IRS Revenue Procedure 92-74

IRS Revenue Procedure 92-74

26 CFR 601.204: Changes in accounting periods and in methods of accounting.

(Also Part I, Sections 446, 471, 481; 1.446-1, 1.471-1, 1.481-5.)

SECTION 1. PURPOSE

This revenue procedure provides the exclusive procedures by which certain

taxpayers required to use inventories in order to clearly reflect income may

obtain expeditious consent to change their method of accounting to either (1) an

overall accrualmethod, or (2) an accrual method in conjunction with a request

to change to a special method (e.g., long-tecontract accounting Taxpayers

complying with this revnue procedure will be deed to havobtained the

consent of theommissioner of Internalevenue tochange to an accrual method.

This revenue procedure modifies and supersedes Rev. Proc. 85-36, 1985-2 C.B.

434.

SEC. 2. BACKGROUND

.01 Section 471 of the Internal Revenue Code requires the use of inventories

when in the opinion of the Commissioner it is necessary in order to clearly

determine income. Section 1.471-1 of the Income Tax Regulations provides that

in order to clearly determine income, inventories at the beginning and end of

each taxable year are necessary in every case in which the production, purchase,

or sale of merchandise is an income-producing factor.

.02 Section 1.446-1(c)(2)(i) of the regulations provides that taxpayers must

use the accrual method of accounting with regard to purchases and sales

when they are required to use inventories in order to clearly reflect income.

.03 Section 446(e) of the Code and section 1.446-1(e) of the regulations

state that, except as otherwise provided, a taxpayer must obtain the consent of

the Commissioner to change a method of accounting for federal income tax

purposes.

.04 Section 1.446-1(e)(3)(i) of the regulations requires that in order to

obtain this consent a Form 3115, Application for Change in Accounting Method,

generally must be filed within 180 days after the beginning of the taxable year

in which the proposed change is to be made.

.05 Section 1.446-1(e)(3)(ii) of the regulations authorizes the Commissioner

to prescribe administrative procedures setting forth the limitations, terms, and

conditions deemed necessary to permit a taxpayer to obtain consent to change its

method of accounting in accordance with section 446(e) of the Code.

.06 Section 481(a) of the Code requires that those adjustments necessary to

prevent amounts from being duplicated or omitted must be taken into account when

the taxpayer's taxable income is computed under a method of accounting [*3]

different from the method used to compute taxable income for the preceding

taxable year.

.07 Section 481(c) of the Code and section 1.481-5 of the regulations provide

that the adjustments required by section 481(a) must be taken into account in

determining taxable income in the manner and subject to the conditions agreed to

by the Commissioner and the taxpayer.

.08 Section 3.06 of Rev. Proc. 92-20, 1992-12 I.R.B. 10, defines a Category A

method of accounting ("Category A method") as a method of accounting the

taxpayer is specifically not permitted to use under the Code, the regulations,

or a decision of the Supreme Court of the United States. A Category A method is

also a method of accounting that differs from a method the taxpayer is

specifically required to use under the Code, the regulations, or a decision of

the Supreme Court of the United States. The use of a method of accounting other

than the accrual method for the purchase and sale of merchandise when

inventories are required in order to clearly determine income constitutes the

use of a Category A method.

SEC. 3. SIGNIFICANT CHANGES

.01 Section 4.01 provides that this revenue procedure may be used by (1)

taxpayers [*4] that employ a hybrid method and desire to change to an overall

accrual method, and (2) taxpayers that desire to change to an accrual method in

conjunction with a request to change to a special method. Thus, section 3.02(5)

of Rev. Proc. 85-36, which precluded taxpayers that desired to change to an

accrual method in conjunction with a special method from using Rev. Proc. 85-36,

has been deleted.

.02 Section 3.02(4) of Rev. Proc. 85-36, which precluded manufacturers and

producers required to use the full absorption method of inventory costing from

using Rev. Proc. 85-36, has been deleted. These taxpayers are now subject to

the provisions of section 263A of the Code. See new section 4.02(5) of this

revenue procedure.

.03 Section 4.02 prohibits the use of this revenue procedure by financial

institutions described in section 581 or 591 of the Code; taxpayers required to

use a long-term contract method in accordance with section 460 but that are not

in compliance with that section's requirements; taxpayers required to change

their method of accounting from the cash method by the provisions of section

448; taxpayers desiring to change from any other Category A method as part of

the [*5] change to an accrual method; or a corporation that engages in a

transaction to which section 381(a) applies within the proposed taxable year of

change (as determined without regard to any potential closing of the year under

section 381(b)(1)).

.04 Section 4.02(13) provides that this revenue procedure does not apply to

taxpayers that have, within the last 6 taxable years prior to the year of

change, applied to change their method of accounting under the provisions of

this revenue procedure or Rev. Proc. 85-36, without effecting the change.

.05 Section 5.04 provides a de minimis rule under which a taxpayer may elect

to take a net positive section 481(a) adjustment into account in the year of

change if the adjustment is less than $ 25,000.

.06 Sections 5.05(3), 5.05(4), and 5.06(1) provide special procedures under

which the net section 481(a) adjustment is or is not taken into account on an

accelerated basis. These provisions generally conform to similar provisions

found in section 8.03 of Rev. Proc. 92-20.

.07 Section 5.07 provides that taxpayers using this revenue procedure and

desiring to adopt the recurring item exception (provided in section 461(h)(3) of

the Code) as [*6] part of the change to an accrual method in the year of

change may do so, but only under the provisions of this revenue procedure.

SEC. 4. SCOPE

.01 Except as provided in section 4.02 below, this revenue procedure applies

to taxpayers (including organizations that are tax exempt pursuant to section

501(a) of the Code) that (1) either desire to change their method of accounting

to an overall accrual method or desire to change to an accrual method in

conjunction with a request to change to a special method, (2) are required to

use inventories in order to clearly determine income, and (3) either employ the

cash method as their overall method of accounting or employ a hybrid method

under which certain items of income or expense are reported on the cash method

and other items of income or expense are reported on an accrual method (and/or

other methods).

.02 This revenue procedure does not apply to the following taxpayers:

(1) Financial institutions described in section 581 or 591 of the Code;

(2) Farmers;

(3) Cooperative organizations described in section 501(c)(12), 521, or 1381

of the Code;

(4) Taxpayers that are not required to use an inventory method of accounting

in order [*7] to clearly determine income. See Rev. Proc. 92-75, 1992-38

I.R.B., dated September 21, 1992;

(5) Taxpayers that are subject to the uniform capitalization rules under

section 263A of the Code for the year of change, unless the taxpayer fulfills

the administrative requirements to change to a method of accounting that

complies with section 263A and uses that method for the year of change (see

section 5.06(3));

(6) Taxpayers that are required to use a long-term contract method in

accordance with section 460 of the Code and that are not in compliance with that

section and related administrative guidance;

(7) Taxpayers that are required to change from the cash method pursuant to

section 448 of the Code;

(8) Except as otherwise provided in section 5.06(3), taxpayers that include

as a part of the change to an accrual method a change from a Category A method;

(9) A corporation that engages in a transaction to which section 381(a) of

the Code applies within the proposed taxable year of change (as determined

without regard to any potential closing of the year under section 381(b)(1));

(10) Taxpayers that are "under examination" as defined in section 3.02 of

Rev. Proc. 92-20 at the [*8] time for filing the Form 3115 with their timely

filed federal income tax return or with the National Office;

(11) Taxpayers that at the time for filing the Form 3115 are:

(a) before an appeals office of the Service with respect to an examination of

their federal income tax return(s) for any year, unless the taxpayer has

obtained an agreement from the appeals officer that there is no objection to the

proposed change in method of accounting and attaches the agreement to the Form

3115, or

(b) before any federal court with respect to an income tax issue arising in

any taxable year, unless the taxpayer has obtained an agreement from counsel for

the government that there is no objection to the proposed change in method of

accounting and attaches the agreement to the Form 3115;

(12) Taxpayers that are the subject of a criminal investigation or proceeding

concerning (a) directly or indirectly, any issue relating to the taxpayer's

federal tax liability for any year, or (b) the possibility of false or

fraudulent statements made by the taxpayer with respect to any issue relating to

its federal tax liability for any year; or

(13) Taxpayers that have, within the last 6 taxable years prior [*9] to

the year of change, applied to change their method of accounting under the

provisions of this revenue procedure or Rev. Proc. 85-36 without effecting the

change.

.03 Taxpayers to which this revenue procedure does not apply, and that desire

to change their method of accounting to an overall accrual method or to an

accrual method in conjunction with a request to change to a special method, must

file an application (Form 3115) with the Commissioner in accordance with the

requirements of section 1.446-1(e)(3)(i) of the regulations and Rev. Proc.

92-20, or other applicable Code, regulations, or administrative provisions

pertaining to the change.

SEC. 5. APPLICATION

.01 Consent. In accordance with section 1.446-1(e)(3)(ii) of the regulations,

with respect to a change to an overall accrual method or to an accrual method in

conjunction with a request to change to a special method, the requirement to

file an application on Form 3115 within the 180-day period is waived, and under

section 1.446-1(e)(2)(i), the consent of the Commissioner is hereby granted to

any taxpayer within the scope of this revenue procedure to change its method of

accounting to an overall accrual method [*10] or to an accrual method in

conjunction with a request to change to a special method. This consent is

granted for the taxable year for which a taxpayer requests a change (year of

change) by filing a current Form 3115 in the manner described in section 7 of

this revenue procedure for a change to an overall accrual method, or in section

8 of this revenue procedure for a change to an accrual method in conjunction

with a request to change to a special method, and by otherwise complying with

the provisions of this revenue procedure. See section 6 regarding compliance

with the provisions of this revenue procedure. In changing to an overall

accrual method or an accrual method in conjunction with a special method, the

taxpayer must place all items of income and expense on a proper accrual method

(other than items covered by the special method).

.02 Net section 481(a) adjustment. Section 481(a) of the Code prescribes the

rules to be followed in computing taxable income in cases in which the taxable

income of a taxpayer is computed under a method of accounting different from the

method used to compute the taxable income for the preceding taxable year. An

adjustment is required to prevent [*11] items from being duplicated or

omitted by reason of a change in method of accounting. The adjustment, referred

to as the "net section 481(a) adjustment," is the net amount of the adjustment

required by section 481(a). The net section 481(a) adjustment takes into

account inventories, accounts receivable, accounts payable, and any other item

determined necessary in order to prevent items from being duplicated or omitted.

However, the net section 481(a) adjustment does not include any amounts required

to be capitalized pursuant to section 263A as of the beginning of the year of

change. (See section 5.06 for additional guidance.) Any income accrued but not

received should not include items that were worthless or partially worthless

(within the meaning of section 166(a)) as of the last day of the year preceding

the year of change. In addition, the net section 481(a) adjustment should not

contain amountshat are unallowabler amounts tat are subject to restrictions

or limitations by the Code (e.g., charitable contributions under section

170(b)). The net section 481(a) adjustment must be taken into account in

computing taxable income in the manner provided in section 5.03 [*12] below.

The approved change shall be considered to be a change in method of accounting

initiated by the taxpayer, and therefore the net section 481(a) adjustment is

not restricted to amounts after 1953. An example of the computation of the net

section 481(a) adjustment is as follows:

EXAMPLE 1

As of December 31, 1991, A, a calendar year taxpayer that is not subject to

section 263A of the Code and employs the overall cash method, has the following

items of unreported income, undeducted expenses, and deducted inventoriable

costs:

Income, the right to which is

fixed and the amount of

which is determinable, but

that has not yet been received $ 120,000

Inventory that was previously

deducted $ 100,000

Expenses, the liability for which

is fixed, the amount of which

is determinable, and with respect

to which economic performance

has occurred, but

that have not yet been paid $ 40,000

Taxpayer A changes to an overall accrual method for calendar year 1992.

Taxpayer A computes the net section 481(a) adjustment in the following manner:

Income that was not included in

gross income under A's old

method and that will never be

included in gross income under

A's new method (accounts

receivable at December 31,

1991) $ 120,000

Inventory at December 31,

1991, which was deducted under

A's old method and will

also be deducted under A's

new method $100,000

$ 220,000

Less:

Expenses that were not deducted

under A's old method

and that will never be deducted

under A's new method (accounts

payable at December

31, 1991) $ 40,000

Net section 481(a) adjustment

(increase in income) $ 180,000

.03 Section 481(a) adjustment period.

(1) The appropriate period (the "section 481(a) adjustment period") for

taking the net section 481(a) adjustment (referred to in section 5.02) into

account in computing taxable income is generally determined as follows:

(a) If either the net section 481(a) adjustment is negative or 90 percent or

more of the net section 481(a) adjustment is attributable to the taxable year

immediately preceding the year of change, the taxpayer must take the entire net

section 481(a) adjustment into account in computing taxable income for the year

of change. The amount attributable to the taxable year immediately preceding

the year of change is the difference between the amount of the net section

481(a) adjustment for the year of change and the amount of the net section

481(a) adjustment that would have been required if the same change in method of

accounting had been made in the preceding year.

(b) When subparagraph (a) of this section 5.03(1) does not apply, the

taxpayer, in computing taxable income, must take the net section 481(a)

adjustment into account ratably over the number of taxable years (not to exceed

3) that the taxpayer has used the method [*14] of accounting that is being

changed.

(2) In applying section 5.03(1), if a taxpayer's books and records do not

contain sufficient information to compute the net section 481(a) adjustment

attributable to the taxable year immediately preceding the year of change, the

taxpayer may reasonably estimate this amount, attach to the Form 3115 the

computations upon which the estimate is based, and attach the following signed

statement to the Form 3115:

Under penalties of perjury, I hereby certify that:

(a) the books and records of [name of the taxpayer] do not contain sufficient

information to permit a computation of the net section 481(a) adjustment

attributable to the taxable year immediately preceding the year of change, and

(b) based on the information that is contained in such records, to the best

of my knowledge and belief, 90 percent or more of the net section 481(a)

adjustment [indicate either "is" or "is not," as the case may be] attributable

to the taxable year immediately preceding the year of change.

(3) For examples of the application of the rules prescribed in this section

5.03 with respect to the section 481(a) adjustment period, see section 8.01 of

Rev. Proc. 92-20.

.04 Section 481(a) adjustment period de minimis rule. If the entire net

positive section 481(a) adjustment is less than $ 25,000, the taxpayer may elect

to use a one-year section 481(a) adjustment period in lieu of the adjustment

period otherwise provided by this revenue procedure. The taxpayer must

affirmatively state on an attachment to the Form 3115 that it desires to elect

this section 5.04 de minimis rule.

.05 Accounts receivable.

(1) The net section 481(a) adjustment must not include any account receivable

that was worthless or partially worthless as of the last day of the year

preceding the year of change. See section 1.166-3 of the regulations.

(2) If, during the section 481(a) adjustment period (see section 5.03), any

portion of the accounts receivable included in the net section 481(a) adjustment

becomes worthless or partially worthless, such portion, not previously included

in gross income, must be included in income in the taxable year it becomes

worthless. This condition only applies when the net section 481(a) adjustment

is positive. This condition is illustrated by the following example:

EXAMPLE 2

A, the taxpayer in example 1 in section 5.02, has determined that

the net section 481(a) adjustment is to be taken into account ratably over three

taxable years in computing taxable income.

In 1993, $ 30,000 of the $ 120,000 accounts receivable were determined to be

worthless. In 1993, A will not have included in gross income $ 120,000 of the

net section 481(a) adjustment ($ 180,000 less $ 60,000 included in gross income

in 1992). In 1993, A must include in gross income the remaining portion of the

accounts receivable determined to be worthless but not previously included in

gross income of $ 20,000 ($ 30,000 less the $ 10,000 portion included in gross

income in 1992) plus one-half of the remaining balance of the net section 481(a)

adjustment, $ 50,000. A total of $ 70,000 will be included in gross income in

1993.

Net section 481(a) adjustment $ 180,000

Net section 481(a) adjustment taken

into account:

1992 $ 60,000

1993: Worthless accounts

receivable $ 20,000

1/2 of remaining net

section 481(a) adjustment

(($ 120,000 -

$ 20,000) / 2) 50,000

70,000

1994 50,000

$ 180,000

(3) If, on the last day of any taxable year of the section 481(a)

adjustment period (see section 5.03), the accounts receivable to which the net

section 481(a) adjustment relates are reduced by more than 33 1/3 percent of the

accounts receivable balance at the beginning of the first taxable year of the

section 481(a) adjustment period and are so reduced by at least such percentage

at the end of the following taxable year (temporary fluctuations are not

controlling; permanent reductions are controlling), the remaining balance of the

net section 481(a) adjustment must be taken into account in determining taxable

income in the year succeeding the year of the reduction. This condition applies

only when the net section 481(a) adjustment is positive. If the accounts

receivable balance does not remain reduced for one year, the reduction is not

considered permanent, and the provisions of this paragraph do not apply.

(4) The Commissioner may waive the application of section 5.05(3) upon a

showing that the reduction is attributable to a strike, involuntary conversion,

or involuntary interruption of the availability of goods. The taxpayer must

request the waiver no later than 90 days after the end of the taxable [*18]

year in which section 5.05(3) would otherwise apply. For specific procedures to

be followed for requesting the waiver, see section 8.03(1) of Rev. Proc. 92-20.

.06 Inventory.

(1) If, on the last day of any taxable year of the section 481(a) adjustment

period (see section 5.03), the value of the taxpayer's inventory to which the

net section 481(a) adjustment relates is reduced by more than 33 1/3 percent of

the inventory value at the beginning ofe first taxale year of e section

481(a) adjustment period and is so reduced by at least such percentage at the

end of the following taxable year (temporary fluctuations are not controlling;

permanent reductions are controlling), the remaining balance of the net section

481(a) adjustment must be taken into account in determining taxable income in

the year succeeding the year of the reduction. This condition applies only when

the net section 481(a) adjustment is positive. If the value of the inventory

does not remain reduced for one year, the reduction is not considered permanent

and the provisions of this paragraph do not apply. In applying this section

5.06(1), the 33 1/3-percent rule applies only to the specific category [*19]

of inventory to which the net section 481(a) adjustment relates. For an

illustration of the computations required by the above rule, see the example in

section 8.03(1) of Rev. Proc. 92-20.

(2) The Commissioner may waive the application of section 5.06(1) upon a

showing that the reduction is attributable to a strike, involuntary conversion,

or involuntary interruption of the availability of goods. The taxpayer must

request the waiver no later than 90 days after the end of the taxable year in

which section 5.06(1) would otherwise apply. For the specific procedures to be

followed for requesting the waiver, see section 8.03(1) of Rev. Proc. 92-20.

(3) If the taxpayer is subject to the uniform capitalization rules provided

by section 263A of the Code and has not complied with those rules:

(a) the taxpayer must timely submit an application (Form 3115) under the

applicable administrative procedures to comply with section 263A of the Code;

(b) the change in method required by section 263A must occur, and the related

net section 481(a) adjustment applicable to that change must be computed, prior

to the change in method of accounting granted in this revenue procedure (see

section [*20] 1.263A-1T(e)(11)(v) of the temporary regulations); and

accrual method therefore must not include the adjustment necessary to value the

taxpayer's inventory in accordance with section 263A.

.07 Recurring item exception. As part of the change to an overall accrual

method or to an accrual method in conjunction with a request to change to a

special method, a taxpayer may adopt the recurring item exception for the year

of change if the taxpayer is eligible and follows the procedures of section

1.461-5(d) of the regulations. If the taxpayer is eligible and wishes to adopt

this method as specified in section 461(h)(3) of the Code, the amount of the net

section 481(a) adjustment must be modified to account for the amount of the

additional deduction.

EXAMPLE 3

As of December 31, 1991, B, a calendar year taxpayer that uses the overall

cash method, is eligible to adopt the recurring item exception method specified

in section 461(h)(3) of the Code, and adopts this method for the year of change.

B has the following items of unreported income and undeducted expenses:

Income, the right to which is

fixed and the amount of

which is determinable, but

that has not yet been received $ 50,000

Expenses, the liability for which

is fixed, the amount of which

is determinable, and with respect

to which economic performance

has occurred, but

that have not yet been paid $ 15,000

Expenses, the liability for which

is fixed, the amount of which

is determinable, and with respect

to which the recurring

item exception method is

adopted $ 5,000

Taxpayer B changes to an overall accrual method for calendar year 1992.

Taxpayer B computes the net section 481(a) adjustment in the following manner:

Income that was not included in

gross income under B's old

method and that will never be

included in gross income under

B's new method (accounts

receivable at December 31,

1991) $ 50,000

Less:

Expenses that were not deducted

under B's old method and

that will never be deducted

under B's new method (accounts

payable at December

31, 1991) $ 15,000

Expenses with respect to which

the recurring item exception

method is adopted (previously

incurred) $ 5,000

Net section 481(a) adjustment

(increase in income) $ 30,000

.08 Ceasinto engage in the trade or business. If a taxpayer that is taking

a net section 481(a) adjustment into account pursuant to section 5.03 ceases to

engage in the trade or business to which the net section 481(a) adjustment

relates, or if the taxpayer operating the trade or business ceases to exist, any

balance of the net section 481(a) adjustment not previously taken into account

must be taken into account in computing taxable income in the taxable

year of such cessation. For purposes of this section 5.08, the provisions in

section 8.03(2) of Rev. Proc. 92-20 will apply in determining whether the

taxpayer is treated as ceasing to engage in a trade or business.

.09 Applicability of Rev. Proc. 92-20. Except as otherwise provided in this

revenue procedure, the following principles of Rev. Proc. 92-20 apply to a

change in method of accounting made under this revenue procedure to the extent

the principles are applicable to an automatic change in method of accounting:

(1) section 3 (definitions); and (2) section 8.02 (rules concerning short

periods).

.10 Protection for years prior to the year of change. If a taxpayer timely

files a change in method of accounting to comply with the provisions of this

revenue procedure, an examining agent may not propose that the taxpayer change

the same method of accounting for a year prior to a year of change required

under this revenue procedure. However, the net section 481(a) adjustment is

subject to verification by the district director.

.11 Exclusive procedure. For a taxpayer that qualifies to use this revenue

procedure, this is the exclusive procedure available to that taxpayer

for obtaining the Commissioner's consent to change to an overall accrual method

or to an accrual method in conjunction with a request to change to a special

method.

SEC. 6. COMPLIANCE WITH CONDITIONS

If a taxpayer to which this revenue procedure applies changes its method of

accounting to an overall accrual method, or to an accrual method in conjunction

with a request to change to a special method, without complying with all the

conditions of this revenue procedure, the taxpayer will be deemed to have

initiated the change in method of accounting without obtaining the consent of

the Commissioner as required under section 446(e) of the Code.

SEC. 7. MANNER OF EFFECTING THE CHANGE -- CHANGE TO AN OVERALL ACCRUAL METHOD

.01 A taxpayer applying for a change in method of accounting to an overall

accrual method pursuant to this revenue procedure must complete and file a

current Form 3115 in duplicate. The original must be attached to the

taxpayer's timely filed (including extensions) original federal income tax

return (including a Form 990 filed on behalf of a tax exempt organization) for

the year of change. (Any tax exempt organization that is not required

to file Form 990 or Form 990-T may change to an overall accrual method without

notifying the Service of the change.) A copy of the Form 3115 must be filed with

the National Office and addressed to the Commissioner of Internal Revenue,

Attention: CC:IT&A, P.O. Box 7604, Benjamin Franklin Station, Washington, D.C.

20044, no later than when the original of the Form 3115 is filed with the

federal income tax return. For tax exempt organizations required to file Form

990 or Form 990-T, however, the copy of the Form 3115 must be filed with the

Commissioner of Internal Revenue, Attention: Records Control Unit: Exempt

Organizations Technical Division, E:EO:R:1-RCU, 1111 Constitution Avenue, N. W.,

Washington, D.C. 20224, no later than when the original of the Form 3115 is

filed with the Form 990. No user fee is required for an application filed under

this section 7.

.02 In addition to including all the information required on the Form 3115,

the taxpayer also must attach to the Form 3115 a written statement providing:

(1) that it agrees to all of the conditions of Rev. Proc. 92-74 and that it will

take the net section 481(a) adjustment into account over the appropriate period

required by section 5.03 or 5.04; and (2) the period over which the net

section 481(a) adjustment will be taken into account and the basis for such

conclusion. A Form 3115 filed pursuant to this revenue procedure will not be

acknowledged.

.03 If it is found that the taxpayer does not qualify for the change in

method of accounting under this revenue procedure, the National Office or the

district director will so advise the taxpayer and will provide instructions for

effecting the requested change in accounting method.

.04 In order to assist in the processing of these changes in method of

accounting, reference to this revenue procedure must be made a part of the Form

3115 by either typing or legibly printing the following statement at the top of

page 1 of Form 3115: "FILED UNDER REV. PROC. 92-74."

.05 The Form 3115 must be signed by or on behalf of the taxpayer requesting

the change by an individual with the authority to bind the taxpayer in such

matters. For example, an officer must sign on behalf of a corporation, a

general partner on behalf of a partnership, a trustee on behalf of a trust, or

an individual on behalf of a sole proprietorship. See the signature

requirements in the General Instructions for Form 3115. If an agent is

authorized to represent the taxpayer bore the Service, to receive the original

or a copy of correspondence concerning the request, or to perform any other

act(s) regarding the application on behalf of the taxpayer, a power of attorney

reflecting such authorization(s) should be attached to the application. A

taxpayer's representative without a power of attorney to represent the taxpayer

will not be given any information regarding the application.

.06 If the taxpayer is a member of a consolidated group, a Form 3115

submitted on behalf of the taxpayer must be signed by a duly authorized officer

of the common parent. See section 1.1502-77 of the regulations.

SEC. 8. MANNER OF EFFECTING THE CHANGE -- CHANGE TO AN ACCRUAL METHOD IN

CONJUNCTION WITH A REQUEST TO CHANGE TO A SPECIAL METHOD

.01 Separate application required.

(1) Except as provided in section 8.02 below, taxpayers to which this revenue

procedure applies, and that desire to change to an accrual method in conjunction

with a request to change to a special method, must separately apply to obtain

the Commissioner's advance consent to change to the special method. Even

[*27] though this separate application is required to change to a special

method, taxpayers can still use the provisions of this revenue procedure to

effect the change to an accrual method pending notification of action on their

request to use a special method. Taxpayers that desire to use a special method

must follow the provisions of section 1.446-1(e)(3)(i) of the regulations to

obtain the Commissioner's consent, unless provisions for effecting the use of a

special method are provided for by a specific administrative procedure providing

expeditious consent to use the special method (e.g., Rev. Proc. 84-76, 1984-2

C.B. 751, which permits taxpayers to expeditiously obtain the consent of the

Commissioner to elect to treat prepaid subscription income under the provisions

of section 455 of the Code). See section 8.02 of this revenue procedure.

(2) Taxpayers that change their accounting method under this section 8.01

must complete and file a separate Form 3115 (1) for the change to an accrual

method and (2) for the change to the special method. With respect to the change

to an accrual method, the taxpayer must follow the procedures set forth in

section 7. With respect to the change to the special method, and

except as otherwise provided by specific administrative procedures applicable to

the particular change, the original current Form 3115 must be filed with the

National Office and addressed to the Commissioner of Internal Revenue,

Attention: CC:IT&A, P.O. Box 7604, Benjamin Franklin Station, Washington, D. C.,

20044, no later than 180 days after the beginning of the year of change. A user

fee is required for the application requesting a change to a special method.

(3) In order to assist in the processing of these changes in method of

accounting, the taxpayer must type or legibly print the following statement on

the top of page 1 of each Form 3115: "CHANGE TO A SPECIAL METHOD OF ACCOUNTING

-- REV. PROC. 92-74."

(4) If the taxpayer's Form 3115 is approved, the net section 481(a)

adjustment relating to the special method, if applicable, must be determined and

taken into account in accordance with the applicable terms and conditions

associated with the Commissioner's consent. If the taxpayer's Form 3115 is not

approved, the taxpayer may change to an overall accrual method in accordance

with the provisions of this revenue procedure.

.02 Separate application not required.

(1) If the taxpayer can change to the special method by use of an expeditious

consent revenue procedure, the taxpayer does not have to separately apply to

obtain the Commissioner's advance consent for either the change to an accrual

method or the change to the special method. Taxpayers changing their method

under this section 8.02 must complete and file a separate Form 3115(1) for the

change to an accrual method and (2) for the change to the special method. With

respect to the change to the special method, the taxpayer must follow the

applicable procedures outlined in the relevant expeditious consent revenue

procedure. With respect to the change to an accrual method, the taxpayer must

follow the procedures set forth in section 7.

(2) In order to assist in the processing of these changes in method of

accounting, the taxpayer must type or legibly print the following statement on

the top of page 1 of Form 3115: "CHANGE TO A SPECIAL METHOD OF ACCOUNTING --

REV. PROC. 92-74."

.03 Examples of a special method are the use of a long-term contract method,

the method of accounting for prepaid subscription income provided in section 455

of the Code, or the method [*30] of accounting for advance payments pursuant

to either Rev. Proc. 71-21, 1971-2 C.B. 549, or section 1.451-5 of the

regulations.

.04 The provisions of sections 7.05 and 7.06 above, relating to who must

submit and sign the Form 3115, are also applicable to this section 8.

SEC. 9. INQUIRIES

Inquiries regarding this revenue procedure may be addressed to the

Commissioner of Internal Revenue, Attention: CC:IT&A, 1111 Constitution Avenue,

N.W., Washington, D.C. 20224.

SEC. 10. EFFECTIVE DATE

The provisions of this revenue procedure are effective September 21, 1992,

the date of its publication. Requests for changes in methods of accounting that

qualify under this revenue procedure and are received by the National Office

after the effective date will be returned to the taxpayer. Taxpayers that have

timely filed a Form 3115 with the National Office prior to the effective date of

this revenue procedure may use the automatic provisions of this revenue

procedure and will be so notified to this effect by the National Office.

SEC. 11. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 85-36 is modified and, as modified, is superseded.

DRAFTING INFORMATION

The principal author of this revenue procedure is Dan McCubbin of

the Office of Assistant Chief Counsel (Income Tax and Accounting). For further

information regarding this revenue procedure, contact Robert Weiss on (202)

622-5010 (not a toll-free call).