.
Rev. Pro
c. 2007–14, page 357.
This doc
ument provides procedures by which a taxpayer may
obtain a
utomatic consent to change its method of accounting
for ser
vices or insurance to comply with Rev. Rul. 2007–3,
page 35
0
,i
n this Bulletin. Rev. Proc. 2002–9 modified and
amplif
ied.
EXEMPT ORGANIZATIONS
Announcement 2007–3, page 376.
The IRS has revoked its determination that Corporate Respon-
sibility Capital Partners, Inc., of Washington, DC; HR–57 Cen-
ter for the Advancement and Preservation of Jazz and Blues
of Washington, DC; National Association of Credit Counseling,
Inc.,ofFt.Myers,FL;andPersonal Credit Assistance, Inc., of
Sacramento, CA, qualify as organizations described in sections
501(c)(3) and 170(c)(2) of the Code.
ADMINISTRATIVE
Rev. Proc. 2007–16, page 358.
This document provides an automatic consent procedure allow-
ing a taxpayer to make a change in method of accounting for
certain depreciable or amortizable property after its disposi-
tion, waives the two-year rule in Rev. Rul. 90–38 with respect
to certain changes in depreciation or amortization, and modi-
fies other revenue procedures to conform with regulations sec-
tion 1.446–1(e)(2)(ii)(d). Rev. Procs. 2000–38, 2000–50, and
2002–9 modified. Rev. Proc. 2004–11 superseded.
Rev. Proc. 2007–17, page 368.
This procedure, which supersedes Rev. Proc. 2005–12,
2005–1 C.B. 311, provides guidance that continues the
existing Pre-Filing Agreement (PFA) program with only minor
changes related to the processing of PFAs. Rev. Proc.
2005–12 superseded.
(Continued on the next page)
Fi
nding Lists begin on page ii.

Announcement 2007–5, page 376.
This document changes the location of the public hearing
on proposed regulations (REG–127819–06, 2006–48 I.R.B.
1013) concerning the amendments made by the Tax Increase
Prevention and Reconciliation Act of 2005 (TIPRA) to section
199.
Announcement 2007–6, page 376.
This document changes the location of the public hearing on
proposed regulations (REG–136806–06, 2006–47 I.R.B. 950)
relating to the standards for treating payments in lieu of taxes
as generally applicable taxes for purposes of the private secu-
rity or payment test.
Announcement 2007–7, page 377.
This document changes the location of the public hearing on
proposed regulations (REG–141901–05, 2006–47 I.R.B. 947)
that provide guidance on taxation of the exchange of property
for an annuity contract.
January 22, 20072007–4 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2007–4 I.R.B.January 22, 2007

Place missing child here.
January 22, 20072007–4 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 446.—General Rule
for Methods of Accounting
This revenue procedure provides procedures by
which a taxpayer may obtain automatic consent to
change its method of accounting for services or in-
surance under section 461 to comply with Rev. Rul.
2007–3, page 350, this Bulletin. See Rev. Proc.
2007-14, page 357.
26 CFR 1.446–1: General rule for methods of ac-
counting.
May a taxpayer change its method of accounting
under § 446(e) of the Internal Revenue Code for de-
preciable or amortizable property after its disposi-
tion? See Rev. Proc. 2007-16, page 358.
Section 461.—General
Rule for Taxable Year
of Deduction
This revenue procedure provides procedures by
which a taxpayer may obtain automatic consent to
change its method of accounting for services or in-
surance under section 461 to comply with Rev. Rul.
2007–3, page 350, this Bulletin. See Rev. Proc.
2007-14, page 357.
26 CFR 1.461–1: General rule for taxable year of
deduction.
(Also §§ 1.461–4, 1.461–5.)
Executory contract liabilities.This
ruling provides guidance on when a tax-
payer using an accrual method of account-
ing incurs a liability for services or insur-
ance under section 461 of the Code.
Rev. Rul. 2007–3
ISSUES
(1) Under § 461 of the Internal Revenue
Code, when does a taxpayer using an ac-
crual method of accounting incur a liabil-
ity for services?
(2) Under § 461, when does a taxpayer
using an accrual method of accounting in-
cur a liability for insurance?
FACTS
Xis a corporation that uses an accrual
method of accounting and files its federal
income tax returns on a calendar year ba-
sis.
Situation 1. On December 15, 2006,
Xexecutes a contract withYfor the pro-
vision of services. The contract provides
for services to begin on January 15, 2007,
and end on January 31, 2007. Under the
terms of the contract, payment for the ser-
vices is due toYon January 15, 2007, and
XpaysYfor the services on January 15,
2007.Xuses the recurring item exception
under § 1.461–5.
Situation 2. On December 15, 2006,X
executes a contract withW, an insurance
company regulated under state law, for the
provision of insurance. The insurance con-
tract covers the period from January 15,
2007, through December 31, 2007. Under
the terms of the contract, payment of the
insurance premium is due toWon January
15, 2007, andXpays the premium toW
on January 15, 2007.Xuses the recurring
item exception under § 1.461–5.
LAW
Section 461(a) provides that the amount
of any deduction or credit must be taken
for the taxable year that is the proper tax-
able year under the method of accounting
used by the taxpayer in computing taxable
income.
Section 1.461–1(a)(2)(i) of the Income
Tax Regulations provides that, under an
accrual method of accounting, a liabil-
ity is incurred, and is generally taken
into account for federal income tax pur-
poses, in the taxable year in which (1) all
the events have occurred that establish
the fact of the liability, (2) the amount
of the liability can be determined with
reasonable accuracy, and (3) economic
performance has occurred with respect to
the liability (the “all events test”).See
also§ 1.446–1(c)(1)(ii)(A).
The first prong of the all events test re-
quires that all the events have occurred that
establish the fact of the liability. There-
fore, it is fundamental to the all events test
that although expenses may be deductible
before they become due and payable, li-
ability first must be firmly established.
United States v. General Dynamics Corp.,
481 U.S. 239, 243–4 (1987).
Generally, under § 1.461–1(a)(2), all
the events have occurred that establish the
fact of the liability when (1) the event fix-
ing the liability, whether that be the re-
quired performance or other event, occurs,
or (2) payment therefore is due, whichever
happens earliest. Rev. Rul. 80–230,
1980–2 C.B. 169; Rev. Rul. 79–410,
1979–2 C.B. 213,amplified byRev Rul.
2003–90, 2003–2 C.B. 353. The terms
of a contract are relevant in determining
the events that establish the fact of a tax-
payer’s liability.See, e.g., Decision, Inc.
v. Commissioner, 47 T.C. 58 (1966),acq.,
1967–2 C.B. 2.
Section 461(h) and § 1.461–4 provide
that, for purposes of determining whether
an accrual basis taxpayer can treat the
amount of any liability as incurred, the all
events test is not treated as met any earlier
than the taxable year in which economic
performance occurs with respect to the
liability.
Section 1.461–4(d)(2) provides that if a
liability of a taxpayer arises out of the pro-
viding of services or property to the tax-
payer by another person, economic perfor-
mance occurs as the services or property is
provided.
Section 1.461–4(g)(5) provides that if a
liability of a taxpayer arises out of the pro-
vision to the taxpayer of insurance, eco-
nomic performance occurs as payment is
made to the person to which the liability is
owed.
Section 1.461–5(b)(1) provides a recur-
ring item exception to the general rule of
economic performance. Under the recur-
ring item exception, a liability is treated
as incurred for a taxable year if: (i) at the
end of the taxable year, all events have oc-
curred that establish the fact of the liabil-
ity and the amount can be determined with
reasonable accuracy; (ii) economic perfor-
mance occurs on or before the earlier of
(a) the date that the taxpayer files a return
(including extensions) for the taxable year,
or (b) the 15th day of the ninth calendar
month after the close of the taxable year;
(iii) the liability is recurring in nature; and
(iv) either the amount of the liability is not
material or accrual of the liability in the
taxable year results in better matching of
the liability against the income to which it
relates than would result from accrual of
2007–4 I.R.B.350January 22, 2007

the liability in the taxable year in which
economic performance occurs.
ANALYSIS
Situation 1.InSituation 1, the first
event that occurs to establish the fact ofX’s
liability for services is that payment is due
under the contract on January 15, 2007.
SeeRev. Rul. 80–230; Rev. Rul. 79–410.
Thus, for purposes of § 461, the fact of the
liability is established on January 15, 2007.
At that time, the amount can be determined
with reasonable accuracy. Economic per-
formance with respect to the liability oc-
curs as the services are provided, from Jan-
uary 15, 2007, through January 31, 2007.
See§ 1.461–4(d)(2). Therefore,Xincurs a
liability for services in 2007.
The fact of the liability is not estab-
lished in 2006, even thoughXexecuted the
service contract on December 15, 2006.
It is well established that an accrual basis
obligor is not permitted to deduct an ex-
pense stemming from a bilateral contrac-
tual arrangement, that is, mutual promises,
prior to the performance of the contracted
for services by the obligee. Rev. Rul.
80–182, 1980–2 C.B. 167, citingLevin
v. Commissioner, 21 T.C. 996 (1954),
aff’d, 219 F.2d 588 (3d Cir. 1955) (an
agreement for services to be performed in
the next year did not establish the fact of
the taxpayer’s liability but was simply an
agreement under which a liability would
be incurred in the future) andAmalga-
mated Housing Corp. v. Commissioner,
37 B.T.A. 817 (1938),aff’d per curium,
108F.2d1010(2dCir. 1940)(anagree-
ment to renovate property in the future did
not establish the fact of the taxpayer’s lia-
bility; the accrual was for services in ren-
ovating, not the duty to renovate). Thus,
the mere execution of the contract byXin
2006 is not sufficient, by itself, to establish
the fact of the liability. Further, the recur-
ring item exception does not apply because
the fact of the liability is not established in
2006.
Situation 2.InSituation 2, the first
event that occurs to establish the fact of
X’s liability for insurance is that the pre-
mium is due under the contract.SeeRev.
Rul. 80–230; Rev. Rul. 79–410. Thus,
for purposes of § 461, the fact of the lia-
bility is established on January 15, 2007.
At that time, the amount can be determined
with reasonable accuracy. Economic per-
formance with respect to the liability oc-
curs as payment is made, on January 15,
2007.See§ 1.461–4(g)(5). Therefore,X
incurs a liability for insurance in 2007.
The fact of the liability is not estab-
lished in 2006, even thoughXexecuted the
insurance contract on December 15, 2006.
SeeRev. Rul. 80–182. Although federal
or state regulations may impose certain le-
gal obligations on taxpayers, those obliga-
tions, without more, do not necessarily es-
tablish the fact of a taxpayer’s liability un-
der § 461.See Chrysler Corp. v. Commis-
sioner, 436 F.3d 644 (6th Cir. 2006) (statu-
tory obligation related to warranty obliga-
tion was not sufficient to establish the fact
of the taxpayer’s liability to provide war-
ranty services). Further, the recurring item
exception does not apply because the fact
of the liability is not established in 2006.
HOLDINGS
(1) Under § 461, all the events have
occurred that establish the fact of the li-
ability for services provided to the tax-
payer when (1) the event fixing the lia-
bility, whether that be the required perfor-
mance or other event, occurs, or (2) pay-
ment is due, whichever happens earliest.
The mere execution of acontract, without
more, does not establish the fact of a tax-
payer’s liability for services.
(2) Under § 461, all the events have oc-
curred that establish the fact of the liabil-
ity for insurance when (1) the event fixing
the liability, whether that be the required
performance or other event, occurs, or (2)
payment is due, whichever happens ear-
liest. The mere execution of a contract,
without more, does not establish the fact
of a taxpayer’s liability for insurance.
APPLICATION
A change in the treatment of liabili-
ties for services or insurance to comply
with this revenue ruling is a change in
method of accounting within the meaning
of §§ 446 and 481 and the regulations is-
sued thereunder. Accordingly, a taxpayer
that wants to change its treatment of lia-
bilities for services or insurance to com-
ply with this revenue ruling must obtain
the consent of the Commissioner under
§ 446(e) and § 1.446–1(e)(2)(i) by follow-
ing the procedures in Rev. Proc. 2007–14,
page 357, this Bulletin.
DRAFTING INFORMATION
The principal author of this revenue rul-
ingisLetaA.AyresoftheOfficeofAs-
sociate Chief Counsel (Income Tax & Ac-
counting). For further information regard-
ing this revenue ruling, contact Ms. Ayres
at (202) 622–5020 (not a toll-free call).
Section 481.—Adjustments
Required by Changes in
Method of Accounting
This revenue procedure provides procedures by
which a taxpayer may obtain automatic consent to
change its method of accounting for services or in-
surance under section 461 to comply with Rev. Rul.
2007–3, page 350, this Bulletin. See Rev. Proc.
2007-14, page 357.
Section 1016.—Adjust-
ments to Basis
26 CFR 1.1016–3: Exhaustion, wear and tear, ob-
solescence, amortization, and depletion for periods
since February 28, 1913.
Does the allowed or allowable rule under
§ 1016(a)(2) of the Internal Revenue Code per-
manently affect a taxpayer’s lifetime income for
purposes of determining whether a change in de-
preciation or amortization is a change in method of
accounting? See Rev. Proc. 2007-16, page 358.
Section 1274A.—Special
Rules for Certain
Transactions Where Stated
Principal Amount Does Not
Exceed $2,800,000
26 CFR 1.1274A–1: Special rules for certain trans-
actions where stated principal amount does not ex-
ceed $2,800,000.
(Also §§ 483, 1274, 7872.)
Section 1274A – Inflation adjusted
numbers for 2007.This ruling provides
the dollar amounts, increased by the 2007
inflation adjustment, for section 1274A of
the Code. Rev. Rul. 2005–76 supple-
mented and superseded.
Rev. Rul. 2007–4
This revenue ruling provides the dollar
amounts, increased by the 2007 inflation
adjustment, for § 1274A of the Internal
Revenue Code. This ruling also provides
that the Internal Revenue Service will no
January 22, 20073512007–4 I.R.B.

longer publish the inflation adjustment un-
der § 7872(g)(2) because of amendments
made to § 7872 by the Tax Increase Pre-
vention and Reconciliation Act of 2005
(TIPRA), Pub. L. No. 109–222, 120 Stat.
345, and the Tax Relief and Health Care
Act of 2006, Pub. L. No. 109–432, 120
Stat. 2922.
BACKGROUND
In general, §§ 483 and 1274 determine
the principal amount of a debt instrument
given in consideration for the sale or ex-
change of nonpublicly traded property. In
addition, any interest on a debt instrument
subject to § 1274 is taken into account un-
der the original issue discount provisions
of the Code. Section 1274A, however,
modifies the rules under §§ 483 and 1274
for certain types of debt instruments.
In the case of a “qualified debt instru-
ment,” the discount rate used for purposes
of §§ 483 and 1274 may not exceed 9 per-
cent, compounded semiannually. Section
1274A(b) defines a qualified debt instru-
ment as any debt instrument given in con-
sideration for the sale or exchange of prop-
erty (other than new § 38 property within
the meaning of § 48(b), as in effect on the
day before the date of enactment of the
Revenue Reconciliation Act of 1990) if the
stated principal amount of the instrument
does not exceed the amount specified in
§ 1274A(b). For debt instruments arising
out of sales or exchanges before January 1,
1990, this amount is $2,800,000.
In the case of a “cash method debt in-
strument,” as defined in § 1274A(c), the
borrower and lender may elect to use the
cash receipts and disbursements method
of accounting. In particular, for any cash
method debt instrument, § 1274 does not
apply, and interest on the instrument is ac-
counted for by both the borrower and the
lender under the cash method of account-
ing. A cash method debt instrument is
a qualified debt instrument that meets the
following additional requirements: (A) In
the case of instruments arising out of sales
or exchanges before January 1, 1990, the
stated principal amount does not exceed
$2,000,000; (B) the lender does not use an
accrual method of accounting and is not a
dealer with respect to the property sold or
exchanged; (C) § 1274 would have applied
to the debt instrument but for an election
under § 1274A(c); and (D) an election un-
der § 1274A(c) is jointly made with respect
to the debt instrument by the borrower and
lender. Section 1.1274A–1(c)(1) of the In-
come Tax Regulations provides rules con-
cerning the time for, and manner of, mak-
ing this election.
Section 1274A(d)(2) provides that, for
any debt instrument arising out of a sale
or exchange during any calendar year
after 1989, the dollar amounts stated in
§ 1274A(b) and § 1274A(c)(2)(A) are
increased by the inflation adjustment for
the calendar year. Any increase due to
the inflation adjustment is rounded to the
nearest multiple of $100 (or, if the increase
is a multiple of $50 and not of $100, the
increase is increased to the nearest mul-
tiple of $100). The inflation adjustment
for any calendar year is the percentage (if
any) by which the CPI for the preceding
calendar year exceeds the CPI for calendar
year 1988. Section 1274A(d)(2)(B) de-
fines the CPI for any calendar year as the
average of the Consumer Price Index as of
the close of the 12-month period ending
on September 30 of that calendar year.
INFLATION-ADJUSTED AMOUNTS
UNDER § 1274A
For debt instruments arising out of sales
or exchanges after December 31, 1989, the
inflation-adjusted amounts under § 1274A
areshowninTable1.
Rev. Rul. 2007–4 Table 1
Inflation-Adjusted Amounts Under § 1274A
Calendar Year
of Sale
or Exchange
1274A(b) Amount
(qualified debt
instrument)
1274A(c)(2)(A) Amount
(cash method debt
instrument)
1990
$2,933,200$2,095,100
1991
$3,079,600$2,199,700
1992
$3,234,900$2,310,600
1993
$3,332,400$2,380,300
1994
$3,433,500$2,452,500
1995
$3,5
23,600
$2,5
16,900
1996
$3,622,500$2,587,500
1997
$3,723,800$2,659,900
1998
$3,823,100$2,730,800
1999
$3,885,500$2,775,400
2000
$3,960,100$2,828,700
20
01
$4
,085,900
$2
,918,500
2002
$4,217,500$3,012,500
2003
$4,280,800$3,057,700
2004
$4,381,300$3,129,500
2007–4 I.R.B.352January 22, 2007

Rev. Rul. 2007–4 Table 1
Inflation-Adjusted Amounts Under § 1274A – Continued
Calendar Year
of Sale
or Exchange
1274A(b) Amount
(qualified debt
instrument)
1274A(c)(2)(A) Amount
(cash method debt
instrument)
2005
$4,483,000$3,202,100
2006
$4,630,300$3,307,400
2007
$4,800,800$3,429,100
Note:These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, published
by the Bureau of Labor Statistics.
INFLATION-ADJUSTED AMOUNTS
UNDER § 7872(g)(2)
The Service will no longer publish the
inflation adjustment under § 7872(g)(2),
regarding the amount that a taxpayer may
lend to a qualifying continuing care facil-
ity without incurring imputed interest, be-
cause of amendments made to § 7872 by
TIPRA and the Tax Relief and Health Care
Act of 2006.
Section 7872(g)(2) provides an excep-
tion for certain below-market loans to
qualified continuing care facilities only to
the extent that the aggregate outstanding
amount of any loan to which § 7872(g)(1)
applies (determined without regard to
§ 7872(g)(2)), when added to the ag-
gregate outstandingamount of all other
previous loans between the lender (or the
lender’s spouse) and any qualified contin-
uing care facility to which § 7872(g)(1)
applies, does not exceed$90,000. Section
7872(g)(5) generally provides that, for
loans made during any calendar year after
1986 to which § 7872(g)(1) applies, the
$90,000 limit specified in § 7872(g)(2) is
increased by an inflation adjustment.
Section 7872(g)(6) generally suspends
the application of § 7872(g) for any calen-
dar year to which § 7872(h), as amended
by TIPRA, applies. Section 7872(h) gen-
erally provides that § 7872 shall not apply
for any calendar year to any below-market
loan owed by a facility which on the last
day of such year is a qualified continuing
care facility, if such loan was made pur-
suant to a continuingcare contract and if
the lender (or the lender’s spouse) attains
age 62 before the close of such year. Sec-
tion 7872(h)(4) provided that paragraph
(h) shall not apply for any calendar year
after 2010. Section 425 of the Tax Re-
lief and Health Care Act of 2006 amended
§ 7872(h) by striking subsection (4), mak-
ing the § 7872(h) exception for loans to
qualified continuing care facilities perma-
nent.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2005–76, 2005–2 C.B. 1072,
is supplemented and superseded.
DRAFTING INFORMATION
The author of this revenue ruling is
Richard C. LaFalce of the Office of the
Associate Chief Counsel (Financial Insti-
tutions and Products). For further informa-
tion regarding this revenue ruling, please
contact Mr. LaFalce at (202) 622–3930
(not a toll-free call).
January 22, 20073532007–4 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Classification of Certain
Foreign Entities
Notice 2007–10
This notice announces that Treasury
and the Internal Revenue Service (IRS)
will amend § 301.7701–2(b)(8) of the Pro-
cedure and Administration Regulations to
add the Bulgarian aktsionerno druzhestvo
entity to the list of entities that are always
treated as corporations under section 7701
of the Internal Revenue Code (Code).
BACKGROUND
The IRS and Treasury issued final
regulations concerning the classifica-
tion of business entities under section
7701 of the Code on December 18, 1996
(check-the-box regulations). See gen-
erally, T.D. 8697, 1997–1 C.B. 215 [61
FR 66584] and §§ 301.7701–1 through
3. Under the check-the-box regulations,
a business entity generally can elect its
classification for federal tax purposes.
However, § 301.7701–2(b)(8) provides a
list of certain foreign business entities that
are always classified as corporations for
federal tax purposes (theper secorpora-
tion list).
On December 16, 2005, the IRS and
Treasury published regulations (T.D. 9235,
2006–4 I.R.B. 338 [70 FR 74658]) under
section 7701 of the Code adding certain
foreign business entities to theper selist
of corporations. These regulations were
in response to the adoption by the Coun-
cil of the European Union of a Council
Regulation (2157/2001 2001 O.J. (L 294))
(the EU Regulation) that recognized a new
business entity, the European public lim-
ited liability company (Societas Europaea
or SE).
The SE is a public limited liability com-
pany. The EU Regulation provides gen-
eral rules that govern the formation and op-
eration of an SE, and supplements those
rules for specified issues and issues it does
not otherwise address by reference to the
laws with respect to public limited liabil-
ity companies for the country in which
the SE has its registered office. An SE
must have a registered office in one of
the Member States of the European Eco-
nomic Area (which includes all Member
States of the European Union plus Norway,
Iceland, and Liechtenstein). For further
background see T.D. 9197, 2005–1 C.B.
985 [70 FR 19697] and Notice 2004–68,
2004–2 C.B. 706.
As of January 1, 2007, Bulgaria will be-
come a member of the European Union.
Accordingly, an SE will be eligible to have
its registered office in Bulgaria and those
SEs with a registered office in Bulgaria
will, to a certain extent, be subject to the
laws of the public limited liability com-
pany in Bulgaria. As a result, and consis-
tent with T.D. 9235, it is appropriate for the
IRS and Treasury to add the public limited
liability company for Bulgaria to theper se
list.
DISCUSSION
The IRS and Treasury will issue tem-
porary and proposed regulations that will
modify § 301.7701–2 to include the Bul-
garian aktsionerno druzhestvo on theper
secorporation list. This entity has been
identified as the public limited liability
company in Bulgaria.
EFFECTIVE DATE
The temporary and proposed regu-
lations to be issued adding the Bul-
garian aktsionerno druzhestvo to
§ 301.7701–2(b)(8) generally will apply
to such entities formed on or after January
1, 2007. However, they shall also apply to
an entity formed before such date upon a
50 percent or greater change of ownership
subsequent to such date.
The principal author of this notice is
Ronald M. Gootzeit of the Office of As-
sociate Chief Counsel (International). For
further information regarding this no-
tice, contact Ronald M. Gootzeit at (202)
622–3860 (not a toll-free call).
26 CFR 601.602: Tax forms and instructions.
26 CFR 1.6045–4: Information reporting on real es-
tate transactions with dates of closing on or after Jan-
uary 1, 1991.
Rev. Proc. 2007–12
SECTION 1. PURPOSE
This revenue procedure supersedes
Rev. Proc. 98–20, 98–1 C.B. 549, and
sets forth the acceptable form of the writ-
ten assurances (certification) that a real
estate reporting person must obtain from
the seller of a principal residence to ex-
cept the sale or exchange of such principal
residence from the information reporting
requirements for real estate transactions
under § 6045(e)(5) of the Internal Revenue
Code (Code). This revenue procedure in-
corporates amendments to section 121
oftheCodemadebysection840ofthe
American Jobs Creation Act of 2004,
Pub. L. No. 108–357, 118 Stat. 1418
(October 22, 2004) (AJCA), as amended
by section 403(ee) of the Gulf Opportunity
Zone Act of 2005, Pub. L. No. 109–135,
119 Stat. 2631 (December 21, 2005) (the
GO Zone Act).
SECTION 2. BACKGROUND
.01 Section 6045(e) and § 1.6045–4 of
the Income Tax Regulations generally re-
quire a real estate reporting person (as de-
fined in § 6045(e)(2) and § 1.6045–4(e)) to
file an information return regarding a real
estate transaction and to furnish a payee
statement to the seller regarding that trans-
action. The information return and state-
ment must include the name, address, and
taxpayer identification number (TIN) of
the seller, and the gross proceeds of the
real estate transaction. This information is
reported on Form 1099–S,Proceeds From
Real Estate Transactions.
.02 Section 312 of the Taxpayer Relief
Act of 1997 (TRA 1997), Pub. L. No.
105–34, 111 Stat. 788 (August 5, 1997), as
amended by the Internal Revenue Service
Restructuring and Reform Act of 1998,
Pub. L. No. 105–206, 112 Stat. 805 (July
22, 1998), effective for sales or exchanges
after May 6, 1997, amended § 6045(e) by
adding a new paragraph (5), which excepts
a sale or exchange of a principal residence
2007–4 I.R.B.354January 22, 2007

from the § 6045(e) information reporting
requirements if the seller provides the real
estate reporting person with a certification
setting forth certain written assurances, in-
cluding an assurance that the residence is
the seller’s principal residence (within the
meaning of § 121) and an assurance that
the full amount of the gain on the sale or
exchange of the principal residence is ex-
cludable from gross income under § 121.
.03 Section 312 of TRA 1997 also
amended§121toprovidenewrulesfor
the exclusion of gain on certain sales or ex-
changes of a principal residence. Section
121, as amended, provides that a taxpayer
may exclude from gross income up to
$250,000 of gain on the sale or exchange
of a principal residence if certain condi-
tions are met. In certain circumstances, a
married individual filing a joint return for
the taxable year of the sale or exchange
may exclude from gross income up to
$500,000 of gain. This exclusion also ap-
plies to the sale or exchange of stock held
by a tenant-stockholder in a cooperative
housing corporation (as defined in § 216)
and may apply to the sale or exchange of
a remainder interest in a principal resi-
dence if the taxpayer so elects.SeeCode
§§ 121(d)(4) and (d)(8).
.04 Section 840 of the AJCA, as
amended by the GO Zone Act, amended
§ 121 to provide that the exclusion for
gain on the sale or exchange of a principal
residence does not apply if the principal
residence was acquired by the taxpayer in
a like-kind exchange in which any gain
was not recognized under § 1031(a) or (b)
within the prior five years.
SECTION 3. SCOPE
This revenue procedure applies to the
information reporting requirements under
§ 6045(e) for a sale or exchange of a prin-
cipal residence.
SECTION 4. SELLER CERTIFICATION
.01 To be excepted from the informa-
tion reporting requirements in § 6045(e)
on the sale or exchange of a principal res-
idence (including stock in a cooperative
housing corporation), the real estate re-
portingpersonmustobtainfromtheseller
a written certification, signed by the seller
under penalties of perjury, that assurances
(1) through (6) set forth in section 4.02
of this revenue procedure are true (or, in
the case of assurance (6), not applicable).
For purposes of this certification, the term
“seller” includes each owner of the resi-
dence that is sold or exchanged. Thus, if a
residence has more than one owner, a real
estate reporting person must either obtain
a certification from each owner (whether
married or not) or file an information re-
turn and furnish a payee statement for any
owner that does not make the certification.
.02 The assurances are:
(1) The seller owned and used the resi-
dence as the seller’s principal residence for
periods aggregating 2 years or more during
the 5-year period ending on the date of the
sale or exchange of the residence.
(2) The seller has not sold or exchanged
another principal residence during the
2-year period ending on the date of the
sale or exchange of the residence.
(3) No portion of the residence has been
used for business or rental purposes af-
ter May 6, 1997, by the seller (or by the
seller’s spouse or former spouse, if the
seller was married at any time after May
6, 1997).
(4) At least one of the following three
statements applies:
The sale or exchange is of the entire
residence for $250,000 or less.
OR
The seller is married, the sale or ex-
change is of the entire residence for
$500,000 or less, and the gain on the
sale or exchange of the entire residence is
$250,000 or less.
OR
The seller is married, the sale or
exchange is of the entire residence for
$500,000 or less, and (a) the seller intends
to file a joint return for the year of the sale
or exchange, (b) the seller’s spouse also
used the residence as his or her principal
residence for periods aggregating 2 years
or more during the 5-year period ending
on the date of the sale or exchange of the
residence, and (c) the seller’s spouse also
has not sold or exchanged another prin-
cipal residence during the 2-year period
ending on the date of the sale or exchange
of the residence.
(5) During the 5-year period ending on
the date of the sale or exchange of the res-
idence, the seller did not acquire the res-
idence in an exchange to which section
1031 applied.
(6) In cases where the seller’s basis in
the residence is determined by reference
to the basis in the hands of a person who
acquired the residence in an exchange to
whichsection1031applied,theexchange
to which section 1031 applied occurred
more than 5 years prior to the date of the
seller’s sale or exchange of the residence.
SECTION 5. FORMAT FOR MAKING
SELLER CERTIFICATION
A sample certification form that may
be used by a real estate reporting person
to obtain the applicable assurances from
the seller is provided in the Appendix of
this revenue procedure. Use of this sam-
ple certification form is not required. The
requirements of the certification under
§ 6045(e)(5) will be met if the content and
wording of a written certification provide
the same information as required by sec-
tion 4 of this revenue procedure.
SECTION 6. OBTAINING AND
RETAINING SELLER CERTIFICATION
The real estate reporting person may
obtain a certification at any time on or be-
fore January 31 of the year following the
year of the sale or exchange of the resi-
dence. The certification must be retained
by the real estate reporting person for 4
years after the year of the sale or exchange
of the residence to which the certification
applies.
SECTION 7. PENALTIES
A real estate reporting person who re-
lies on a certification made in compliance
with this revenue procedure will not be li-
able for the penalties under § 6721 for fail-
ure to file an information return, or under
§ 6722 for failure to furnish a payee state-
ment to the seller, unless the real estate re-
porting person has actual knowledge that
any assurance is incorrect.
SECTION 8. EFFECT ON OTHER
DOCUMENTS (when applicable)
Rev. Proc. 98–20 is superseded.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
sales or exchanges of a principal residence
occurring after January 22, 2007.
January 22, 20073552007–4 I.R.B.

SECTION 10. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1592.
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 4 and 5
of this revenue procedure. This informa-
tion is required to exempt a real estate re-
porting person from the requirement to file
an information return and furnish a payee
statement reporting the sale or exchange of
a principal residence. The likely respon-
dents are individual taxpayers who sell or
exchange a principal residence and real es-
tate businesses.
The estimated total annual reporting
burden for respondents is 383,000 hours.
The estimated burden per respondent is
10 minutes. The estimated number of re-
spondents is 2,300,000. The frequency of
responses is on occasion.
The estimated total annual burden for
recordkeepers is 37,500 hours.
The estimated annual burden per
recordkeeper is 25 minutes. The esti-
mated number of recordkeepers is 90,000.
Books or records relating to a collection
of information must be retained as long
as their content may become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
26 U.S.C. 6103.
SECTION 11. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Timothy S. Sheppard of the
Office of Associate Chief Counsel (Pro-
cedure & Administration). For further
information regarding this revenue pro-
cedure, contact Mr. Sheppard at (202)
622–4910 (not a toll-free call).
APPENDIX
CERTIFICATION FOR NO INFORMATION REPORTING ON THE SALE OR
EXCHANGE OF A PRINCIPAL RESIDENCE
This form may be completed by the seller of aprincipal residence. This information is necessary to determine whether the sale
or exchange should be reported to the seller, and to the Internal Revenue Service on Form 1099–S,Proceeds From Real Estate
Transactions. If the seller properly completes Parts I and III, and makes a“true” response to assurances (1) through (6) in Part II (or
a “not applicable” response to assurance (6)), no information reporting to the seller or to the Service will be required for that seller.
The term “seller” includes each owner of theresidence that is sold or exchanged. Thus, if a residence has more than one owner, a
real estate reporting person musteither obtain a certification from each owner (whether married or not) or file an information return
and furnish a payee statement for any owner that does not make the certification.
Part I. Seller Information
1. Name
2. Address or legal description (including city, state, and ZIP code) of
residence being sold or exchanged
3. Taxpayer Identification Number (TIN)
Part II. Seller Assurances
Check “true” or “false” for assurances (1) through (5), and “true”, “false”, or “not applicable” for assurance (6).
True False
[ ] [ ](1) I owned and used the residence as my principal residence for periods aggregating 2 years or more during
the 5-year period ending on the date of the sale or exchange of the residence.
[ ] [ ](2) I have not sold or exchanged another principal residence during the 2-year period ending on the date of
the sale or exchange of the residence.
[ ] [ ](3) I (or my spouse or former spouse, if I was married at any time during the period beginning after May
6, 1997, and ending today) have not used any portion of the residence for business or rental purposes after
May 6, 1997.
2007–4 I.R.B.356January 22, 2007

True False
[ ] [ ](4) At least one of the following three statements applies:
The sale or exchange is of the entire residence for $250,000 or less.
OR
I am married, the sale or exchange is of the entire residence for $500,000 or less, and the gain on the sale or
exchange of the entire residence is $250,000 or less.
OR
I am married, the sale or exchange is of the entire residence for $500,000 or less, and (a) I intend to file a
joint return for the year of the sale or exchange, (b) my spouse also used the residence as his or her principal
residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale or
exchange of the residence, and (c) my spouse also hasnot sold or exchanged another principal residence
during the 2-year period ending on the date of the sale or exchange of the principal residence.
[ ] [ ](5) During the 5-year period ending on the date of the sale or exchange of the residence, I did not acquire the
residence in an exchange to which section 1031 of the Internal Revenue Code applied.
True False N/A
[ ] [ ] [ ] (6) If my basis in the residence is determined by reference to the basis in the hands of a person who acquired
the residence in an exchange to which section 1031 of the Internal Revenue Code applied, the exchange to
which section 1031 applied occurred more than 5 years prior to the date I sold or exchanged the residence.
Part III. Seller Certification
Under penalties of perjury, I certify that all the above information is true as of the end of the day of the sale or exchange.
Signature of SellerDate
26 CFR 601.204: Changes in accounting periods and
in methods of accounting.
(Also Part I, §§ 446, 461, 481; 1.446–1.)
Rev. Proc. 2007–14
SE
CTION 1. PURPOSE
This revenue procedure provides proce-
dures by which a taxpayer may obtain the
automatic consent of the Commissioner
under § 446(e) of the Internal Revenue
Code to change its method of accounting
for liabilities for services or insurance to
comply with Rev. Rul. 2007–3, page 350,
this Bulletin.
SECTION 2. BACKGROUND
.01 In Rev. Rul. 2007–3, the Inter-
nal Revenue Service addressed the issue of
when a taxpayer using an accrual method
of accounting incurs a liability for services
or insurance under § 461. The ruling holds
that a liability for services or insurance is
not fixed by the mere execution of a con-
tract for the future provision of services or
insurance. Instead, all the events have oc-
curred that establish the fact of the liabil-
ity when (1) the event fixing the liability,
whether that be the required performance
or other event, occurs, or (2) payment is
due, whichever happens earliest.
.02 Under § 446(e) and § 1.446–
1(e)(2)(i) of the Income Tax Regulations,
a taxpayer generally must secure the con-
sent of the Commissioner before changing
a method of accounting for federal income
tax purposes. To obtain the Commis-
sioner’s consent to a change in method,
§ 1.446–1(e)(3)(i) generally requires a tax-
payer to file Form 3115,Application for
Change in Accounting Method,duringthe
taxable year in which the taxpayer wants
to make the proposed change. Section
1.446–1(e)(3)(ii) authorizes the Commis-
sioner to prescribe administrative proce-
dures that provide the terms and conditions
necessary for a taxpayer to obtain consent
to change a method of accounting. The
terms and conditions the Commissioner
may prescribe include whether the change
is to be made with a § 481(a) adjustment,
and if so, the § 481(a) adjustment period,
or on a cut-off basis.
.03 Rev. Proc. 2002–9, 2002–1 C.B.
327 (as modified and clarified by An-
nouncement 2002–17, 2002–1 C.B. 561,
modified and amplified by Rev. Proc.
2002–19, 2002–1 C.B. 696, and ampli-
fied, clarified and modified by Rev. Proc.
2002–54, 2002–2 C.B. 432), provides pro-
cedures under § 446(e) and § 1.446–1(e)
for obtaining the automatic consent of the
Commissioner to change certain methods
of accounting for federal income tax pur-
poses. Specifically, Rev. Proc. 2002–9
applies to a taxpayer requesting the Com-
missioner’s consent to change to a method
of accounting described in the APPEN-
DIX of that revenue procedure. Rev. Proc.
2002–9 is the exclusive procedure for a
taxpayer within its scope to obtain the
Commissioner’s consent. See Rev. Proc.
2002–9, sections 1 and 4.01.
January 22, 20073572007–4 I.R.B.

SECTION 3. SCOPE
This revenue procedure applies to any
taxpayer that is currently treating the mere
execution of a contractfor services or in-
surance as establishing the fact of the li-
ability under § 461 and wants to change
its method of accounting for liabilities for
services or insurance to comply with Rev.
Rul. 2007–3.
SECTION 4. APPLICATION
.01In General. A change in the treat-
ment of liabilities for services or insurance
to comply with Rev. Rul. 2007–3 is a
change in method of accounting within the
meaning of §§ 446 and 481 and the regu-
lations issued thereunder. Accordingly, a
taxpayer within the scope of this revenue
procedure that wantsto change its treat-
ment of liabilities for services or insurance
to comply with Rev. Rul. 2007–3 must ob-
tain the consent of the Commissioner un-
der § 446(e) and § 1.446–1(e)(3).
.02Automatic Change. A taxpayer
within the scope of this revenue proce-
dure that wants to change its method of
accounting for liabilities for services or
insurance must obtain the consent of the
Commissioner by following the automatic
consent procedures in Rev. Proc. 2002–9
(or its successor). For purposes of section
6.02(4)(a) of Rev. Proc. 2002–9, the tax-
payer must include on line 1a of the Form
3115 the designated automatic accounting
method change number 106.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is modified and
amplified to include in the APPENDIX the
automatic change provided in this revenue
procedure.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending on or after December
31, 2006.
DRAFTING INFORMATION
The principal author of this revenue
procedureisLetaA.AyresoftheOffice
of Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this revenue procedure, con-
tact Ms. Ayres at (202) 622–5020 (not a
toll-free call).
26 CFR 601.204: Changes in accounting periods and
in methods of accounting.
(Also: Part I, §§ 446, 1016; 1.446–1, 1.1016–3.)
Rev. Proc. 2007–16
SECTION 1. PURPOSE
This revenue procedure provides an
automatic consent procedure allowing a
taxpayer to make a change in method of
accounting under § 446(e) of the Internal
Revenue Code for depreciable or amor-
tizable property (hereinafter referred to
collectively as “depreciable property”)
after its disposition. This revenue pro-
cedure also waives the application of the
two-year rule set forth in Rev. Rul. 90–38,
1990–1 C.B. 57, for certain changes in
depreciation or amortization (hereinafter
referred to collectively as “depreciation”).
This revenue procedure clarifies, modi-
fies, amplifies, and supersedes Rev. Proc.
2004–11, 2004–1 C.B. 311. This rev-
enue procedure also modifies Rev. Proc.
2002–9, 2002–1 C.B. 327 (as modified
and clarified by Announcement 2002–17,
2002–1 C.B. 561, modified and amplified
by Rev. Proc. 2002–19, 2002–1 C.B. 696,
and amplified, clarified, and modified by
Rev. Proc. 2002–54, 2002–2 C.B. 432),
and other revenue procedures to conform
with § 1.446–1(e)(2)(ii)(d)oftheIncome
Tax Regulations.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 446(e) and § 1.446–1(e)
provide that, except as otherwise pro-
vided, a taxpayer must secure the consent
of the Commissioner of Internal Revenue
before changing a method of accounting
for federal income tax purposes. Section
1.446–1(e)(3)(ii) authorizes the Commis-
sioner to prescribe administrative proce-
dures setting forth the limitations, terms,
and conditions deemed necessary to per-
mit a taxpayer to obtain consent to change
a method of accounting.
.02 On January 20, 2004, the Internal
Revenue Service published Rev. Proc.
2004–11, which provided an automatic
consent procedure allowing a taxpayer to
make a change in method of accounting
under § 446(e) for depreciable property
after its disposition. Rev. Proc. 2004–11
also waived the application of the two-year
rule set forth in Rev. Rul. 90–38 for cer-
tain changes in depreciation. In addition,
Rev. Proc. 2004–11 modified Rev. Proc.
2002–9 and other revenue procedures to
conform with § 1.446–1T(e)(2)(ii)(d)of
the temporary Income Tax Regulations.
.03 Concurrent with the issuance of this
revenue procedure, §§ 1.446–1(e)(2)(ii)(d)
and 1.1016–3(h) have been promulgated.
Section 1.446–1(e)(2)(ii)(d) identifies the
changes in depreciation that are (and are
not) considered a change in method of
accounting. Section 1.1016–3(h) provides
that for purposes of determining whether
a change in depreciation is a change in
method of accounting under § 446(e),
the “allowed or allowable” rule under
§ 1016(a)(2) will not be considered to
permanently affect a taxpayer’s lifetime
income.
.04 In general, if a taxpayer uses an im-
permissible method of accounting in two
or more consecutively filed federal tax re-
turns the taxpayer has adopted a method of
accounting.SeeRev. Rul. 90–38. The
Service and Treasury Department recog-
nize that with respect to changes in de-
preciation this two-year rule may increase
administrative and compliance costs be-
cause many taxpayers changing from an
impermissible to permissible method of
accounting for depreciation used the im-
permissible method for depreciable prop-
erties placed in service in the taxable year
immediately preceding the year of change.
Accordingly, in the interest of sound tax
administration, the Service and Treasury
have decided to waive the two-year rule in
Rev. Rul. 90–38 for a change in depre-
ciation to which § 1.446–1(e)(2)(ii)(d)ap-
plies.
.05 If depreciable property is trans-
ferred in a transaction in which the trans-
feree is treated as the transferor for pur-
poses of computing the depreciation al-
lowance for the property with respect to
so much of the basis in the hands of the
transferee as does not exceed the adjusted
depreciable basis in the hands of the trans-
feror (for example, in transactions subject
to § 168(i)(7) or § 381(c)(6)), the trans-
fereemayfileaForm3115,Application
for Change in Accounting Method,to
2007–4 I.R.B.358January 22, 2007

change from an impermissible method of
accounting adopted by the transferor for
that portion of the basis of the property
to a permissible method of accounting
for depreciation forthe same portion of
the basis of the property, provided the
impermissible method of accounting for
that portion of the basis of the property
has not been changed by the transferor
(through filing, for example, a Form 3115
or an amended return) or by the Service
upon examination of the transferor’s tax
returns. In this case, the § 481 adjustment
will include any necessary adjustments
since the property’s placed-in-service date
by the transferor.
.06 The significant changes to Rev.
Proc. 2004–11 include:
(1) The application of section 3 is ex-
tended to allow a taxpayer to file a Form
3115 with an original federal tax return for
the taxable year in which the depreciable
property is disposed of by the taxpayer that
claimed less than the depreciation allow-
able for that property.
(2) A new section 4.01 is added, clar-
ifying that a change from an impermis-
sible method of determining depreciation
for depreciable property in two or more
consecutively filed federal tax returns is
a change in method of accounting under
§ 446(e) and § 1.446–1(e).
(3) A new section 6.03 is added, ex-
tending the application of section 3 of
this revenue procedure to dispositions of
depreciable propertyoccurring in taxable
years ending before December 30, 2003.
.07 The significant changes to Rev.
Proc. 2002–9 include:
(1) Section 2.01 of the APPENDIX of
Rev. Proc. 2002–9 is changed to clarify
that section 2.01 of this APPENDIX does
not apply to any property for which a tax-
payer is revoking a timely valid election
or making a late election under § 179, or
to any change in method of accounting in-
volving a change from capitalizing and de-
preciation the cost or other basis of any
property to deducting the cost or other ba-
sis as an expense.
(2) Section 2B of the APPENDIX of
Rev. Proc. 2002–9 is changed to re-
move section 2B.03, which provided that
the change under section 2B does not apply
to a change in useful life under the method
described in section 5.01(2) or 6.01(2) of
Rev. Proc. 2000–50.
SECTION3. METHODCHANGE
PROCEDURE FOR DISPOSED
DEPRECIABLE OR AMORTIZABLE
PROPERTY
.01Scope.
(1)Applicability. Except as provided
in section 3.01(2) of this revenue proce-
dure, section 3 of this revenue procedure
applies to a taxpayer that is changing from
an impermissible method of accounting
for depreciation to a permissible method
of accounting for depreciation for any
item of depreciable property subject to
§§ 167, 168, 197, 1400I, 1400L(c), to
former § 168, or to any additional first
year depreciation deduction provision of
the Internal Revenue Code (for example,
§ 168(k), § 1400L(b), or § 1400N(d)):
(a) that has been disposed of by
the taxpayer during the year of change (as
definedinsection3.02(3)(b)ofthisrev-
enue procedure); and
(b) for which the taxpayer did
not take into account any depreciation
allowance, or did take into account some
depreciation but less than the depreciation
allowable (hereinafter, both are referred
to as “claimed less than the depreciation
allowable”), in the year of change (as de-
fined in section 3.02(3)(b)ofthisrevenue
procedure) or any prior taxable year.
(2)Inapplicability. Section 3 of this
revenue procedure does not apply to:
(a) any property to which
§ 1016(a)(3) (regarding property held
by a tax-exempt organization) applies;
(b) any property for which a tax-
payer is revoking a timely valid depreci-
ation election, or making a late depreci-
ation election, under the Code or regula-
tions thereunder, or under other guidance
published in the Internal Revenue Bulletin
(including under § 13261(g)(2) or (3) of
the Revenue Reconciliation Act of 1993,
1993–3 C.B. 1, 128 (relating to amortiz-
able § 197 intangibles));
(c) any property for which the tax-
payer deducted the cost or other basis of
thepropertyasanexpense;or
(d) any property disposed of by
the taxpayer in a transaction to which a
nonrecognition section of the Code ap-
plies (for example, § 1031, transactions
subject to § 168(i)(7)(B)(i)). However,
this section 3.01(2)(d) does not apply to
property disposed of by the taxpayer in a
§ 1031 or § 1033 transaction if the tax-
payer elects under § 1.168(i)–6T(i) and (j)
to treat the entire basis (that is, both the
exchanged and excess basis (as defined in
§ 1.168(i)–6T(b)(7) and (8), respectively))
of the replacement MACRS property (as
defined in § 1.168(i)–6T(b)(1)) as prop-
erty placed in service by the taxpayer
at the time of replacement and treat the
adjusted depreciable basis of the relin-
quished MACRS property (as defined in
§ 1.168(i)–6T(b)(2)) as being disposed of
by the taxpayer at the time of disposition.
.02Change in method of accounting.
(1)Change made on original return
for year of change. On its timely filed
(including extensions) original federal tax
return for the year of change (as defined
in section 3.02(3)(b) of this revenue pro-
cedure), a taxpayer within the scope of
section 3 of this revenue procedure may
change from an impermissible method of
accounting for depreciation to a permis-
sible method of accounting for depreci-
ation for any item of depreciable prop-
erty within the scope of section 3 of this
revenue procedure, provided the taxpayer
files the original Form 3115 in accordance
with section 6.02(3) of Rev. Proc. 2002–9
(or its successor).
(2)Change made on an amended re-
turn for year of change. Onanamended
federal tax return for the year of change
(as defined in section 3.02(3)(b) of this
revenue procedure), a taxpayer within the
scope of section 3 of this revenue pro-
cedure may change from an impermissi-
ble method of accounting for depreciation
to a permissible method of accounting for
depreciation for any item of depreciable
property within the scope of section 3 of
this revenue procedure, provided:
(a) the taxpayer files the original
Form 3115 in accordance with section
3.02(3)(c) of this revenue procedure prior
to the expiration of the period of limitation
for assessment under § 6501(a) for the tax-
able year in which the item of depreciable
or amortizable property was disposed of
by the taxpayer; and
(b) the taxpayer files an amended
federal tax return for the year of change (as
definedinsection3.02(3)(b)ofthisrev-
enue procedure) that includes the adjust-
ments to taxable income and any collat-
eral adjustments to taxable income or tax
liability (for example, adjustments to the
amount or character of the gain or loss
of the disposed depreciable or amortiz-
January 22, 20073592007–4 I.R.B.

able property) resulting from the change
in method of accounting for depreciation
made by the taxpayer under this section 3.
(3)Application Procedures.Atax-
payer making a change in method of
accounting under section 3 of this rev-
enue procedure must follow the automatic
change in method ofaccounting provisions
in Rev. Proc. 2002–9 (or its successor),
with the following modifications:
(a) The scope limitations in sec-
tion 4.02 of Rev. Proc. 2002–9 do not
apply. If the taxpayer is under examina-
tion, before an appeals office, or before a
federal court at the time that a copy of the
Form 3115 is filed with the national office,
the taxpayer must provide a copy of the
Form 3115 to the examining agent, appeals
officer, or counsel for the government, as
appropriate, at the time the copy of the
Form 3115 is filed with the national office.
The Form 3115 must contain the name(s)
and telephone number(s) of the examining
agent, appeals officer, or counsel for the
government, as appropriate.
(b) The year of change is the tax-
able year in which the item of depreciable
property was disposed of by the taxpayer.
(c) If section 3.02(2) of this rev-
enue procedure applies to the taxpayer,
section 6.02(3)(a) of Rev. Proc. 2002–9
is modified to require the original of the
Form 3115 to be attached to the taxpayer’s
timely filed amended federal tax return for
the year of change and a copy (with signa-
ture) of the Form 3115 to be filed with the
national office no later than when the orig-
inal Form 3115 is filed with the amended
federal tax return for the year of change.
(d) For purposes of section
6.02(4)(a) of Rev. Proc. 2002–9, the
taxpayer should include on line 1a of the
Form 3115 (revised December 2003) the
designated automatic accounting method
change number for the change in method
of accounting for depreciation made un-
der this section 3. This number for this
method change is 107.
.03Taxpayer or property outside scope.
If a taxpayer is precluded from using sec-
tion 3 of this revenue procedure because
the taxpayer or the item of depreciable
property is outside the scope of section 3
of this revenue procedure (for example,
the item of depreciable property was not
disposed of by the taxpayer), any change
in method of accounting for depreciation
must be made in accordance with the re-
quirements of Rev. Proc. 97–27, 1997–1
C.B. 680 (or its successor), or Rev. Proc.
2002–9 (or its successor), as applicable.
SECTION 4. WAIVER OF TWO-YEAR
RULE IN REV. RUL. 90–38
.01In general.Ifataxpayerusesanim-
permissible method of determining depre-
ciation for a depreciable property, the tax-
payer adopts that method of accounting for
the property when the taxpayer treats the
property in the same way in determining
gross income or deductions in two or more
consecutively filed federal tax returns. Ac-
cordingly, the taxpayer changing from that
impermissible method of accounting must
file a Form 3115 in accordance with the
requirements of § 1.446–1(e)(3)(i) and, as
applicable, Rev. Proc. 97–27 or Rev.
Proc. 2002–9.SeeRev. Rul. 90–38.
.02Waiver of two-year rule. Notwith-
standing Rev. Rul. 90–38, a taxpayer
may file a Form 3115 under Rev. Proc.
97–27 or Rev. Proc. 2002–9, as appli-
cable, to change from an impermissible
method of accounting for depreciation to
a permissible method of accounting for
depreciation under § 1.446–1(e)(2)(ii)(d)
for any depreciableproperty subject to
§ 1.446–1(e)(2)(ii)(d) and placed in ser-
vice by the taxpayer in the taxable year
immediately preceding the year of change
(as defined in section 5.02(2) of Rev.
Proc.97–27orsection5.02ofRev.Proc.
2002–9, as applicable) (hereinafter, this
property is referred to as “1-year depre-
ciable property”), provided the additional
term and condition in section 4.03 of
this revenue procedure is satisfied. Al-
ternatively, the taxpayer may make the
change from the impermissible depreci-
ation method to the permissible depreci-
ation method for the 1-year depreciable
property by filing an amended federal tax
return for the placed-in-service year prior
to the date the taxpayer files its federal tax
return for the taxable year succeeding the
placed-in-service year.
.03Additional term and condition for
filing a Form 3115. In addition to the
terms and conditions provided in Rev.
Proc. 97–27 or Rev. Proc. 2002–9, as
applicable, the § 481 adjustment reported
on a Form 3115 that is filed by a taxpayer
in accordance with section 4.02 of this
revenue procedure to make a change in
method of accounting for depreciation un-
der § 1.446–1(e)(2)(ii)(d) for any 1-year
depreciable property, must include the
amount of any adjustment attributable to
all property (including the 1-year depre-
ciable property) subject to the Form 3115.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
.01 Rev. Proc. 2004–11 is clarified,
modified, amplified, and superseded.
.02 The heading for section 2 of the
APPENDIX of Rev. Proc. 2002–9 is mod-
ified to read as follows: “SECTION 2.
DEPRECIATION OR AMORTIZATION
(§ 56(a)(1), 56(g)(4)(A), 167, 168, 197,
1400I, 1400L, OR 1400N(d), OR FOR-
MER § 168)”.
.03 Rev. Proc. 2002–9 (as modified by
Rev. Proc. 2004–11) is modified by delet-
ing sections 2.01, 2.02, 2B, and 2.05 of the
APPENDIX and replacing them with the
text in, respectively,sections 1, 2, 3, and 4
of the APPENDIX of this revenue proce-
dure.
.04 Section 6.03 of Rev. Proc.
2000–38, 2000–2 C.B. 310, 313,
is modified by deleting “See
§ 1.446–1(e)(2)(ii)(b).” and replacing it
with “See§ 1.446–1(e)(2)(ii)(d)(3)(i).”
.05 Section 8.01 of Rev. Proc.
2000–50, 2000–2 C.B. 601, is modified to
read as follows: “A change in a taxpayer’s
treatment of costs paid or incurred to de-
velop, purchase, lease, or license computer
software to a method described in section
5, 6, or 7 of this revenue procedure is a
change in method of accounting to which
§§ 446 and 481 apply. Further, a change in
useful life under the method described in
section 6.01(2) of this revenue procedure
is a change in method of accounting to
which §§ 446 and 481 apply. Addition-
ally, if a taxpayer is currently treating costs
paid or incurred to develop computer soft-
ware under section 5.01(2) of this revenue
procedure in accordance with the rules
provided in § 167(f)(1) and the regulations
thereunder but is not currently using a use-
ful life of 36 months, a change in useful
life to 36 months is a change in method
of accounting to which §§ 446 and 481
apply.See§ 1.446–1(e)(2)(ii)(d)(3)(i).
SECTION 6. EFFECTIVE DATE
.01In general. Except as provided in
sections 6.02, 6.03, and 6.04 of this rev-
2007–4 I.R.B.360January 22, 2007

enue procedure, this revenue procedure is
effective for a Form 3115 filed for tax-
able years ending on or after December 26,
2006.
.02Transition rule for previously filed
Forms 3115 for automatic consent.
(1) For a taxable year ending on or
after December 26, 2006, a taxpayer may
make a change in method of accounting
previously authorized in section 2.01,
2.02, or 2B of the APPENDIX of Rev.
Proc. 2002–9 in effect on the date on
which the Form 3115 was filed with the
national office by the taxpayer (seeRev.
Proc. 2004–11) if:
(a) before December 26, 2006,
the taxpayer filed a completed Form 3115
with the national office to make that
change in method of accounting; and
(b) the taxpayer makes that
change in method of accounting in com-
pliance with all the applicable provisions
of Rev. Proc. 2002–9 for the requested
year of change (as defined in section 5.02
of Rev. Proc. 2002–9) on that Form 3115.
(2) If a taxpayer filed a Form 3115
with the national office to make a change
in method of accounting previously autho-
rized in section 2.01, 2.02, or 2B of the
APPENDIX of Rev. Proc. 2002–9 in effect
onthedateonwhichtheForm3115was
filed with the national office by the tax-
payer for a year of change for which this
revenue procedure is effective (see sec-
tion 6.01 of this revenue procedure) and
the taxpayer’s original federal tax return
for that year of change was not filed be-
fore December 26, 2006, the taxpayer may
make the change in method of account-
ing authorized under section 2.01, 2.02,
or 2B, as applicable, of the APPENDIX
of Rev. Proc. 2002–9 as revised by this
revenue procedure. However, the Service
will process the Form 3115 in accordance
with the section of the APPENDIX of Rev.
Proc. 2002–9 in effect on the date on
which the Form 3115 was filed with the na-
tional office by the taxpayer unless on or
before the due date (including extensions)
of the taxpayer’s federal tax return for the
requested year of change (as defined in
section 5.02 of Rev. Proc. 2002–9) on that
Form 3115, the taxpayer completes a new
Form 3115 to make the change under sec-
tion 2.01, 2.02, or 2B, as applicable, of the
APPENDIX of Rev. Proc. 2002–9 as re-
vised by this revenue procedure and files
this newly completed Form 3115 in dupli-
cate in accordance with section 6.02(3)(a)
of Rev. Proc. 2002–9. Additionally, the
newly completed Form 3115 must include
the statement: “Section [insert, as appro-
priate: 2.01, 2.02, or 2B]oftheAPPEN-
DIX of Rev. Proc. 2002–9 as revised by
Rev. Proc. 2007–16.” This statement must
be legibly printed or typed on the appropri-
ate line on, or at the top of page 1 of, the
Form 3115.
.03Application of section 3. Section 3
of this revenue procedure is effective for a
Form 3115 filed on or after December 26,
2006.
.04Changes made to Rev. Proc.
2000–50. The changes made in section
5.06 of this revenue procedure to section
8.01 of Rev. Proc. 2000–50 are effective
for a Form 3115 filed for the taxable years
ending on or after December 26, 2006,
except that:
(1) the change made to section 8.01
of Rev. Proc. 2000–50 providing that a
change in useful life under the method de-
scribed in section 6.01(2) of Rev. Proc.
2000–50 is a change in method of account-
ing is effective for property placed in ser-
vice by the taxpayer in a taxable year end-
ing on or after December 30, 2003; and
(2) the change made to section 8.01
of Rev. Proc. 2000–50 providing that a
change in useful life to 36 months made
by a taxpayer that is currently treating
costs paid or incurred to develop com-
puter software under section 5.01(2) of
Rev. Proc. 2000–50 in accordance with
the rules provided in § 167(f)(1) and the
regulations thereunder but is not currently
using a useful life of 36 months is a change
in method of accounting is effective for
property placed in service by the taxpayer
in a taxable year ending on or after De-
cember 30, 2003.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Douglas H. Kim of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). For further infor-
mation regarding this revenue procedure,
contact Mr. Kim at (202) 622–3110 (not a
toll-free call).
APPENDIX
SECTION 1. Section 2.01 of the APPENDIX of Rev. Proc2002–9 is deleted and replaced with the following:
“.01Impermissible to permissible method of accounting for depreciation or amortization.
(1)Description of change and scope.
(a)Applicability. This change applies to a taxpayer that wants to change from an impermissible to a permissible method of
accounting for depreciation or amortization (depreciation) for any item ofdepreciable or amortizable property:
(i) for which the taxpayer used the impermissible method of accounting in at least the two taxable years immediately
preceding the year of change (but see section 2.01(1)(b) of this APPENDIX for property placed in service in the taxable year imme-
diately preceding the year of change);
(ii) for which the taxpayer is making a change inmethod of accounting under § 1.446–1(e)(2)(ii)(d);
(iii) for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A), § 167, § 168, § 197, § 1400I, or § 1400L(c),
under § 168 prior to its amendment in 1986 (former § 168), or under anyadditional first year depreciation deduction provision of the
Internal Revenue Code (for example, § 168(k), § 1400L(b), or § 1400N(d)); and
(iv) that is owned by the taxpayer at the beginning of the year of change (but see section 2.05 of this APPENDIX for
property disposed of before the year of change).
January 22, 20073612007–4 I.R.B.

(b)Taxpayer has not adopted a method of accounting for the item of property. If a taxpayer does not satisfy section
2.01(1)(a)(i) of this APPENDIX for an item of depreciable or amortizable property because this item of property is placed in service
by the taxpayer in the taxable year immediately preceding the year of change (“1-year depreciable property”), the taxpayer may
change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the
1-year depreciable property by filing a Form 3115 for this change,provided the § 481 adjustment reported on the Form 3115 includes
the amount of any adjustment that is attributable to all property (including the 1-year depreciable property) subject to the Form 3115.
Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of
determining depreciation for a 1-year depreciable property by filing an amended federal tax return for the property’s placed-in-service
year prior to the date the taxpayer files its federal tax return for the taxable year succeeding the placed-in-service year.
(c)Certain scope limitations inapplicable. The scope limitations in sections 4.02(7) and 4.02(8) of this revenue procedure
are not applicable to this change.
(d)Inapplicability. This change does not apply to:
(i) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;
(ii) any taxpayer that is subject to § 263A and that is required to capitalize the costs with respect to which the taxpayer
wants to change its method of accounting under section 2.01 of this APPENDIX, if the taxpayer is not capitalizing the costs as required;
(iii) any property for which a taxpayer is making achange in depreciation under § 1.446–1(e)(2)(ii)(d)(2)(vi)or(vii);
(iv) any property subject to § 167(g)(regarding property depreciated under the income forecast method);
(v) any § 1250 property that a taxpayer is reclassifying to an asset class of Rev. Proc. 87–56, 1987–2 C.B. 674, or
Rev. Proc. 83–35, 1983–1 C.B. 745, as appropriate, that does not explicitly include § 1250 property (for example, asset class 57.0,
Distributive Trades and Services);
(vi) any property for which a taxpayer is revoking a timely valid election, or making a late election, under § 167, § 168,
§ 179, § 1400I, § 1400L(c), former § 168, § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993 Act), 1993–3
C.B. 1, 128 (relating to amortizable § 197 intangibles), or any additional first year depreciation deduction provision of the Internal
Revenue Code (for example, § 168(k), § 1400L(b), or § 1400N(d)). A taxpayer may request consent to revoke or make the election
by submitting a request for a letter ruling under Rev. Proc. 2006–1, 2006–1 I.R.B. 1 (or any successor). However, if a taxpayer is
revoking or making an election under § 179, see §179(c) and § 1.179–5.See§ 1.446–1(e)(2)(ii)(d)(3)(iii);
(vii) any property for whichdepreciation is determined under § 56(g)(4)(A) or § 167 (other than under § 168, § 1400I,
§ 1400L(c), former § 168, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 1400L(b),
or § 1400N(d))) and a taxpayer is changing the useful life of the property. A change in the useful life of property is corrected by ad-
justments in the applicable taxable year provided under § 1.446–1(e)(2)(ii)(d)(5)(iv). However, this section 2.01(1)(d)(vii) of this
APPENDIX does not apply if the taxpayer is changing to or from a useful life, recovery period, or amortization period that is specifi-
cally assigned by the Internal Revenue Code (for example, § 167(f)(1), § 168(c)), the regulations thereunder, or other guidance pub-
lished in the Internal Revenue Bulletin and, therefore, this change is a change in method of accounting (unless section 2.01(1)(d)(xv)
of this APPENDIX applies).See§ 1.446–1(e)(2)(ii)(d)(3)(i);
(viii) any depreciable property for which the use changes in the hands of the same taxpayer.See
§ 1.446–1(e)(2)(ii)(
d)(3)(ii);
(ix) any property for which depreciation is determined in accordance with § 1.167(a)–11 (regarding the Class Life Asset
Depreciation Range System (ADR));
(x) any change in method of accounting involving a change from deducting the cost or other basis of any property as an
expense to capitalizing and depreciating the cost or other basis, orvice versa;
(xi) any change in method of accounting involving a changefrom one permissible method ofaccounting for the property
to another permissible method of accounting for the property. For example:
(A) a change from the straight-line method of depreciation to the income forecast method of depreciating for videocas-
settes.SeeRev. Rul. 89–62, 1989–1 C.B. 78; or
(B) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with
salvage proceeds to deducting costs of removal as an expense (provided the costs of removal are not required to be capitalized under
any provision of the Code, such as, § 263(a))and including salvage proceeds in taxableincome (see section 2.02 of this APPENDIX
for making this change for property for which depreciation is determined under § 167);
(xii) any change in method of accounting involving both a change from treating thecost or other basis of the property as
nondepreciable or nonamortizable property to treating the cost orother basis of the property as depreciable or amortizable property
and the adoption of a method of accounting for depreciation requiring an electionunder § 167, § 168, § 1400I, § 1400L(c), former
§ 168, § 13261(g)(2) or (3) of the 1993 Act, or any additional firstyear depreciation deduction provision of the Code (for example,
a change in the treatment of the space consumed in landfills placedin service in 1990 from nondepreciable to depreciable property
(assuming section 2.01(1)(d)(xiii) of the APPENDIX does not apply) and the making of an election under § 168(f)(1) to depreciate
this property under the unit of production method of depreciation under § 167);
(xiii) any change in method of accounting for any item of income or deduction other than depreciation, even if the change
results in a change in computing depreciation under § 1.446–1(e)(2)(ii)(d)(2)(i), (ii), (iii), (iv), (v), (vi), (vii), or (viii). For example,
a change in method of accounting involving:
2007–4 I.R.B.362January 22, 2007

(A) a change in inventory costs (for example, when property is reclassified from inventory property to depreciable prop-
erty, orvice versa) (but see section 3.02 of this APPENDIX for making a changefrom inventory property to depreciable property for
unrecoverable line pack gas or unrecoverable cushion gas); or
(B) a change in the character of a transaction from sale to lease, orvice versa(but see section 2.03 of this APPENDIX
for making this change);
(xiv) a change from determining depreciation under § 168 to determining depreciation underformer § 168 for any property
subject to the transition rules in § 203(b) or 204(a) of the Tax Reform Act of 1986, 1986–3 (Vol. 1) C.B. 1, 60–80;
(xv) any change in the placed-in-service date of a depreciable or amortizable property. This change is corrected by adjust-
ments in the applicable taxable year provided under § 1.446–1(e)(2)(ii)(d)(5)(v); or
(xvi) any property for which the rehabilitation credit under§ 47 was claimed and that a taxpayer is reclassifying to 3-year
property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, or water utility property (other than
real property with a class life of more than 12.5 years).
(2)Additional requirements. A taxpayer also must comply with the following:
(a)Permissible method of accounting for depreciation. A taxpayer must change to a permissible method of accounting for
depreciation for the item of depreciable or amortizable property. The permissible method of accounting is the same method that
determines the depreciation allowable for the item of property (as provided in section 2.01(5) of this APPENDIX).
(b)Statements required. A taxpayer must provide the following statements, if applicable, and attach them to the completed
application:
(i) a detailed description of the former and new methods of accounting. A general description of these methods of ac-
counting is unacceptable (for example, MACRS to MACRS, erroneousmethod to proper method, claiming less than the depreciation
allowable to claiming the depreciation allowable);
(ii) to the extent not provided elsewhere on the application, a statement describing the taxpayer’s business or income-pro-
ducing activities. Also, if the taxpayer has more than one business or income-producing activity, a statement describing the taxpayer’s
business or income-producing activity in which the item of property at issue is primarily used by the taxpayer;
(iii) to the extent not provided elsewhere on the application, a statement of the facts and law supporting the new method of
accounting, new classification of the item of property, and new asset class in, as appropriate, Rev.Proc. 87–56 or Rev. Proc. 83–35.
If the taxpayer is the owner and lessor of the item of property at issue, the statement of the facts and law supporting the new asset
class also must describe the business or income-producing activity in which that item of property is primarily used by the lessee;
(iv) to the extent not provided elsewhere on the application, a statement identifying the year in which the item of property
was placed in service;
(v) if any item of property is public utility property within the meaning of § 168(i)(10) or former § 167(l)(3)(A), as
applicable, a statement providing that the taxpayer agrees to the following additional terms and conditions:
(A) a normalization method of accounting (within the meaning of former § 167(l)(3)(G), former § 168(e)(3)(B), or
§ 168(i)(9), as applicable) will be used for the public utility property subject to the application;
(B) as of the beginning of the year of change, the taxpayer will adjust its deferred tax reserve account or similar reserve
account in the taxpayer’s regulatory books ofaccount by the amount of the deferral of federal income tax liability associated with the
§ 481(a) adjustment applicable to the public utility property subject to the application; and
(C) within 30 calendar days of filing the federal income tax return for the year of change, the taxpayer will provide a copy
of the completed application to any regulatory body having jurisdiction over the public utility property subject to the application;
(vi) if the taxpayer is changing the classification of an item of § 1250 property placed in service after August 19,
1996, to a retail motor fuels outlet under § 168(e)(3)(E)(iii), a statement containing the following representation: “For purposes of
§ 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents that (A) 50 percent or more of the gross revenue generated
from the item of § 1250 property is from the sale of petroleum products (not including gross revenue from related services, such as
the labor cost of oil changes and gross revenue from the sale of nonpetroleum products such as tiresand oil filters), (B) 50 percent
or more of the floor space in the item of property is devoted to the sale of petroleum products (not including floor space devoted to
related services, such as oil changes and floor space devoted to nonpetroleum products such as tiresand oil filters), or (C) the time
of § 1250 property is 1,400 square feet or less.”; and
(vii) if the taxpayer is changing the classification of an item of property from § 1250 property to § 1245 property under
§ 168 or former § 168, a statement of the facts and law supporting the new § 1245 property classification, and a statement containing
the following representation: “Each item of depreciable property that is the subject of the application filed under section 2.01 of
the APPENDIX of Rev. Proc. 2002–9 for the year of change beginning [Insert the date], and that is reclassified from [Insert, as
appropriate: nonresidential real property, residential rental property, qualified leaseholdimprovement property, qualified restaurant
property, 19-year real property, 18-year real property, or 15-year real property] to an asset class of [Insert, as appropriate, either:
Rev. Proc. 87–56, 1987–2 C.B. 674, or Rev. Proc. 83–35, 1983–1 C.B. 745] that does not explicitly include § 1250 property, is § 1245
property for depreciation purposes.”
(3)Section 481(a) adjustment. Because the adjusted basis of the property is changed as a result of a method change made under
section 2.01 of this APPENDIX (seesection 2.01(4) of this APPENDIX), items are duplicated or omitted. Accordingly, this change is
made with a § 481(a) adjustment. This adjustment may result in either a negative § 481(a) adjustment(a decrease in taxable income) or
January 22, 20073632007–4 I.R.B.

a positive § 481(a) adjustment (an increase in taxable income) and may be a different amount for regular tax, alternative minimum tax,
and adjusted current earnings purposes. This § 481(a) adjustment equals the difference between the total amount of depreciation taken
into account in computing taxable income for the property under the taxpayer’s former method of accounting (including the amount
attributable to any property described in section 2.01(1)(b) of this APPENDIX that is included in the taxpayer’s Form 3115), and the
total amount of depreciation allowable for the property under the taxpayer’s new method of accounting (as determined under section
2.01(5) of this APPENDIX, and including the amount attributableto any property described in section2.01(1)(b)ofthisAPPENDIX
that is included in the taxpayer’s Form 3115), for open and closed years prior to the year of change. However, the amount of the
§ 481(a) adjustment must be adjusted to account for the proper amountof the depreciation allowable that is required to be capitalized
under any provision of the Code (for example, § 263A) at the beginning of the year of change.
(4)Basis adjustment. As of the beginning of the year of change, the basis of depreciable property to which section 2.01 of this
APPENDIX applies must reflect the reductions required by § 1016(a)(2) for the depreciation allowable for the property (as determined
under section 2.01(5) of this APPENDIX).
(5)Meaning of depreciation allowable.
(a)In general. Section 2.01(5) of this APPENDIX provides the amount of the depreciation allowable determined under
§ 56(a)(1), § 56(g)(4)(A), § 167, § 168, § 197, § 1400I, or § 1400L(c), or former § 168. This amount, however, may be limited by
other provisions of the Code (for example, § 280F).
(b)Section 56(a)(1) property. The depreciation allowable for any taxable yearfor property for which depreciation is deter-
mined under § 56(a)(1) is determined by usingthe depreciation method, recovery period, and convention provided for under § 56(a)(1)
that applies for the property’s placed-in-service date.
(c)Section 56(g)(4)(A) property. The depreciation allowable for any taxable year for property for which depreciation is
determined under § 56(g)(4)(A) is determined by using the depreciation method, recovery period oruseful life, as applicable, and
convention provided for under § 56(g)(4)(A) that applies for the property’s placed-in-service date.
(d)Section 167 property. Generally, for any taxable year, the depreciation allowable for property forwhich depreciation is
determined under § 167, is determined either:
(i) under the depreciation method adopted by a taxpayer for the property; or
(ii) if that depreciation method does not result in a reasonable allowance for depreciation or a taxpayer has not adopted
a depreciation method for the property, under the straight-line depreciation method.
For determining the estimated useful life and salvage value of the property, see § 1.167(a)–1(b) and (c), respectively.
The depreciation allowable for any taxable year for property subject to § 167(f) (regarding certain property excluded from
§ 197) is determined by using the depreciation method and useful life prescribed in § 167(f). If computer software is depreciated
under § 167(f)(1) and is qualified property (as defined in § 168(k)(2) and § 1.168(k)–1 of the IncomeTax Regulations), 50-percent
bonus depreciation property (as defined in § 168(k)(4) and § 1.168(k)–1), qualified New York Liberty Zone (Liberty Zone) property
(as defined in § 1400L(b)(2) and § 1.1400L(b)–1), or qualified Gulf Opportunity Zone (GO Zone) property (as defined in sections
2.02 and 2.03 of Notice 2006–77, 2006–40 I.R.B. 590), the depreciation allowable for that computer software under § 167(f)(1) is also
determined by taking into account the additional first year depreciation deduction provided by § 168(k), § 1400L(b), or § 1400N(d),
as applicable, unless the taxpayer made a timely valid election not to deduct any additional first year depreciation for the computer
software.
(e)Section 168 property. The depreciation allowable for any taxable year for property for which depreciation is determined
under § 168, is determined as follows:
(i) by using either:
(A) the general depreciation system in § 168(a); or
(B) the alternative depreciation system in § 168(g) if the propertyisrequiredtobedepreciated under the alternative
depreciation system pursuant to § 168(g)(1) or other provisions ofthe Code (for example, property described in § 263A(e)(2)(A) or
§ 280F(b)(1)). Property required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) includes property
in a class (as set out in § 168(e)) for which the taxpayer made a timely valid election under § 168(g)(7); and
(ii) if the property is qualified property, 50-percent bonus depreciation property, Liberty Zone property, or GO Zone
property, by taking into account the additional first year depreciation deduction provided by § 168(k), § 1400L(b), or § 1400N(d), as
applicable, unless the taxpayer made a timely valid election notto deduct the additional first year depreciation (or made a deemed
election not to deduct the additional first year depreciation; for further guidance, see Rev. Proc. 2002–33, 2002–1 C.B. 963, Rev. Proc.
2003–50, 2003–2 C.B. 119, or Notice 2006–77) for the class of property (as defined in § 1.168(k)–1(e)(2), § 1.1400L(b)–1(e)(2), or
section 4.02 of Notice 2006–77, as applicable) in which that property is included.
(f)Section 197 property. The depreciation allowable for any taxable year for an amortizable § 197 intangible (including any
property for which a timely election under§ 13261(g)(2) of the 1993 Act was made) is determined in accordancewith § 1.197–2(f).
(g)Former § 168 property. The depreciation allowable for any taxable year for property subject to former § 168 is determined
by using either:
(i) the accelerated method of cost recovery applicable to the property (for example, for 5-year property, the recovery
method under former § 168(b)(1)); or
2007–4 I.R.B.364January 22, 2007

(ii) the straight-line method applicable to the property if the property is required to be depreciated under the straight-line
method (for example, property described in former § 168(f)(12) orformer § 280F(b)(2)) or if the taxpayer elected to determine the
depreciation allowance under the optional straight-line percentage (for example, the straight-line method in former § 168(b)(3)).
(h)Qualified revitalization building. The depreciation allowable for any taxable year for any qualified revitalization building
(as defined in § 1400I(b)(1)) for which the taxpayer has made a timely valid election under § 1400I(a) is determined as follows:
(i) if the taxpayer elected to deduct one-half of any qualified revitalization expenditures (as defined in § 1400I(b)(2))
chargeable to a capital account with respect to the qualified revitalization building for the taxable year in which the building is placed
in service by the taxpayer, the depreciation allowable for the property’s placed-in-service year is equal to one-half of the qualified
revitalization expenditures for the property and the depreciation allowable for the remaining recovery period of the property is deter-
mined using the general depreciation system of § 168(a) or the alternative depreciation system of § 168(g), as applicable; or
(ii) if the taxpayer elected to amortize all of the qualified revitalization expenditures chargeable to a capital account with
respect to the qualified revitalization building ratably over the 120-month period beginning with the month in which the building is
placed in service, the depreciation allowableis determined in accordance with this election.
(i)Qualified New York Liberty Zone leasehold improvement property. The depreciation allowable for any taxable year for
qualified New York Liberty Zone leasehold improvement property (as defined in § 1400L(c)(2)) is determined by using the depreci-
ation method and recovery period prescribed in § 1400L(c) unless the taxpayer made a timely valid election under § 1400L(c) not to
use that recovery period.”
SECTION 2. Section 2.02 of the APPENDIX of Rev. Proc. 2002–9 is deleted and replaced with the following:
“.02Permissible to permissible method of accounting for depreciation.
(1)Description of change. This change applies to a taxpayer that wants to change from a permissible method of accounting for
depreciation under § 56(g)(4)(A)(iv) or § 167to another permissible method of accountingfor depreciation under § 56(g)(4)(A)(iv)
or § 167. Pursuant to § 1.167(a)–7(a) and (c), a taxpayer may account for depreciable property either bytreating each individual asset
as an account or by combining two or more assets in a single account and, for each account, depreciation allowances are computed
separately.
(2)Scope.
(a)Applicability. This change applies to any taxpayer wanting to make a change in method of accounting for depreciation
specified in section 2.02(3) of this APPENDIX for the property in an account:
(i) for which the present and proposed methods of accounting for depreciation specified in section 2.02(3) of this
APPENDIX are permissible methods for the property under § 56(g)(4)(A)(iv) or § 167; and
(ii) that is owned by the taxpayer atthe beginning of the year of change.
(b)Certain scope limitations inapplicable. The scope limitations in sections 4.02(7) and 4.02(8) of this revenue procedure
are not applicable to this change.
(c)Inapplicability. This change does not apply to:
(i) any taxpayer that is subject to § 263A and that is required to capitalize the costs with respect to which the taxpayer
wants to change its method of accounting under section 2.02 of this APPENDIX, if the taxpayer is not capitalizing the costs as required;
(ii) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;
(iii) any property described in § 167(f) (regarding certain propertyexcluded from § 197);
(iv) any property subject to § 167(g)(regarding property depreciated under the income forecast method);
(v) any property for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A)(i), (ii), (iii), or (v), § 168, § 1400I,
§ 1400L(c), § 168 prior to its amendment in 1986 (former § 168), or any additional first year depreciation deduction provision of the
Internal Revenue Code (for example, § 168(k), § 1400L(b), or § 1400N(d));
(vi) any property that the taxpayer elected under § 168(f)(1) or former § 168(e)(2) to exclude from the application of,
respectively, § 168 or former § 168;
(vii) any property for which depreciation is determined in accordance with § 1.167(a)–11 (regarding the Class Life Asset
Depreciation Range System (ADR));
(viii) any depreciable property for which the taxpayer is changing the depreciation method pursuant to § 1.167(e)–1(b)
of the Income Tax Regulations (change from declining-balance method to straight-line method), § 1.167(e)–1(c) (certain changes for
§ 1245 property), or § 1.167(e)–1(d) (certain changes for § 1250 property). These changes must be made prospectively and are not
permitted under the cited regulations for property for which the depreciation is determined under § 168, § 1400I, § 1400L, or former
§ 168; or
(ix) any distributor commissions (as defined by section 2 of Rev. Proc. 2000–38, 2000–2 C.B. 310) for which the taxpayer
is changing the useful life under the distribution fee period method or the useful life method (both described in Rev. Proc. 2000–38).
A change in this useful life is corrected by adjustments in theapplicable taxable year provided under § 1.446–1(e)(2)(ii)(d)(5)(iv).
(3)Changes covered. Section 2.02 of this APPENDIX only applies to the following changes in methods of accounting for depre-
ciation:
January 22, 20073652007–4 I.R.B.

(a) a change from the straight-line method to the sum-of-the-years-digits method, the sinkingfund method, the unit-of-pro-
duction method, or the declining-balance method using any proper percentage of the straight-line rate;
(b) a change from the declining-balance method using any percentage of the straight-line rate to the sum-of-the-years-digits
method, the sinking fund method, or the declining-balance methodusing a different proper percentage of the straight-line rate;
(c) a change from the sum-of-the-years-digits method to the sinking fund method, the declining-balance method using any
proper percentage of the straight-line rate, or the straight-line method;
(d) a change from the unit-of-production method to the straight-line method;
(e) a change from the sinking fund method to the straight-line method, the unit-of-production method, the sum-of-the-years-
digits method, or the declining-balance method using any proper percentage of the straight-line rate;
(f) a change in the interest factor used in connection with a compound interest method or sinking fund method;
(g) a change in averaging convention as set forth in § 1.167(a)–10(b). However,as specifically providedin § 1.167(a)–10(b),
in any taxable year in which an averaging convention substantially distorts the depreciation allowance for the taxable year, it may not
be used (seeRev. Rul. 73–202, 1973–1 C.B. 81);
(h) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with
salvage proceeds to deducting costs of removal as an expense andincluding salvage proceeds in taxable income as set forth in
§ 1.167(a)–8(e)(2).SeeRev. Rul. 74–455, 1974–2 C.B. 63. This change, however, may be made under this revenue procedure only
if:
(i) the change is applied to all items in the account for which the change is being made; and
(ii) the removal costs are not required to be capitalized under any provision of the Code (for example, § 263(a), 263A, or
280B);
(i) a change from crediting the depreciation reserve with the salvage proceeds realized on normal retirement sales to com-
puting and recognizing gains and losses on the sales (seeRev. Rul. 70–165, 1970–1 C.B. 43);
(j) a change from crediting ordinary income (including the combination method of crediting the lesser of estimated salvage
value or actual salvage proceeds to the depreciation reserve, with any excess of salvage proceeds over estimated salvage value credited
to ordinary income) with the salvage proceeds realized on normal retirement sales, to computing and recognizing gains and losses on
the sales (seeRev. Rul. 70–166, 1970–1 C.B. 44);
(k) a change from item accounting for specific assets to multiple asset accounting (pooling) for the same assets, orvice versa;
(l) a change from one type of multiple asset accounting (pooling) for specific assets to a different type of multiple asset
accounting (pooling) for the same assets;
(m) a change from one method described in Rev. Proc. 2000–38 foramortizing distributor commissions (as defined by section
2 of Rev. Proc. 2000–38, 2000–2 C.B. 310) to another method described in Rev. Proc. 2000–38 for amortizing distributor commis-
sions; or
(n) a change from pooling to a single asset, orvice versa, for distributor commissions (as defined by section 2 of Rev. Proc.
2000–38, 2000–2 C.B. 310) for which the taxpayer is using the distribution fee period method or the useful life method (both described
in Rev. Proc. 2000–38).
(4)Additional requirements. A taxpayer also must comply with the following:
(a)Basis for depreciation. At the beginning of the year of change, the basis for depreciation of property to which this change
applies is the adjusted basis of the property as provided in § 1011 at the end of the taxable year immediately preceding the year of
change (determined under the taxpayer’s present method of accounting for depreciation). If applicable under the taxpayer’s proposed
method of accounting for depreciation, this adjusted basis is reduced by the estimated salvage value of the property (for example, a
change to the straight-line method).
(b)Rate of depreciation. The rate of depreciation for property changed to:
(i) the straight-line or the sum-of-the-years-digits methodof depreciation must be based on the remaining useful life of
the property as of the beginning of the year of change; or
(ii) the declining-balance method of depreciation must be basedon the useful life of the property measured from the
placed-in-service date, and not the expected remaining life from the date the change becomes effective.
(c)Regulatory requirements. For changes in method of depreciation to the sum-of-the-years-digits or declining-balance
method, the property must meet the requirements of § 1.167(b)–0 or 1.167(c)–1, as appropriate.
(d)Public utility property. If any item of property is public utility property within the meaning of former § 167(l)(3)(A), the
taxpayer must attach to the application a statement providing that the taxpayer agrees to the following additional terms and conditions:
(i) a normalization method of accounting within the meaning of former §167(l)(3)(G) will be usedfor the public utility
property subject to the application; and
(ii) within 30 calendar days of filing the federal income tax return for the year of change, the taxpayer will provide a copy
of the completed application to any regulatory body having jurisdiction over the public utility property subject to the application.
(5)Section 481(a) adjustment. Because the adjusted basis of the property isnot changed as a result of a method change made
under section 2.02 of this APPENDIX, no items are being duplicated or omitted. Accordingly, no § 481(a) adjustment is required or
necessary.”
2007–4 I.R.B.366January 22, 2007

SECTION 3. Section 2B of the APPENDIX of Rev. Proc. 2002–9 is deleted and replaced with the following:
“SECTION 2B. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197)
.01Description of change. This change applies to a taxpayer that wants to change its method of accounting for the costs of computer
software to a method described in Rev. Proc. 2000–50, 2000–2 C.B. 601, as modified by Rev. Proc. 2007–16, 2007–4 I.R.B. 358.
Section 5 of Rev. Proc. 2000–50 describes the methods applicable to the costs of developing computer 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. If a taxpayer treats the costs of computer software in accordance with
the applicable method described in Rev. Proc. 2000–50, the Servicewill not disturb the taxpayer’s treatment of its costs of computer
software.
.02Scope. This change applies to all costs of computer software as defined in section 2 of Rev. Proc. 2000–50. However, this
change does not apply to any computer software that is subject to amortization as an “amortizable section 197 intangible” as defined
in § 197(c) and the regulations thereunder, or to costs that a taxpayer has treated as research and experimentation expenditures under
§ 174.
.03Statement required. If a taxpayer is changing to the method described in section 5.01(2) of Rev. Proc. 2000–50, the taxpayer
must attach to the application a statement providing the information required in section 8.02(2) of Rev. Proc. 2000–50.
SECTION 4. Section 2.05 of the APPENDIX of Rev. Proc. 2002–9 is added to read as follows:
“.05Impermissible to permissible method of accounting for depreciation or amortization for disposed depreciable or amortizable
property.
(1)Description of change. This change applies to a taxpayer that wants to make the change in method of accounting for deprecia-
tion or amortization (depreciation) provided under section 3 of Rev. Proc. 2007–16, 2007–4 I.R.B. 358, for an item of depreciable or
amortizable property that has been disposed of by the taxpayer.Section 3 of Rev. Proc. 2007–16 allows a taxpayer to make a change
in method of accounting for depreciation for the disposed property if the taxpayer used an impermissible method of accounting for
depreciation for the property under which the taxpayer did not take into account any depreciation allowance, or did take into account
some depreciation but less than the depreciation allowable, in theyear of change (as defined in section 2.05(4) of this APPENDIX)
or any prior taxable year.
(2)Scope.
(a)Applicability. Except as provided in section 2.05(2)(b) of this APPENDIX, section 2.05 of this APPENDIX applies to
a taxpayer that is changing from an impermissible method of accounting for depreciation to a permissible method of accounting for
depreciation for any item of depreciable oramortizable property subject to §§ 167, 168, 197, 1400I, or 1400L(c), to former § 168,
or to any additional first year depreciation deduction provision ofthe Internal Revenue Code (for example, § 168(k), § 1400L(b), or
§ 1400N(d)):
(i) that has been disposed of by the taxpayer during the yearof change (as defined in section 2.05(4) of this APPENDIX);
and
(ii) for which the taxpayer did not take into account any depreciation allowance, or did take into account some depreci-
ation but less than the depreciation allowable (hereinafter, both are referred to as “claimed less than the depreciation allowable”), in
the year of change (as defined in section 2.05(4) of this APPENDIX) or any prior taxable year.
(b)Inapplicability. Section 2.05 of this APPENDIX does not apply to:
(i) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;
(ii) any property for which a taxpayer is revoking a timely valid depreciation election, ormaking a late depreciation
election, under the Code or regulations thereunder, or under otherguidance published in the Internal Revenue Bulletin (including
under § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993, 1993–3 C.B. 1, 128 (relating to amortizable § 197 intangibles));
(iii) any property for which the taxpayer deducted the cost or other basis of the property as an expense; or
(iv) any property disposed of by the taxpayer in a transaction to which a nonrecognition section of the Code applies (for
example, § 1031, transactions subject to § 168(i)(7)(B)(i)). However, this section 2.05(2)(b)(iv) does not apply to property disposed
of by the taxpayer in a § 1031 or § 1033 transaction if the taxpayer elects under § 1.168(i)–6T(i) and (j) to treat the entire basis (that is,
both the exchanged and excess basis (as defined in § 1.168(i)–6T(b)(7) and (8), respectively)) of the replacement MACRS property
(as defined in § 1.168(i)–6T(b)(1)) as property placed in service by the taxpayer at thetime of replacement and treat the adjusted
depreciable basis of the relinquished MACRS property (as defined in § 1.168(i)–6T(b)(2)) as being disposed of by the taxpayer at the
time of disposition.
(3)Manner of making the change.
(a)Change made on an original return for year of change. This change may be made on a taxpayer’s timely filed (including
extensions) original federal tax return for the year of change (as defined in section 2.05(4) of this APPENDIX), provided the taxpayer
files the original Form 3115 in accordance withsection 6.02(3) of this revenue procedure.
(b)Change made on an amended return for year of change. This change may also be made on an amended federal tax return
for the year of change (as defined in section 2.05(4) of this APPENDIX), provided:
January 22, 20073672007–4 I.R.B.

(i) the taxpayer files the original Form 3115 with the taxpayer’s amended federal tax return for the year of change (as
defined in section 2.05(4) of this APPENDIX) prior to the expiration of the period of limitation for assessment under § 6501(a) for
the taxable year in which the item of depreciable or amortizable property was disposed of by the taxpayer; and
(ii) the taxpayer’s amended federal tax return for the year ofchange (as defined in section 2.05(4) of this APPENDIX)
includes the adjustments to taxable income and any collateral adjustments to taxable income or tax liability (for example, adjustments
to the amount or character of the gain or loss of the disposed depreciable or amortizable property) resulting from the change in method
of accounting for depreciation made by the taxpayer under section 2.05 of this APPENDIX.
(4)Year of change. The year of change for this change is the taxable year inwhich the item of depreciable or amortizable property
was disposed of by the taxpayer.
(5)Scope limitations inapplicable. The scope limitations in section 4.02 of this revenue procedure do not apply. If the taxpayer is
under examination, before an appeals office,or before a federal court at the time that a copy of the Form 3115 is filed with the national
office, the taxpayer must provide a copy of the Form 3115 to the examining agent, appeals officer, or counsel for the government,
as appropriate, at the time the copy of the Form 3115 is filed with the national office. The Form 3115 must contain the name(s) and
telephone number(s) of the examining agent, appeals officer, or counsel for the government, as appropriate.
(6)Filing requirements. Notwithstanding section 6.02(3)(a) of this revenue procedure, a taxpayer making this change in accor-
dance with section 2.05(3)(b) of this APPENDIX must attach the original Form 3115 to the taxpayer’s timely filed amended federal
tax return for the year of change and must file the required copy (withsignature) of the Form 3115 with the national office no later than
when the original Form 3115 is filed with the amended federal tax return for the year of change. If a taxpayer is making this change in
accordance with section 2.05(3)(a) of this APPENDIX, the filing requirements in section 6.02(3)(a) of this revenue procedure apply.
(7)Section 481(a) adjustment period. A taxpayer must take the § 481(a) adjustment into account in the year of change.”
26 CFR 601.202: Closing agreements.
(Also Part I, §§ 446, 482, 7121; 1.446–1, 301.7121–1.)
Rev. Proc. 2007–17
TABLE OF CONTENTS
SECTION 1. PURPOSE
............................................................................................ 369
SECTION 2. BACKGROUND....................................................................................... 369
SECTION 3. SCOPE............................................................................................... 370
.01Eligible taxpayers........................................................................................... 370
.02Eligible taxable years........................................................................................ 370
.03Eligible issues generally...................................................................................... 370
.04Relationship of eligible issues to eligible taxable years........................................................... 370
.05Eligible domestic and eligible international issues require coordination and consultation with
Associate Chief Counsel...................................................................................... 370
.06Eligible international issues requiring Associate Chief Counsel (International) concurrence in
execution................................................................................................... 370
.07Special provisions for requests on international issues........................................................... 370
.08Excluded issues............................................................................................. 371
.09Methods of accounting....................................................................................... 371
.10Definition of taxpayer........................................................................................ 371
SECTION 4. REQUESTING A PRE-FILING AGREEMENT............................................................. 372
.01Required information........................................................................................ 372
.02Specific descriptions of issues................................................................................. 372
.03Perjury statement............................................................................................ 372
.04Agreement regarding examination or inspection of records........................................................ 372
.05Signature................................................................................................... 372
.06Where to submit request...................................................................................... 372
SECTION 5. SELECTING TAXPAYERS FOR PFA PROGRAM.......................................................... 372
.01Jurisdiction of LMSB Industry Director and coordination and consultation with the Associate Chief
Counsel.................................................................................................... 372
.02Criteria for selection......................................................................................... 373
2007–4 I.R.B.368January 22, 2007

.03Notification................................................................................................. 373
.04Requests not accepted........................................................................................ 373
SECTION 6. PROCESSING A REQUEST FOR A PFA.................................................................. 373
.01Planning................................................................................................... 373
.02Continuing coordination...................................................................................... 373
.03Drafting.................................................................................................... 373
.04Return filing requirements.................................................................................... 373
.05TEFRA taxpayers............................................................................................ 373
.06Execution prior to filing...................................................................................... 373
.07Execution after filing......................................................................................... 373
SECTION 7. NATURE AND EFFECT OF A PFA...................................................................... 374
.01Criteria for issuance......................................................................................... 374
.02Form and content............................................................................................ 374
.03Methods and periods of accounting............................................................................ 374
SECTION 8. WITHDRAWAL........................................................................................ 374
SECTION 9. NO PFA EXECUTED................................................................................... 374
.01Post-filing procedures........................................................................................ 374
.02Administrative appeals....................................................................................... 374
SECTION 10. USER FEE........................................................................................... 375
.01Taxpayers subject to fees..................................................................................... 375
.02Amountoffee............................................................................................... 375
.03Time and method of payment.................................................................................. 375
.04Withdrawal................................................................................................. 375
SECTION 11. DISCLOSURE........................................................................................ 375
SECTION 12. EFFECTIVE DATE AND DURATION OF PROCEDURE................................................... 375
SECTION 13. EFFECT ON OTHER DOCUMENTS.................................................................... 375
SECTION 14. RECORD-KEEPING REQUIREMENTS................................................................. 375
SECTION 15. PAPERWORK REDUCTION ACT...................................................................... 375
SECTION 16. DRAFTING INFORMATION.......................................................................... 375
SECTION 1. PURPOSE
.0
1 This revenue procedure permits a
ta
xpayer under the jurisdiction of the Large
a
nd Mid-Size Business Division to request
t
hat the Service examine specific issues re-
l
ating to tax returns before those returns
a
re filed. This revenue procedure super-
s
edes Rev. Proc. 2005–12, 2005–1 C.B.
311. This revenue procedure provides the
framework within which a taxpayer and
the Service may work together in a cooper-
ative environment to resolve, after exami-
nation, issues accepted into the program.
If the taxpayer and the Service are able to
resolve the examined issues before the re-
turns that they affect are filed, this revenue
procedure authorizes the taxpayer and the
Service to memorialize their agreement by
executing an LMSB Pre-Filing Agreement
(PFA).
.02 This revenue procedure outlines the
procedures for resolving issues through
pre-filing examinations. Taxpayers and
the Service often resolve issues more ef-
fectively and efficiently through a pre-fil-
ing examination than a post-filing ex-
amination, because the taxpayer and the
Service have more timely access to the
records and personnel that are relevant
to the issues. A pre-filing examination
also provides the taxpayer with certainty
regarding the examined issue at an earlier
point in time than a post-filing exami-
nation. These procedures benefit both
taxpayers and the Service by improving
the quality of tax compliance while re-
ducing costs, burdens, and delays. Unlike
letter rulings and other forms of written
advice provided by the Offices of the As-
sociates Chief Counsel (see Rev. Proc.
2006–1, 2006–1 I.R.B. 1), a PFA does not
determine the tax treatment of prospective
or future transactions or events, but only
of completed transactions or events whose
tax treatment has not yet been reported on
a return.
SECTION 2. BACKGROUND
.01 In Rev. Proc. 2001–22, 2001–1
C.B. 745, the Service provided procedures
for LMSB taxpayers to request an exami-
nation and resolve specific issues relating
to returns that were neither due (taking into
account any extensions of time to file) nor
filed.
.02 Because Rev. Proc. 2001–22 lim-
ited the eligible years for the PFA program
January 22, 20073692007–4 I.R.B.

to current or prior taxable years for which
returns were neither due nor filed, taxpay-
ers and the Service could not resolve issues
for multiple future taxable years or issues
regarding appropriate methodologies for
determining tax consequences that would
affect future taxable years.
.03 In Rev. Proc. 2005–12, the Service
expanded the scope of the PFA program by
allowing taxpayers and the Service to ad-
dress certain issues over a limited number
of future taxable years. In addition, the
Service revised the domestic and interna-
tional issues eligible for the PFA program.
Section 12 of Rev. Proc. 2005–12 pro-
vided that that revenue procedure would
remain in effect until December 31, 2006,
unless sooner revoked, modified, or super-
seded.
.04 The Service has determined to re-
new the PFA program as described in Rev.
Proc. 2005–12 with minimal changes.
This revenue procedure largely continues
the existing PFA program, clarifying pro-
cedures for processing a PFA request and
updating the user fee requirements for a
PFA. The objective of the PFA program
remains to resolve, before returns are
filed, issues that are likely to be disputed
in post-filing audits.
SECTION 3. SCOPE
.01Eligible taxpayers. This revenue
procedure applies to taxpayers under the
jurisdiction of LMSB that desire to resolve
through a PFA issues that otherwise may
be the subject of a post-filing examination.
.02Eligible taxable years.
(1)Current, past, and future taxable
years. An eligible taxpayer may request a
PFA for the current taxable year, any prior
taxable year for which the original return
is not yet due (taking into account any ex-
tensions of time to file) and is not yet filed
and, except in the case of a PFA provided
under section 3.09(2), for a limited number
of future taxable years.
(2)Agreements for future taxable years.
Agreements for future taxable years are
limited to four taxable years beyond the
current taxable year.
.03Eligible issues generally.
(1)Factual issues and well-established
law. The Service will consider entering
into a PFA on any issue that requires ei-
ther a determination of facts or the appli-
cation of well-established legal principles
to known facts.
(2)Issues that involve a methodology.
The Service also will, in general, consider
entering into a PFA regarding a method-
ologyusedbyataxpayertodeterminethe
appropriate amount of an item of income,
allowance, deduction, or credit.
(3)Issues under the jurisdiction of other
Service divisions. The Service will con-
siderenteringintoaPFAonanissueun-
der the jurisdiction of an operating division
of the Service other than LMSB, but only
with the concurrence of that operating di-
vision.
.04Relationship of eligible issues to el-
igible taxable years. An issue also must
relate to an eligible taxable year or years
in order to be an eligible issue.
.05Eligible domestic and eligible inter-
national issues require coordination and
consultation with Associate Chief Counsel.
There is no list of eligible domestic and in-
ternational issues. Any domestic or inter-
national issue that requires either a deter-
mination of facts or application of well-es-
tablished legal principles to known facts
and that is not excluded under section 3.08
or section 3.09 of this revenue procedure is
likelysuitable for a PFA.
The Service may, in its sole discretion,
refuse to address an issue in a PFA based
on considerations of sound tax adminis-
tration. Before any decision is made to
proceed with the taxpayer’s request for a
PFA, the Service must coordinate and con-
sult with the Associate Chief Counsel hav-
ing subject matter jurisdiction over any is-
sueproposedtobedeterminedbyaPFA.
As part of this coordination and consul-
tation, the Associate Chief Counsel may
consider whether the issue is more appro-
priately resolved by a letter ruling or other
form of written advice from the Offices of
the Associates Chief Counsel, as described
in Rev. Proc. 2006–1, 2006–1 I.R.B. 1, or
its successors, and whether the issue is cur-
rently one with respect to which the Ser-
vice will never, or will not ordinarily, is-
sue a letter ruling. See Rev. Proc. 2006–3,
2006–1 I.R.B. 122, Rev. Proc. 2006–7,
2006–1 I.R.B. 242, and their successors.
.06Eligible international issues re-
quiring Associate Chief Counsel (Inter-
national) concurrence in execution.This
subsection lists specific international is-
sues that arelikelysuitable for a PFA,
but also require that the Associate Chief
Counsel (International) concur with the
acceptance of the issue into the PFA Pro-
gram and execution of the PFA. Even
though an issue in a particular case ap-
pears on this list, the Service may, in its
sole discretion, refuse to address that is-
sue based on considerations of sound tax
administration. The eligible issues are:
(1) whether a unit of the taxpayer’s
trade or business is a qualified business
unit within the meaning of section 989(a)
and the regulations promulgated under that
section;
(2) whether the taxpayer is engaged
in a trade or business within the United
States (excluding questions under section
864(b)(2));
(3) the amount of gross income that is
effectively connected with the conduct by
the taxpayer of a trade or business within
the United States;
(4) factual determinations concerning
the extent to which, under section 882(c),
deductions are connected with income
that is effectively connected with the tax-
payer’s conduct of a trade or business
within the United States; and
(5) whether the taxpayer has a perma-
nent establishment in the United States for
purposes of a bilateral income tax conven-
tion to which the United States is a party
and, if so, what profits are attributable to
that permanent establishment.
.07Special provisions for requests on
international issues. The provisions of this
section apply, in addition to the generally
applicable provisions of this revenue pro-
cedure, to any request for a PFA on an issue
having international implications.
(1) A PFA and any factual information
contained in the background files is subject
to exchange of information under income
tax treaties or tax information exchange
agreements in accordance with the terms
of such treaties and agreements (including
terms regarding relevancy, confidentiality,
and the protection of trade secrets). In
cases where the exchange of information
would be discretionary, information may
be exchanged to the extent consistent with
sound tax administration and the practices
of the relevant foreign competent author-
ity.
(2) To minimize taxpayer and gov-
ernmental uncertainty and administrative
cost, taxpayers who seek a PFA on an
2007–4 I.R.B.370January 22, 2007

international issue are encouraged to seek
competent authorityconsideration under
the mutual agreement procedure of any
applicable United States income tax con-
vention. This consideration will be given
after the PFA is concluded, and the PFA
may be modified to reflect the outcome of
the mutual agreement procedure.
(3) A taxpayer may request a PFA
for an international issue that is the sub-
ject of a previously submitted request
for competent authority assistance. The
consideration of this competent authority
request will not be suspended during the
PFA process. If the taxpayer requests a
PFA and the previously submitted request
for competent authority assistance is on-
going, if appropriate, the taxpayer also
should make a request for the Accelerated
Competent Authority Procedure of Rev.
Proc. 2002–52, 2002–2 C.B. 242.
.08Excluded issues.TheServicewill
not enter into a PFA on the following types
of issues:
(1) Transfer pricing issues.SeeRev.
Proc. 2004–40, 2004–2 C.B. 50 (Advance
Pricing Agreement program);
(2) Except as provided in section
3.09(2) of this revenue procedure, issues
involving a changein accounting method.
SeeTreas. Reg. § 1.446–1(e). This in-
cludes issues that are or have been the sub-
ject of a request by or with respect to the
taxpayer for consent to change a method
of accounting under procedures such as
Rev. Proc. 97–27, 1997–1 C.B. 680 (as
modified and amplified by Rev. Proc.
2002–19, 2002–1 C.B. 696, and as ampli-
fied and clarified by Rev. Proc. 2002–54,
2002–2 C.B. 432), or its predecessor or
successor, or of an application filed un-
der automatic consent procedures such as
Rev. Proc. 2002–9, 2002–1 C.B. 327 (as
modified and clarified by Announcement
2002–17, 2002–1 C.B. 561, as modified
and amplified by Rev. Proc. 2002–19, and
as amplified, clarified, and modified by
Rev. Proc. 2002–54), or its predecessor
or successor. This also includes issues for
which a change in accounting method is
necessary to resolve the issue. A taxpayer
must obtain consent to make an account-
ing method change by using applicable
administrative procedures. See generally
Rev. Proc. 97–27 and Rev. Proc. 2002–9,
or their successors;
(3) Issues involving the annual account-
ing period. See Treas. Reg. § 1.442–1.
This includes issues that are or have been
the subject of a request by or with respect
to the taxpayer for permission to adopt,
change, or retain an annual accounting pe-
riod under procedures such as Rev. Proc.
2002–39, 2002–1 C.B. 1046, (as clarified
and modified by Notice 2002–72, 2002–2
C.B.843,andasmodifiedbyRev. Proc.
2003–34, 2003–1 C.B. 856), or an applica-
tion filed under automatic procedures such
as Rev. Proc. 2002–37, 2002–1 C.B. 1030,
and Rev. Proc. 2002–38, 2002–1 C.B.
1037, or their predecessors or successors.
This also includes issues for which a rul-
ing regarding an annual accounting period
is necessary to resolve the issue;
(4) Issues of reasonable cause, due dili-
gence, good faith, clear and convincing ev-
idence, or any other similar standard under
Subtitle F (Procedure and Administration)
of the Internal Revenue Code;
(5) Issues involving the applicability of
any penalty or criminal sanction;
(6) Issues that are, or will be, the subject
of a pending or proposed request for a de-
termination letter, technical advice memo-
randum, or letter ruling issued to or regard-
ing the taxpayer;
(7) Issues for which the taxpayer pro-
poses a resolution that is contrary to a
private letter ruling, determination letter,
technical advice memorandum, or closing
agreement previously issued to or regard-
ing the taxpayer;
(8) Issues for which the taxpayer pro-
poses a resolution that is contrary to a posi-
tion proposed by the Service in response to
a request for a private letter ruling or deter-
mination letter that was withdrawn by the
taxpayer;
(9) Issues that are the subject of pend-
ing litigation between the Service and the
taxpayer for an earlier taxable year;
(10) Issues designated for litigation for
an earlier taxable year of the taxpayer by
the Office of Chief Counsel;
(11) Issues that involve a tax shelter de-
scribed in section 6662(d)(2)(C)(ii);
(12) Issues that require the Service to
determine whether the taxpayer, rather
than another entity, is the common law
employer; and
(13) Issues relating to transactions
that have not yet occurred, regardless
of whether the issue otherwise would
qualify as one on which the Service will
issue letter rulings or other forms of writ-
ten guidance as described in Rev. Proc.
2006–1, 2006–1 I.R.B. 1, and successor
revenue procedures.
.09Methods of accounting.
(1) Except as provided in section
3.09(2) of this revenue procedure, the
Service will not enter into a PFA for is-
sues relating to a change in method of
accounting. In applying the law to the
facts, or establishing the facts, a change
in the overall plan of accounting for gross
income or deductions from the treatment
of such items in prior taxable years, or a
change in the treatment of any item that
involves the proper time for the inclusion
of an item or the taking of an item as a
deduction from the treatment of such item
in prior taxable years generally may be a
change in method of accounting. A PFA
may not be used to change a taxpayer’s
method of accounting.
(2) If the Service has issued a letter rul-
ing granting consent to a change in method
of accounting under Rev. Proc. 97–27, or
its successor, a taxpayer may request and
the Service may enter into a PFA with re-
spect to the approved change in method of
accounting. In such case, a PFA may in-
clude determinations described in section
11 of Rev. Proc. 97–27 or a similar provi-
sion of its successor. Thus, for example, a
taxpayer may request and the Service may
enter into a PFA with respect to the amount
of the section 481(a) adjustment and the
implementation of the change in method
of accounting in accordance with the terms
and conditions of the consent agreement
and Rev. Proc. 97–27. A PFA under
this provision may only apply to the tax-
able year of change and may not apply to
any other taxable years, except that a de-
termination of the amount of the section
481(a) adjustment under section 11.01(2)
of Rev. Proc. 97–27, or a successor, shall
apply to any other taxable year for which
such amount is taken into account (i.e.,any
spread period). A PFA under this provision
may not be entered into with respect to a
change in method of accounting requested
pursuant to automatic consent procedures,
such as Rev. Proc. 2002–9.
.10Definition of taxpayer. For pur-
poses of section 3 of this revenue proce-
dure, any reference to the taxpayer also in-
cludes a related taxpayer and any prede-
cessor of the taxpayer or a related taxpayer.
January 22, 20073712007–4 I.R.B.

A related taxpayer is one related within the
meaning of section 267 or a member of
an affiliated group within the meaning of
section 1504 that includes the taxpayer. A
predecessor is an entity for whose tax lia-
bility the taxpayer or a related taxpayer is
or was primarily or secondarily liable.
SECTION 4. REQUESTING A
PRE-FILING AGREEMENT
.01Required information. A request for
a PFA must contain the following informa-
tion:
(1) Names, addresses, telephone num-
bers, and taxpayer identification numbers
of all interested parties;
(2) The name, title, address and tele-
phone number of a person to contact. If
the person to contact is an authorized rep-
resentative of the taxpayer, a properly exe-
cuted Form 2848,Power of Attorney and
Declaration of Representative, must ac-
company the request;
(3) The annual accounting period and
the overall method of accounting (for ex-
ample, cash receipts and disbursements
or accrual) for maintaining the accounting
books and filing the federal income tax
returns of all interested parties;
(4) The location of the taxpayer’s tax
staff and records;
(5) A brief description of the taxpayer’s
business operations, including the princi-
pal business activity code used by the tax-
payer on its last filed return;
(6) The taxable year(s) for which the
PFA is sought, the last date on which
the taxpayer may file (with extensions) a
timely return for that year (or for the first
of those taxable years), and, if earlier, the
date on which the taxpayer intends to file
that return; and
(7) The dollar amount of assets re-
flected on the most recently filed return.
.02Specific descriptions of issues.Are-
quest for a PFA should also contain a sep-
arate written statement for each proposed
issue that concisely:
(1) Describes the issue;
(2) Summarizes all the facts that are
relevant and material to the issue and, in
the case of agreements for future taxable
years, any related factual assumptions that
may be appropriate (see section 7.02(2),
below);
(3) States whether the issue involves
an item or transaction in which two or
more persons may take contrary positions
(a “whipsaw” issue);
(4) Summarizes all relevant legal au-
thorities, including citations to specific
sections of the Internal Revenue Code,
Income Tax Regulations, case law, tax
treaties, and other authorities, and dis-
cusses why the issue is an eligible issue,
asdefinedinsection3ofthisrevenue
procedure;
(5) Summarizes and discusses the im-
plications of any known authorities that
may be potentially contrary to the position
advanced, such as legislation (or pending
legislation), court decisions, regulations,
revenue rulings, revenue procedures, no-
tices (including notices of proposed rule-
making), or announcements;
(6) Discusses whether and how the PFA
will affect taxable years before or after the
taxable year for which the PFA is sought;
(7) Describes any proposed methodol-
ogytobeused;
(8) Discusses whether the issue quali-
fies for mutual agreement procedure con-
sideration under any United States income
tax treaty, specifies the treaty, and states
whether the taxpayer previously applied or
will apply for competent authority assis-
tance with respect to the issue for the year
or years in question or any prior year;
(9) States whether the taxpayer has, for
the current taxable year or any prior tax-
able year, requesteda private letter rul-
ing (including a request for consent to a
change in method of accounting or a re-
quest to adopt, change, or retain an an-
nual accounting period), determination let-
ter, or technical advice on the issue;
(10) Discusses whether the issue can
reasonably be resolved by the earliest date
on which the taxpayer intends to file any
relevant return; and
(11) Describes the availability, organ-
ization, and location of the records and
other information that substantiate the tax-
payer’s proposed position on the issue.
.03Perjury statement. A request for
a PFA, and any supplemental submissions
(including additional documents), must in-
clude a declaration, signed by a person
currently authorized tosign the taxpayer’s
federal income tax return, in the following
form:
Under penalties of perjury, I declare
that I have examined this request, in-
cluding accompanying documents, and
to the best of my knowledge and belief,
the facts presented in support of the re-
quest for the Pre-Filing Agreement are
true, correct, and complete.
.04Agreement regarding examination
or inspection of records. The request for
a PFA also must contain a statement by the
taxpayer in the following form:
The taxpayer agrees that the review
of records and information under the
PFA procedures does not constitute
an inspection within the meaning of
section 7605(b) and will not preclude
or impede (under section 7605(b) or
any administrative provisions adopted
by the Service) the Service from later
examining any return or inspecting any
records. The taxpayer further agrees
that procedural restrictions, such as pro-
viding notice under section 7605(b), do
not apply to actions taken under the
PFA procedures.
.05Signature. The request for a PFA
must be signed by the taxpayer or a rep-
resentative properly authorized by the
taxpayer in an accompanying Form 2848,
Power of Attorney and Declaration of
Representative.
.06Where to submit request.(1)Inthe
case of a taxpayer whose return for any
taxable year is currently under examina-
tion by LMSB, a request for a PFA should
be submitted to the LMSB Team Manager
in charge of the examination; or
(2) In the case of a taxpayer who has no
returns under examination for any taxable
year, a request for a PFA should be sent by
any of the following methods:
(a) mail to the following address:
Internal Revenue Service
Attn: LMSB:PFT:PFS
PFA Program Manager
Mint Building
1111 Constitution Avenue, NW
Washington, DC 20224;
(b) facsimile transmission to the atten-
tion of the PFA Program Manager at (202)
283–8406 (not a toll-free call); or
(c) electronic transmission to
pfa.info@irs.gov.
SECTION 5. SELECTING TAXPAYERS
FOR THE PFA PROGRAM
.01Jurisdiction of LMSB Industry Di-
rector and coordination and consultation
with the Associate Chief Counsel.The
2007–4 I.R.B.372January 22, 2007

LMSB Industry Director having jurisdic-
tion over the taxpayer, after coordination
and consultation with the Associate Chief
Counsel having subject matter jurisdiction
over any issue proposed to be determined
by a PFA, will decide whether to accept
the taxpayer’s request for a PFA. (For pur-
poses of this revenue procedure, the term
“LMSB Industry Director” includes a duly
authorized designee of an LMSB Industry
Director.) The decision regarding the ac-
ceptance of any PFA involving an interna-
tional issue also will require the concur-
rence of the Deputy Commissioner, Inter-
national (LMSB). In general, the Associate
Chief Counsel will respond within 10 busi-
ness days to a request for coordination and
consultation to proceed with the PFA.
.02Criteria for selection. The criteria
for selecting taxpayers to participate in the
PFA program include, but are not limited
to:
(1) Whether the specific issue presented
by the taxpayer’s facts is an eligible issue
under section 3 of this revenue procedure
and is otherwise suitable for the PFA pro-
gram;
(2) The direct or indirect impact of a
PFA upon other years, issues, taxpayers, or
related cases;
(3) Whether Service resources are
available;
(4) Whether the taxpayer is willing and
able to dedicate sufficient resources to the
PFA process;
(5) Whether the PFA is likely to result
in two or more persons taking contrary po-
sitions on an item or transaction (a “whip-
saw” issue);
(6) The time remaining until the due
date and expected filing date, if earlier than
the due date, of the earliest return to which
the PFA relates; and
(7) The overall probability of complet-
ing the process and entering into a PFA by
the proposed date for filing the earliest re-
turn to which the PFA relates.
Earlysubmissionofarequestwillfa-
cilitate completion of a PFA before any
associated returns become due. As a re-
sult, early requests are more likely to be se-
lected for the PFA program and the Service
urges taxpayers to submit PFA requests as
early as possible.
.03Notification. A representative of
LMSB will contact the taxpayer within 15
business days of actual receipt of the tax-
payer’s request for a PFA to acknowledge
that the Service has received the request.
After a PFA request is received, a represen-
tative of LMSB will inform the taxpayer
in writing whether the request has been se-
lected for the PFA program and the issues
the Service will consider.
.04Requests not accepted. A taxpayer
may not appeal the Service’s decision not
to accept a request for a PFA. A taxpayer
not selected for the PFA program remains
eligible for other early issue resolution
procedures, including the Accelerated Is-
sue Resolution (AIR) program (see Rev.
Proc. 94–67, 1994–2 C.B. 800).
SECTION 6. PROCESSING A
REQUEST FOR A PFA
.01Planning. If the Service accepts
the taxpayer’s request for a PFA, a rep-
resentative of LMSB will contact the tax-
payer and schedule an orientation meet-
ing with the taxpayer and examination per-
sonnel to discuss the PFA process and ex-
plain the roles and responsibilities of each
participant. Immediately after the orienta-
tion meeting, the taxpayer and the Service
should meet to formulate a plan and time-
line that will result in a thorough develop-
ment of the facts and a successful resolu-
tion of the issues before any associated re-
turns are due. During the planning phase
and throughout the PFA process, the tax-
payer must provide information requested
by the Service and assist the Service in the
timely and efficient resolution of the exam-
ined issues. If, at any time after a request
for a PFA has been accepted, the facts that
are relevant and material to the request for
a PFA significantly change or, in the case
of proposed agreements for future taxable
years, any factual assumptions that may be
appropriate significantly change, the tax-
payer must promptly inform the Service
through the examination team assigned to
the PFA.
.02Continuing coordination.Aftera
request for a PFA has been accepted, the
LMSB Industry Director having jurisdic-
tion over the PFA request will, through
the examination team and local counsel as-
signed to the PFA, coordinate and consult
with the Associate Chief Counsel having
subject matter jurisdiction over the issue
proposed to be determined by the PFA to
ensure that that issue remains suitable for
a PFA. The LMSB Industry Director will,
through the examination team and local
counsel assigned to the PFA, inform the
Associate Chief Counsel if, at any time
after a request for a PFA has been ac-
cepted, the facts that are relevant and ma-
terial to the issue significantly change or,
in the case of agreements for future taxable
years, any factual assumptions that may be
appropriate significantly change.
.03Drafting. After the development of
the facts and issues, the Team Manager
will meet informally with the taxpayer to
determine whether the parties agree on a
PFA. If the parties reach agreement, the
taxpayer will work with the Service to pre-
pare the initial draft of the PFA. The PFA
will be prepared by the taxpayer and the
audit team with assistance, as necessary,
from the PFA Program Manager, the Of-
fice of Chief Counsel, or other Service
personnel. Except as provided in section
3.06, the Associate Chief Counsel having
subject matter jurisdiction over the issue
in the PFA need not execute or give final
approval to the proposed PFA; however,
upon execution of the PFA, the PFA Pro-
gram Manager will immediately forward a
copy of the PFA to the office of that Asso-
ciate Chief Counsel.
.04Return filing requirements.The
Service’s acceptance of a taxpayer’s re-
quest for a PFA does not suspend or waive
the normal filing requirements for any tax
returns that may be affected by the pro-
posed PFA.
.05TEFRA taxpayers. If the procedures
set forth in sections 6221 through 6233 ap-
ply to the taxpayer requesting the PFA and
the issue determined by the PFA is a part-
nership item as defined in section 6231,
the PFA process will be terminated for that
issue if no agreement is reached with all
partners by the date that is 30 business days
before the due date for the partnership re-
turn (taking into account any extensions of
time to file that may be in effect).
.06Execution prior to filing.IfaPFA
is executed before a return is filed, the tax-
payer must report the issues determined by
the PFA according to the terms and condi-
tions of the PFA. A copy of the PFA must
be attached to the return.
.07Execution after filing.IftheSer-
vice and the taxpayer do not reach agree-
ment on an issue before the taxpayer files
an associated return, the Service and the
taxpayer may still attempt to resolve the
January 22, 20073732007–4 I.R.B.

issue and enter into a PFA. If the filed re-
turn is inconsistent with the terms and con-
ditions of the contemplated PFA, the tax-
payer must agree to file an amended return
consistent with those terms and conditions.
A post-filing PFA should state whether the
taxpayer is required to file an amended re-
turn. It should further state that the Ser-
vice may assess additional tax due, if any,
if an amended return is not filed. The tax-
payer must attach a copy of the PFA to any
amended return.
SECTION 7. NATURE AND EFFECT
OF A PFA
.01Criteria for issuance.Anautho-
rized Service official may execute a PFA
if that official determines that:
(1) Entering into the PFA is consistent
with the goals of the PFA program;
(2) The resolution of issues in the PFA
reflects well-settled legal principles and
correctly applies those principles to the
facts established by the examination team;
(3) The issues determined by the PFA
are eligible issues under section 3 of this
revenue procedure;
(4) Any methodology approved for use
by a taxpayer to determine the appropriate
amount of an item of income, allowance,
deduction, or credit has a documented fac-
tual basis; and
(5) There is an advantage in having the
issues permanently and conclusively re-
solved for the taxable years covered by the
PFA, or the taxpayer shows good and suf-
ficient reasons for desiring a PFA and the
United States will suffer no disadvantage
if the agreement is executed.
.02Form and content.
(1) A PFA that makes determinations
for the current taxable year (and any prior
taxable year for which a return is not yet
due) is a closing agreement under section
7121. The form and content of this type of
PFA must comply with Rev. Proc. 68–16,
1968–1 C.B. 770.
(2) A PFA that makes a determination
for one or more future taxable years as
well as for the current taxable year (and
any prior taxable year for which a return
is not yet due) is a non-statutory agree-
ment. Although not a closing agreement
under section 7121, this type of PFA is a
binding contract between the Service and
a taxpayer. It is subject to any legislative
enactment that is applicable to the taxable
years to which the PFA relates. There is no
prescribed format for such an agreement.
The parties to a non-statutory agreement
may, by mutual consent (and, if applica-
ble, the further mutual agreement between
the United States and any treaty partner
that has entered into a mutual agreement
that is a basis for the PFA), modify or ter-
minate the agreement. A taxpayer who
wants to modify or terminate a non-statu-
tory agreement should submit a request to
the office that originally processed the tax-
payer’s request for a PFA. The parties to
a non-statutory agreement also may con-
dition its determinations on the continuing
validity of certain stated assumptions. A
“stated assumption” is any fact (whether or
not within the control of the taxpayer) re-
lated to the taxpayer, a third party, an in-
dustry, or business and economic condi-
tions whose continued existence is mate-
rial to the determinations of the PFA. A
stated assumption might include, for ex-
ample, a particular mode of conducting
business operations. If a stated assumption
is no longer valid, a non-statutory agree-
ment conditioned on such stated assump-
tion will terminate as of the first day of the
taxable year in which the stated assump-
tion is no longer valid.
(3) A PFA concerning international
issues will not be subject to the spe-
cial limitation of section 7.05,Effect of
Agreements or Judicial Determinations on
Competent Authority Proceedings,ofRev.
Proc. 2002–52, 2002–2 C.B. 242, which
sets forth the effect ofa closing agreement
on the procedure for competent authority
consideration under the mutual agreement
procedure of United States income tax
conventions.
.03Methods and periods of accounting.
(1) A PFA does not constitute the con-
sent of the Commissioner under section
446(e) to any change in method of ac-
counting or the approval under section 442
of any adoption, change, or retention of an
annual accounting period by the taxpayer.
(2) A PFA does not constitute a fi-
nal determination regarding the adoption,
change, or retention of an annual account-
ingperiodbythetaxpayer,
(3) A PFA does not constitute a final de-
termination regarding the methods of ac-
counting of the taxpayer for any taxable
year, except to the extent authorized by
section 3.09(2).
(4) A PFA authorized under section
3.09(2) must include the following agree-
ment:
Nothing in this agreement precludes
the taxpayer from requesting, or the
Service from requiring, a change in the
taxpayer’s method of accounting for
years after the year of change.
SECTION 8. WITHDRAWAL
.01 At any time prior to the execution
of the PFA, either the taxpayer or the Ser-
vice may withdraw from consideration all
or part of the request for a PFA. The with-
drawal must be in writing and signed by
the party initiating the withdrawal,i.e.,
the taxpayer or his authorized representa-
tive or the Industry Director, Director Field
Operations, or the Director Field Special-
ists.
.02 Notwithstanding the withdrawal by
either the taxpayer or the Service of any or
all the issues that are the subject of the re-
quest for a PFA, the taxpayer’s agreement
under section 4.04 of this revenue proce-
dure will remain in effect.
SECTION 9. NO PFA EXECUTED
.01Post-filing procedures.If the Ser-
vice and the taxpayer do not agree upon
and execute a PFA that resolves an issue,
either before or after the filing of the re-
turn to which the PFA relates, and the Ser-
vice subsequently disagrees with the tax-
payer’s treatment of the issue on the return,
the taxpayer and the Service may continue
their efforts to reach an agreement using
post-filing procedures, such as the Accel-
erated Issue Resolution (AIR) procedures
under Rev. Proc. 94–67, 1994–2 C.B. 800.
This continuation of the process does not
require a new application.
.02Administrative appeals.IftheSer-
vice and the taxpayer are unable to resolve
an issue by a PFA or an AIR agreement, the
taxpayer may pursue an administrative ap-
peal either by requesting an early referral
to Appeals under the procedures set forth
in Rev. Proc. 99–28, 1999–2 C.B. 109, or
by protesting any proposed deficiency re-
latedtotheissue.
2007–4 I.R.B.374January 22, 2007

SECTION 10. USER FEE
.01Taxpayers subject to fees. Taxpay-
ers are subject to a user fee only if they are
selected to participate in the PFA program.
.02Amountoffee. The user fee for
taxpayers selected to participate in the PFA
program is $50,000. A fee will be assessed
for each separate and distinct issue. The
orientation meeting or the first substantive
meeting with the taxpayer to discuss the
PFA issues will not take place until after
the fee is received.
.03Time and method of payment.Pay-
ment of the user fee must be made within
15 business days of notification that the is-
sues have been selected for the PFA pro-
gram. Payment must be made by check or
money order payable to the Internal Rev-
enue Service and submitted to the address
indicated in section 4.06 of this revenue
procedure.
.04Withdrawal. Notwithstanding the
withdrawal by either the taxpayer or the
Service of any or all of the issues in the
request for a PFA after acceptance of the
request, the user fee paid by the taxpayer
generally will not be refundable. A refund
or waiver of the user fee will not be enter-
tained unless a hardship has occurred (for
example, a disaster loss) or if other circum-
stances beyond the control of the taxpayer
exist. The Industry Director has discretion
in granting a request for a refund of a user
fee based on considerations of sound tax
administration.
SECTION 11. DISCLOSURE
PFAs are agreements described in
section 6103(b)(2)(D). A PFA and the
information generated or received by the
Service during the PFA process consti-
tute confidential return information. As
required by the Conference Report to
H.R. 4577, The Community Renewal Tax
Relief Act of 2000 (Pub. L. 106–554),
H.R. Conf. Rep. No. 1033, 106th Cong.,
2d Sess. 1033 (2000), the Service will,
consistent with the restrictions of section
6103, continue to publish annual reports
summarizing the operation of the PFA
program. PFAs are not written determina-
tions under section 6110 and, accordingly,
are exempt from disclosure to the public
under the Freedom of Information Act.
SECTION 12. EFFECTIVE DATE AND
DURATION OF PROCEDURE
This revenue procedure is effective on
December 26, 2006. This revenue pro-
cedure will remain in effect until Decem-
ber 31, 2008, unless sooner revoked, mod-
ified, or superseded. A request for a PFA
that has been accepted into the program
under section 5 of this revenue procedure
will remain subject to the provisions of
this revenue procedure, notwithstanding
the preceding sentence.
SECTION 13. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2005–12, 2005–1 C.B. 311,
is superseded.
SECTION 14. RECORD-KEEPING
REQUIREMENTS
.01 No aspect of the PFA process will
affect the record-keeping requirements im-
posedbyanysectionoftheInternalRev-
enue Code.
.02 The taxpayer must maintain a copy
of the PFA supporting documents and
books of account and records to enable the
Service to ensure the taxpayer’s compli-
ance with the PFA. These records may be
specified in the PFA itself or in separate
agreements.
SECTION 15. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507) under the control num-
ber 1545–1684.
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 OMB control number. The collec-
tions of information in this revenue proce-
dure are in sections 4, 6, and 14. The in-
formation collected under section 4 is re-
quired to provide the Service with the in-
formation necessary to determine which
taxpayers should be included in the PFA
program. The information collected un-
dersection6willbeusedtoresolvethe
taxpayer’s issue and to support any PFA
entered into between the taxpayer and the
Service. The record-keeping requirements
undersection14willbeusedfortaxad-
ministration. The collections of informa-
tion under sections 4 and 6 are voluntary.
Once a PFA is entered into, the record-
keeping requirements under section 14 are
mandatory. The likely respondents are
businesses or other for-profit institutions.
The estimated total annual reporting
and/or record-keeping burden is 13,134
hours.
The estimated annual burden per re-
spondent varies from 5 hours to 1,092
hours, depending on whether a taxpayer
applying to the PFA program is accepted
into the program. The estimated annual
burden per respondent for taxpayers who
apply to the PFA program and are accepted
is 1,092 hours. The estimated annual bur-
den per respondent for taxpayers who
apply to the PFA program and are not
accepted is 5 hours. The estimated num-
ber of taxpayers who apply to the PFA
program and are accepted is 12. The esti-
mated number of taxpayers who apply to
the PFA program and are not accepted is 6.
The estimated total number of applicants
and/or recordkeepers is 18.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collection
of information must be retained so long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 16. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Stuart Spielman of the Office
of Associate Chief Counsel (Procedure
& Administration). For further informa-
tion about this revenue procedure, contact
Melanie Perrin, Senior Program Analyst,
LMSB Office of Pre-Filing and Technical
Guidance, at (202) 283–8408 (voice) (not
a toll-free call), (202) 283–8406 (fax) (not
a toll-free call).
January 22, 20073752007–4 I.R.B.

Part IV. Items of General Interest
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2007–3
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on January 22, 2007,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
Corporate Responsibility Capital
Partners, Inc.
Washington, DC
HR–57 Center for the Advancement
and Preservation of Jazz and Blues
Washington, DC
National Association of
Credit Counseling, Inc.
Ft. Myers, FL
Personal Credit Assistance, Inc.
Sacramento, CA
TIPRA Amendments to Section
199
Announcement 2007–5
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Change of location of public
hearing.
SUMMARY: On October 19, 2006, on
page 61692 of theFederal Register(71
FR 61692), a notice of proposed rule-
making by cross-reference to temporary
regulations and notice of public hearing
(REG–127819–06, 2006–48 I.R.B. 1013)
announced that a public hearing concern-
ing the application of section 199, which
provides a deduction for income attribut-
able to domestic production activities will
be held February 5, 2007 in the auditorium
of the New Carrollton Federal Building,
5000 Ellin Road, Lanham, MD 20706.
The location of the public hearing has
changed.
ADDRESSES: The public hearing will be
held in the IRS Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning submissions
of comments, the hearing, and/or to be
placed on the building access list to attend
the hearing, Kelly Banks, (202) 622–0392
(not a toll-free number).
LaNita Van Dyke,
Branch Chief,
Publications and Regulations,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 22,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 26, 2006, 71 F.R. 77353)
Treatment of Payments in Lieu
of Taxes Under Section 141
Announcement 2007–6
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Change of location of public
hearing.
SUMMARY: On October 19, 2006, on
page 61693 of theFederal Register
(71 FR 61693), a notice of proposed
rulemaking and notice of public hearing
(REG–136806–06, 2006–47 I.R.B. 950)
announced that a public hearing concern-
ing applying the private security or pay-
ment test for State and local governmental
issuers of tax-exempt bonds will be held
February 13, 2007 in the auditorium of the
New Carrollton Federal Building, 5000
Ellin Road, Lanham, MD 20706. The lo-
cation of the public hearing has changed.
ADDRESSES: The public hearing will be
held in the IRS Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning submissions
of comments, the hearing, and/or to be
placed on the building access list to attend
the hearing, Kelly Banks, (202) 622–0392
(not a toll-free number).
LaNita Van Dyke,
Branch Chief,
Publications and Regulations,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 22,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 26, 2006, 71 F.R. 77352)
2007–4 I.R.B.376January 22, 2007

Exchanges of Property for an
Annuity
Announcement 2007–7
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Change of location of public
hearing.
SUMMARY: On October 18, 2006, on
page 61693 of theFederal Register
(71 FR 61441), a notice of proposed
rulemaking and notice of public hearing
(REG–141901–05, 2006–47 I.R.B. 947)
announced that a public hearing con-
cerning guidance on the taxation of the
exchange of property for an annuity con-
tract will be held February 16, 2007 in the
auditorium of the New Carrollton Federal
Building, 5000 Ellin Road, Lanham, MD
20706. The location of the public hearing
has changed.
ADDRESSES: The public hearing will be
held in the IRS Auditorium, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning submissions
of comments, the hearing, and/or to be
placed on the building access list to attend
the hearing, Kelly Banks, (202) 622–0392
(not a toll-free number).
LaNita Van Dyke,
Branch Chief,
Publications and Regulations,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 26,
2006, 8:45 a.m., and published in the issue of the Federal
Register for December 27, 2006, 71 F.R. 77653)
January 22, 20073772007–4 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2007–4 I.R.B.iJanuary 22, 2007

Numerical Finding List
1
Bulletins 2007–1 through 2007–4
Announcements:
2007-1, 2007-1 I.R.B.243
2007-2, 2007-2 I.R.B.263
2007-3, 2007-4 I.R.B.376
2007-5, 2007-4 I.R.B.376
2007-6, 2007-4 I.R.B.376
2007-7, 2007-4 I.R.B.377
Notices:
2007-1, 2007-2 I.R.B.254
2007-2, 2007-2 I.R.B.254
2007-3, 2007-2 I.R.B.255
2007-4, 2007-2 I.R.B.260
2007-5, 2007-3 I.R.B.269
2007-6, 2007-3 I.R.B.272
2007-8, 2007-3 I.R.B.276
2007-10, 2007-4 I.R.B.354
Proposed Regulations:
REG-152043-05, 2007-2 I.R.B.263
Revenue Procedures:
2007-1, 2007-1 I.R.B.1
2007-2, 2007-1 I.R.B.88
2007-3, 2007-1 I.R.B.108
2007-4, 2007-1 I.R.B.118
2007-5, 2007-1 I.R.B.161
2007-6, 2007-1 I.R.B.189
2007-7, 2007-1 I.R.B.227
2007-8, 2007-1 I.R.B.230
2007-9, 2007-3 I.R.B.278
2007-10, 2007-3 I.R.B.289
2007-11, 2007-2 I.R.B.261
2007-12, 2007-4 I.R.B.354
2007-13, 2007-3 I.R.B.295
2007-14, 2007-4 I.R.B.357
2007-15, 2007-3 I.R.B.300
2007-16, 2007-4 I.R.B.358
2007-17, 2007-4 I.R.B.368
Revenue Rulings:
2007-1, 2007-3 I.R.B.265
2007-2, 2007-3 I.R.B.266
2007-3, 2007-4 I.R.B.350
2007-4, 2007-4 I.R.B.351
Treasury Decisions:
9300, 2007-2 I.R.B.246
9301, 2007-2 I.R.B.244
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin
2006–52, dated December 26, 2006.
January 22, 2007ii2007–4 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–1 through 2007–4
Notices:
2005-29
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
2006-2
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
Proposed Regulations:
REG-141901-05
Corrected by
Ann. 2007-7, 2007-4 I.R.B.377
REG-142270-05
Corrected by
Ann. 2007-2, 2007-2 I.R.B.263
REG-127819-06
Corrected by
Ann. 2007-5, 2007-4 I.R.B.376
REG-136806-06
Corrected by
Ann. 2007-6, 2007-4 I.R.B.376
Revenue Procedures:
98-20
Superseded by
Rev. Proc. 2007-12, 2007-4 I.R.B.354
2000-38
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2000-50
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2002-9
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
Modified and amplified by
Rev. Proc. 2007-14, 2007-4 I.R.B.357
2004-11
Superseded by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2005-12
Superseded by
Rev. Proc. 2007-17, 2007-4 I.R.B.368
2005-69
Superseded by
Rev. Proc. 2007-15, 2007-3 I.R.B.300
Revenue Procedures— Continued:
2006-1
Superseded by
Rev. Proc. 2007-1, 2007-1 I.R.B.1
2006-2
Superseded by
Rev. Proc. 2007-2, 2007-1 I.R.B.88
2006-3
Superseded by
Rev. Proc. 2007-3, 2007-1 I.R.B.108
2006-4
Superseded by
Rev. Proc. 2007-4, 2007-1 I.R.B.118
2006-5
Superseded by
Rev. Proc. 2007-5, 2007-1 I.R.B.161
2006-6
Superseded by
Rev. Proc. 2007-6, 2007-1 I.R.B.189
2006-7
Superseded by
Rev. Proc. 2007-7, 2007-1 I.R.B.227
2006-8
Superseded by
Rev. Proc. 2007-8, 2007-1 I.R.B.230
Revenue Rulings:
2003-43
Modified by
Notice 2007-2, 2007-2 I.R.B.254
2005-76
Supplemented and superseded by
Rev. Rul. 2007-4, 2007-4 I.R.B.351
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin 2006–52, dated December 26,
2006.
2007–4 I.R.B.iiiJanuary 22, 2007

January 22, 20072007–4 I.R.B.

2007–4 I.R.B.January 22, 2007

January 22, 20072007–4 I.R.B.

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