# Bulletin No. 2021–35

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A4880f47f0a9abfd0

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2021–35
August 30, 2021

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.

ADMINISTRATIVE

INCOME TAX

Rev. Proc. 2021-36, page 357.

Notice 2021-43, page 332.

This revenue procedure provides the applicable percentage
table in § 36B(b)(3)(A) of the Internal Revenue Code for taxable years beginning in calendar year 2022. This table is
used to calculate an individual’s premium tax credit under §
36B. This revenue procedure also provides the indexing adjustment for the required contribution percentage in § 36B(c)
(2)(C)(i)(II) for plan years beginning in calendar year 2022.
This percentage is used to determine whether an individual is
eligible for affordable employer-sponsored minimum essential coverage.

EMPLOYEE PLANS
Notice 2021-50, page 333.

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for August 2021 used under § 417(e)(3)(D), the 24-month average
segment rates applicable for August 2021, and the 30-year
Treasury rates, as reflected by the application of § 430(h)(2)
(C)(iv).

ESTATE TAX
Rev. Rul. 2021-15, page 331.

Special Use Value: Farms: Interest Rates. The 2021 interest
rates to be used in computing the special use value of farm
real property for which an election is made under section
2032A of the Code are listed for estate of decedents.

Finding Lists begin on page ii.

The notice provides transition relief related to the work opportunity credit by giving employers additional time to submit
a certification request to a Designated Local Agency for the
targeted groups described in section 51(d)(5) and (7) of the
Internal Revenue Code.

Rev. Proc. 2021-34, page 337.

Rev. Proc. 2021-34 modifies Rev. Proc. 2019-43, 2019-48
I.R.B. 1107, to provide procedures under § 446 of the Internal Revenue Code (Code) and § 1.446-1(e) of the Income Tax
Regulations to obtain automatic consent of the Commissioner of Internal Revenue (Commissioner) to change methods of
accounting to comply with final regulations under §§ 1.4513, 1.451-8, and 1.1275-2(l) and to change methods of accounting for certain inventory costs to comply with §§ 263A,
461, and 471 if such changes are made in connection with
a change to comply with § 1.451-3 and/or § 1.451-8, as
applicable. This revenue procedure also modifies Rev. Proc.
2015-13, 2015-5 I.R.B. 419, as clarified and modified by
Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and further modified by Rev. Proc. 2016-1, 2016-1 I.R.B. 1, Rev. Proc. 201759, 2017-48 I.R.B. 543, and Rev. Proc. 2021-26, 2021-22
I.R.B. 1163, to provide procedures for a taxpayer to obtain
the consent of the Commissioner to change its method of
accounting to comply with §§ 1.451-3 and/or 1.451-8, as
applicable, by providing rules related to cost offset method
changes.

Rev. Proc. 2021-35, page 355.

Rev. Proc. 2021-35 modifies Rev. Proc. 2013-26, 2013-22
I.R.B. 1160, to reflect changes made to the treatment of certain credit card fees by section 451(b) and sections 1.451-3
and 1.1275-2(l). Rev. Proc. 2013-26 describes the proportional method of accounting for original issue discount on a
pool of credit card receivables.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the 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
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management 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.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal 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,
Legislation 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
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

August 30, 2021 

Bulletin No. 2021–35

Part I
Section 2032A.—Valuation
of Certain Farm, Etc.,
Real Property
26 CFR 20.2032A-4: Method of valuing farm real
property.

Rev. Rul. 2021-15
This revenue ruling contains a list of
the average annual effective interest rates
on new loans under the Farm Credit System. This revenue ruling also contains a
list of the states within each Farm Credit
System Bank Territory.
Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm

Credit System Bank loans are used in
computing the special use value of real
property used as a farm for which an election is made under § 2032A. The rates
in Table 1 of this revenue ruling may be
used by estates that value farmland under
§ 2032A as of a date in 2021.
Average annual effective interest
rates, calculated in accordance with
§ 2032A(e)(7)(A) and § 20.2032A-4(e)
of the Estate Tax Regulations, to be used
under § 2032A(e)(7)(A)(ii), are set forth
in the accompanying Table of Interest
Rates (Table 1). The states within each
Farm Credit System Bank Territory are
set forth in the accompanying Table of
Farm Credit System Bank Territories
(Table 2).

Rev. Rul. 81-170, 1981-1 C.B. 454,
contains an illustrative computation of
an average annual effective interest rate.
The rates applicable for valuation in 2020
are in Rev. Rul. 2020-17, 2020-37 I.R.B.
552. For rate information for years prior
to 2020, see Rev. Rul. 2019-18, 2019-35
I.R.B. 668, and other revenue rulings that
are referenced therein.
DRAFTING INFORMATION
The principal author of this revenue ruling
is Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and Special
Industries). For further information regarding
this revenue ruling, contact Lane Damazo at
(202) 317-4628 (not a toll-free number).

REV. RUL. 2021-15 TABLE 1
TABLE OF INTEREST RATES
(Year of Valuation 2021)
Farm Credit System Bank Servicing State in Which Property is Located
AgFirst, FCB .........................
AgriBank, FCB .........................
CoBank, ACB ..........................
Texas, FCB ...........................

Rate
5.25
4.62
4.49
5.02

REV. RUL. 2021-15 TABLE 2
TABLES OF FARM CREDIT SYSTEM BANK TERRITORIES
Farm Credit System Bank
Location of Property
AgFirst, FCB................

AgriBank, FCB...............

CoBank, ACB................

Texas, FCB................

Bulletin No. 2021–35

Delaware, District of Columbia, Florida, Georgia, Maryland,
North Carolina, Pennsylvania, South Carolina, Virginia,
West Virginia.
Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, South
Dakota, Tennessee, Wisconsin, Wyoming.
Alaska, Arizona, California, Colorado, Connecticut,
Hawaii, Idaho, Kansas, Maine, Massachusetts, Montana,
New Hampshire, New Jersey, New Mexico, New York,
Nevada, Oklahoma, Oregon, Rhode Island, Utah, Vermont,
Washington.
Alabama, Louisiana, Mississippi, Texas.

331

August 30, 2021

Part III
Work Opportunity Tax
Credit (WOTC) Transition
Relief under Internal
Revenue Code § 51
Notice 2021-43
I. PURPOSE
This notice provides transition relief
for certain employers claiming the Work
Opportunity Tax Credit (WOTC) under
§ 51 of the Internal Revenue Code (Code)
for certain employees beginning work after December 31, 2020, in response to legislation permitting the designation of an
Empowerment Zone, defined in § 1393(b)
of the Code, to be extended from December 31, 2020, through December 31, 2025.
Specifically, section IV of this notice provides transition relief by extending the
28-day deadline for employers to request
certification from a designated local agency (DLA)1 that an individual who begins
work on or after January 1, 2021, and before October 9, 2021, is a member of the
Designated Community Resident targeted
group or the Qualified Summer Youth Employee targeted group.2
II. BACKGROUND
Section 51(a) of the Code provides the
WOTC to employers based on a percentage of qualified wages paid during the taxable year. Section 51(b) defines “qualified
wages” as wages paid or incurred by an
employer during the taxable year to an
individual who is certified as a member
of a targeted group. Section 51(d)(1) lists
the targeted groups, which include Designated Community Residents, defined in
§ 51(d)(5), and Qualified Summer Youth
Employees, defined in § 51(d)(7).
Pursuant to § 51(d)(13)(A), an individual is not treated as a member of a

targeted group unless (1) on or before
the day the individual begins work, the
employer obtains certification from the
DLA that the individual is a member of
a targeted group, or (2) the employer
completes a pre-screening notice on or
before the day the individual is offered
employment and submits such notice
to the DLA to request certification that
the individual is a member of a targeted group not later than 28 days after the
individual begins work. The Form 8850,
Pre-Screening Notice and Certification
Request for the Work Opportunity Credit,
is the pre-screening notice that must be
submitted by the employer to the DLA to
request certification that an individual is
a member of a targeted group.
To be certified as a Designated Community Resident or a Qualified Summer
Youth Employee, an individual must be
certified by the DLA as having a principal
place of residence within an Empowerment Zone where the individual continuously resides. For such individuals, any
wages paid to or incurred on behalf of the
individual for services rendered while the
individual is not living at a residence within an Empowerment Zone do not qualify
for the WOTC.
III. TAXPAYER CERTAINTY AND
DISASTER TAX RELIEF ACT OF
2020 AMENDMENTS
The WOTC has been subject to several legislative extensions and modifications since its enactment by § 1201
of the Small Business Job Protection
Act of 1996, Pub. L. 104-188, 110 Stat.
1755 (August 20, 1996). Most recently, § 113 of the Taxpayer Certainty and
Disaster Tax Relief Act of 2020 (Act),
enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L.
116-260, 134 Stat. 1182 (December 27,
2020), amended § 51(c)(4) of the Code
to extend the effective date of WOTC.

As amended by the Act, § 51(c)(4) provides that WOTC applies to wages paid
or incurred with respect to members of
a targeted group who begin work after
December 31, 2020, and before January
1, 2026. In addition, § 118(a) of the Act
amended § 1391(d)(1) of the Code to
provide that any designation of an Empowerment Zone ends on the earliest of
(1) December 31, 2025, (2) the termination date designated by the State and local governments as provided for in their
nomination, or (3) the date the “Appropriate Secretary”3 revokes the designation. Section 118(d) of the Act provides
that where a nomination of an Empowerment Zone included a termination
date of December 31, 2020, § 1391(d)
(1)(B) of the Code will not apply with
respect to such designation if, after the
date of the enactment of the Act, the entity that made such nomination amends
the nomination, in such manner as the
Secretary of the Treasury or her designee may provide, to provide for a new
termination date. The amendment made
by § 118(a) of the Act applies to taxable years beginning after December
31, 2020.
On March 26, 2021, the Department
of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS)
released Revenue Procedure 2021-18,
2021-15 I.R.B. 1007 (April 12, 2021), to
explain how a State or local government
is deemed to extend the termination date
designated in an Empowerment Zone
nomination until December 31, 2025.
Revenue Procedure 2021-18 provides that
if a State or local government did not submit a written declination to extend an Empowerment Zone to the IRS by May 25,
2021, and if the Appropriate Secretary did
not revoke the Empowerment Zone designation, then the termination date provided
in that Empowerment Zone nomination is
automatically extended to December 31,
2025.

Section 51(d)(12) provides that a “DLA” is a State employment security agency (sometimes referred to as a State Workforce Agency) established in accordance with 29 U.S.C. §§ 49-49n.
For purposes of this notice, the terms “Designated Community Resident” and “Qualified Summer Youth Employee” refer to those individuals certified by a DLA as having a principal place
of residence within an Empowerment Zone.
3
Section 1393(a)(1) of the Code provides that the “Appropriate Secretary” is the Secretary of Housing and Urban Development (in the case of any nominated area designated under § 1391
that is located in an urban area as defined in § 1393(a)(3)), or the Secretary of Agriculture (in the case of any nominated area designated under § 1391 that is located in a rural area as defined
in § 1393(a)(2)).
1
2

August 30, 2021

332

Bulletin No. 2021–35

IV. GRANT OF RELIEF
As explained below, because the Act
extended the WOTC and the period for
which Empowerment Zone designations
are in effect through December 31, 2025,
employers may need additional time to
comply with the certification requirements
of § 51(d)(13)(A)(ii).
The Treasury Department and the IRS
understand that, because the termination
dates designated in Empowerment Zone
nominations are not automatically extended until after the deadline set forth
in Revenue Procedure 2021-18 for submitting a written declination has passed,
employers that hired an individual who is
a Designated Community Resident or a
Qualified Summer Youth Employee and
who began work for that employer on
or after January 1, 2021, may not have
submitted Form 8850 to the DLA within 28 days of the individual beginning
work. To be eligible for the relief provided by this notice, an employer that did
not submit Form 8850 to the DLA within
28 days of an individual beginning work
must submit the completed Form 8850 to
the DLA by the date set forth in section
IV.A of this notice.
In addition, the Treasury Department
and the IRS are aware that some employers that hired individuals who are Designated Community Residents or Qualified Summer Youth Employees may
have submitted Form 8850 to the DLA
within 28 days of the individual beginning work, regardless of the expiration
of the Empowerment Zone designations.
To be eligible for the relief provided by
this notice, an employer that submitted
Form 8850 to the DLA and subsequently received a denial letter from the DLA
due to the expiration of the Empowerment Zone designations must re-submit
the completed Form 8850 by the date set
forth in section IV.A of this notice. If an
employer submitted Form 8850 to the
DLA and was not issued a denial letter
by the DLA, the employer does not need
to re-submit Form 8850 to be eligible for
the relief provided in this notice.
For these reasons, the Treasury Department and the IRS are providing employers
with additional time to submit Form 8850

to the DLAs in accordance with the following timeframe.
A. Additional time for employers
hiring individuals who are Designated
Community Residents or Qualified
Summer Youth Employees who begin
work on or after January 1, 2021, and
before October 9, 2021, to submit a
completed Form 8850 to the DLA no
later than November 8, 2021.
An employer that hires or hired an individual who is a Designated Community
Resident or a Qualified Summer Youth
Employee and who begins or began work
for that employer on or after January 1,
2021, and before October 9, 2021, will be
considered to have satisfied the requirements of § 51(d)(13)(A)(ii), whether or
not the employer submitted the completed
Form 8850 to the DLA within 28 days of
the individual beginning work for the employer, if the employer submits the completed Form 8850 to the DLA to request
certification no later than November 8,
2021. If an employer hired an individual
who is a Designated Community Resident
or a Qualified Summer Youth Employee
who began work on or after January 1,
2021, and before May 26, 2021, and the
employer submitted Form 8850 to the
DLA but either was not issued a denial
notification by the DLA or was issued a
certification, then the employer does not
need to re-submit Form 8850 to request
certification from the DLA.
B. Application of 28-day requirement
to individuals who begin work on or
after October 9, 2021.
An employer that hires an individual
who is a Designated Community Resident
or a Qualified Summer Youth Employee
and who begins work for the employer on
or after October 9, 2021, is not eligible for
the transition relief described in this notice with respect to that new employee.
V. EFFECTIVE DATE
The effective date of this notice is August 10, 2021.

VI. DRAFTING INFORMATION
The principal author of this notice is
Christopher Dellana of the Office of Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
the WOTC, contact Mr. Dellana at (202)
317-5500 (not a toll-free number).

Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2021-50
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30year Treasury weighted average rate under
§ 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to single-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the interest rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present value is generally determined using three
24-month average interest rates (“segment
rates”), each of which applies to cash
flows during specified periods. To the extent provided under § 430(h)(2)(C)(iv),
these segment rates are adjusted by the applicable percentage of the 25-year average
segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins.1

Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).
1

Bulletin No. 2021–35

333

August 30, 2021

However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly
yield curve in place of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Consistent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from July 2021
data is in Table 2021-7 at the end of this

Applicable Month
August 2021

I.R.B. 866, and Notice 2020-72, 2020-40
I.R.B. 789, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for August
2021 without adjustment for the 25-year
average segment rate limits are as follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment
First Segment
Second Segment
1.13
2.70

25-YEAR AVERAGE SEGMENT
RATES
Section 9706(a) of the American Rescue Plan Act of 2021, Pub. L. No. 117-2
(ARP), which was enacted on March 11,
2021, changes the 25-year average segment rates and the applicable minimum
and maximum percentages used under
§ 430(h)(3)(C)(iv) of the Code to adjust
the 24-month average segment rates.
Prior to this change, the applicable minimum and maximum percentages were
90% and 110% for a plan year beginning
in 2020, and 85% and 115% for a plan

For Plan Years
Beginning In

notice. The spot first, second, and third
segment rates for the month of July 2021
are, respectively, 0.63, 2.51, and 3.10.
The 24-month average segment rates
determined
under
§ 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to
§ 430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average
segment rates.
The 25-year average segment rates for
plan years beginning in 2020 and 2021
were published Notice 2019-51, 2019-41

year beginning in 2021, respectively. After this change, the applicable minimum
and maximum percentages are 95% and
105% for a plan year beginning in 2020
or 2021. In addition, pursuant to this
change, any 25-year average segment
rate that is less than 5% is deemed to
be 5%.2
Pursuant to § 9706(c)(1) of ARP, these
changes apply with respect to plan years
beginning on or after January 1, 2020.
However, § 9706(c)(2) of ARP provides
that a plan sponsor may elect not to have
these changes apply to any plan year beginning before January 1, 2022.3

Third Segment
3.38

The adjusted 24-month average segment rates set forth in the chart below
reflect § 430(h)(2)(C)(iv) of the Code as
amended by § 9706(a) of ARP. These adjusted 24-month average segment rates
apply only for plan years for which an
election under § 9706(c)(2) of ARP is not
in effect. For a plan year for which such an
election does not apply, the 24-month averages applicable for August 2021, adjusted to be within the applicable minimum
and maximum percentages of the corresponding 25-year average segment rates
in accordance with § 430(h)(2)(C)(iv) of
the Code, are as follows:

Adjusted 24-Month Average Segment Rates
Applicable
First
Second
Month
Segment
Segment

Third
Segment

2020

August 2021

4.75

5.50

6.27

2021

August 2021

4.75

5.36

6.11

The adjusted 24-month average segment rates set forth in the chart below do
not reflect the changes to § 430(h)(2)(C)

(iv) of the Code made by § 9706(a) of
ARP. These adjusted 24-month average
segment rates apply only for plan years for

which an election under § 9706(c)(2) of
ARP is in effect. For a plan year for which
such an election applies, the 24-month av-

Pursuant to this change, the 25-year averages of the first segment rate for 2020 and 2021 are increased to 5.00% because those 25-year averages as originally published are below 5.00%.
This election may be made either for all purposes for which the amendments under § 9706 of ARP apply or solely for purposes of determining the adjusted funding target attainment percentage under § 436 of the Code for the plan year.
2
3

August 30, 2021

334

Bulletin No. 2021–35

erages applicable for August 2021, adjusted to be within the applicable minimum

For Plan Years
Beginning In

and maximum percentages of the corresponding 25-year average segment rates

in accordance with § 430(h)(2)(C)(iv) of
the Code, are as follows:

Pre-ARP Adjusted 24-Month Average Segment Rates
Applicable
First
Second
Month
Segment
Segment

Third
Segment

2020

August 2021

3.64

5.21

5.94

2021

August 2021

3.32

4.79

5.47

30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to multiemployer plans pursuant to § 412. Section
431(c)(6)(B) specifies a minimum amount
for the full-funding limitation described in
§ 431(c)(6)(A), based on the plan’s current
liability. Section 431(c)(6)(E)(ii)(I) pro-

vides that the interest rate used to calculate
current liability for this purpose must be
no more than 5 percent above and no more
than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period
ending on the last day before the beginning
of the plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determining
the weighted average interest rate. The rate

of interest on 30-year Treasury securities
for July 2021 is 1.94 percent. The Service
determined this rate as the average of the
daily determinations of yield on the 30year Treasury bond maturing in May 2051.
For plan years beginning in August 2021,
the weighted average of the rates of interest on 30-year Treasury securities and the
permissible range of rates used to calculate
current liability are as follows:

For Plan Years
Beginning In

Treasury Weighted Average Rates
30-Year Treasury
Weighted Average

Permissible Range
90% to 105%

July 2021

2.20

1.98 to 2.31

under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Notice 2007-81 provides guidelines for determining the minimum pres-

ent value segment rates. Pursuant to that
notice, the minimum present value segment rates determined for July 2021 are
as follows:

MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates

Month
August 2021

Minimum Present Value Segment Rates
First Segment
Second Segment
0.63
2.51

DRAFTING INFORMATION
The principal author of this notice is
Tom Morgan of the Office of the Asso-

Bulletin No. 2021–35

ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development

335

Third Segment
3.10

of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Paul Stern at 202-3178702 (not toll-free numbers).

August 30, 2021

Table 2021-7
Monthly Yield Curve for July 2021
Derived from July 2021 Data
Maturity
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0

Yield
0.13
0.25
0.37
0.48
0.58
0.68
0.79
0.90
1.02
1.14
1.27
1.40
1.54
1.67
1.80
1.93
2.05
2.16
2.26
2.36
2.44
2.52
2.59
2.65
2.71
2.76
2.80
2.83
2.86
2.89
2.91
2.93
2.95
2.96
2.97
2.98
2.99
2.99
3.00
3.00

August 30, 2021

Maturity
20.5
21.0
21.5
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
28.5
29.0
29.5
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5
34.0
34.5
35.0
35.5
36.0
36.5
37.0
37.5
38.0
38.5
39.0
39.5
40.0

Yield
3.01
3.01
3.01
3.02
3.02
3.02
3.03
3.03
3.03
3.03
3.04
3.04
3.04
3.04
3.05
3.05
3.05
3.06
3.06
3.06
3.07
3.07
3.07
3.07
3.08
3.08
3.08
3.08
3.08
3.09
3.09
3.09
3.09
3.09
3.10
3.10
3.10
3.10
3.10
3.11

Maturity
40.5
41.0
41.5
42.0
42.5
43.0
43.5
44.0
44.5
45.0
45.5
46.0
46.5
47.0
47.5
48.0
48.5
49.0
49.5
50.0
50.5
51.0
51.5
52.0
52.5
53.0
53.5
54.0
54.5
55.0
55.5
56.0
56.5
57.0
57.5
58.0
58.5
59.0
59.5
60.0

Yield
3.11
3.11
3.11
3.11
3.11
3.11
3.12
3.12
3.12
3.12
3.12
3.12
3.12
3.12
3.13
3.13
3.13
3.13
3.13
3.13
3.13
3.13
3.13
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.14
3.15
3.15
3.15
3.15
3.15

336

Maturity
60.5
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
68.5
69.0
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5
74.0
74.5
75.0
75.5
76.0
76.5
77.0
77.5
78.0
78.5
79.0
79.5
80.0

Yield
3.15
3.15
3.15
3.15
3.15
3.15
3.15
3.15
3.15
3.15
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.16
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17

Maturity
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
88.0
88.5
89.0
89.5
90.0
90.5
91.0
91.5
92.0
92.5
93.0
93.5
94.0
94.5
95.0
95.5
96.0
96.5
97.0
97.5
98.0
98.5
99.0
99.5
100.0

Yield
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.17
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18
3.18

Bulletin No. 2021–35

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also: Part I, Sections 446, 451, 1275; 1.451-1,
1.451-3, 1.451-8, 1.1275-2.)

Rev. Proc. 2021-34
SECTION 1. PURPOSE
This revenue procedure modifies Rev.
Proc. 2019-43, 2019-48 I.R.B. 1107, to
provide procedures under § 446 of the Internal Revenue Code (Code) and § 1.4461(e) of the Income Tax Regulations to
obtain automatic consent of the Commissioner of Internal Revenue (Commissioner) to change methods of accounting
to comply with final regulations under
§§ 1.451-3, 1.451-8, and 1.1275-2(l) and
to change methods of accounting for
certain inventory costs to comply with
§§ 263A, 461, and 471 if such changes
are made in connection with a change to
comply with § 1.451-3 and/or § 1.4518, as applicable. This revenue procedure
also modifies Rev. Proc. 2015-13, 20155 I.R.B. 419, as clarified and modified by
Rev. Proc. 2015-33, 2015-24 I.R.B. 1067,
and further modified by Rev. Proc. 20161, 2016-1 I.R.B. 1, Rev. Proc. 2017-59,
2017-48 I.R.B. 543, and Rev. Proc. 202126, 2021-22 I.R.B. 1163, to provide procedures for a taxpayer to obtain the consent
of the Commissioner to change its method
of accounting to comply with §§ 1.451-3
and/or 1.451-8, as applicable, by providing rules related to cost offset method
changes.
SECTION 2. BACKGROUND
.01 On December 22, 2017, §§ 451(b)
and (c) were amended by section 13221 of
Public Law 115-97, 131 Stat. 2054, 2113,
commonly referred to as the Tax Cuts
and Jobs Act (TCJA). Section 451(b) was
amended to provide that, for a taxpayer
using an accrual method of accounting,
the all events test for any item of gross income, or portion thereof, is met no later
than when that item, or portion thereof,
is taken into account as revenue in an applicable financial statement (AFS) (AFS
Income Inclusion Rule). Section 451(b)
also overturned the historical Federal income tax treatment of credit card late fees,
credit card cash advance fees, and inter-

Bulletin No. 2021–35

change fees by subjecting the fees to the
AFS Income Inclusion Rule instead of the
original issue discount (OID) timing rules.
Section 451(c) was amended to provide
that an accrual method taxpayer may use
the deferral method of accounting provided in § 451(c) for advance payments.
.02 On April 12, 2018, the Department
of Treasury (Treasury Department) and
the Internal Revenue Service (IRS) issued
Notice 2018-35, 2018-18 I.R.B. 520, to
provide transitional guidance relating to
advance payments under Rev. Proc. 200434, 2004-1 C.B. 991, as modified and clarified by Rev. Proc. 2011-18, 2011 5 I.R.B.
443, and Rev. Proc. 2013-29, 2013-33
I.R.B. 141, and as modified by Rev. Proc.
2011-14, 2011-4 I.R.B. 330. The notice
provides that the Treasury Department
and the IRS expect to issue future guidance regarding the treatment of advance
payments incorporating the TCJA amendments to § 451(c) and that until such guidance is applicable, taxpayers may continue to rely on Rev. Proc. 2004-34 for the
treatment of advance payments. Notice
2018-35 is obsolete for taxable years beginning on or after January 1, 2021. See
TD 9941, 86 FR 810 (January 6, 2021),
corrected by 86 FR 126 (January 8, 2021)
and 86 FR 2974 (January 14, 2021) (as so
corrected, TD 9941).
.03 On May 29, 2018, the Treasury
Department and the IRS issued Rev. Proc.
2018-29, 2018-22 I.R.B. 634, modified by
Rev. Proc. 2018-49, 2018-41 I.R.B. 548,
which added section 16.11 to the List of
Automatic Changes, as defined in section
3.09 of Rev. Proc. 2015-13, to provide
procedures for a taxpayer to change its
method of accounting for the recognition
of income for Federal income tax purposes to a method of accounting described in
the new financial accounting standards on
revenue from contracts with customers
issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)
(New Standards) if such change is made
for the taxable year in which the taxpayer adopts the New Standards. A change
under this section required that the taxpayer’s method comply with § 451, as
amended by the TCJA. Rev. Proc. 201829 indicated that the IRS expected to issue future guidance addressing the TCJA
amendments to § 451.

337

.04 On December 17, 2018, the Treasury Department and the IRS issued Rev.
Proc. 2018-60, 2018-51 I.R.B. 1045,
which added section 16.12 to the List
of Automatic Changes for a taxpayer to
change its method of accounting for the
timing of income recognition for Federal income tax purposes to comply with
§ 451(b) for taxable years beginning after December 31, 2017 (or, December 31,
2018, in the case of income from a debt instrument having OID). Rev. Proc. 2018-60
permits a taxpayer to change its method of
accounting to comply with § 451(b) using
streamlined method change procedures if
the change results in a zero § 481(a) adjustment or if the taxpayer requesting the
change is a small business taxpayer, as defined in the guidance.
.05 On September 9, 2019, the Treasury
Department and the IRS published proposed regulations under § 1.451-3 (REG104870-18; 84 FR 47205) (proposed
§ 1.451-3), § 1.451-8 (REG-104554-18;
84 FR 47191) (proposed § 1.451-8), and
§ 1.1275-2(l) (REG-104870-18; 84 FR
47205) (proposed § 1.1275-2(l)). Proposed § 1.451-3 provided rules relating to
the taxable year of inclusion in gross income under § 451(b). Proposed §1.451-8
provided rules relating to the use of the deferral method for advance payments under
§ 451(c). Proposed § 1.1275-2(l) provides
rules clarifying that an item of income
that is subject to the timing rules in proposed § 1.451-3, such as specified credit card fees, is not taken into account in
determining the amount of OID on a debt
instrument. Concurrent with the issuance
of the proposed regulations, the Treasury
Department and the IRS issued Rev. Proc.
2019-37, 2019-39 I.R.B. 731, which modified sections 16.10, 16.11, and 16.12 in
the List of Automatic Changes to provide
procedures for a taxpayer to obtain the
automatic consent of the Commissioner
to make a method change to comply with
§ 451(b), proposed § 1.451-3, proposed
§ 1.451-8, and proposed § 1.1275-2(l), as
applicable.
.06 On December 30, 2020, the Treasury Department and the IRS issued final
regulations under § 1.451-3, § 1.451-8,
and § 1.1275-2(l). See TD 9941. The regulations are generally applicable for taxable years beginning on or after January 1,
2021. However, the rules in § 1.451-3(j)

August 30, 2021

and § 1.1275-2(l)(1) for specified fees
that are not specified credit card fees, as
defined in § 1.451-3(j)(2), apply for taxable years beginning on or after January
6, 2022.
.07 However, a taxpayer and its related
parties, within the meaning of §§ 267(b)
and 707(b), may choose to apply both the
rules in § 1.451-3 and, to the extent relevant, the rules in § 1.451-8 for a taxable
year beginning after December 31, 2017
and before January 1, 2021, provided the
rules in § 1.451-3 and, to the extent relevant, the rules in § 1.451-8 are applied in
their entirety and in a consistent manner
for such taxable year and all subsequent
years. In addition, for specified credit
card fees, a taxpayer and its related parties may apply both the rules in §§ 1.4513 and 1.1275-2(l) that apply to specified
credit card fees for a taxable year beginning after December 31, 2018 and before
January 1, 2021, provided that the rules
in §§ 1.451-3 and 1.1275-2(l) that apply
to specified credit card fees are applied in
their entirety and in a consistent manner
for such taxable year and all subsequent
taxable years.
.08 Alternatively, a taxpayer may rely
on proposed § 1.451-3, proposed § 1.4518, and/or proposed § 1.1275-2(l), as applicable, for taxable years beginning after
December 31, 2017 (or December 31,
2018, in the case of specified credit card
fees) and before January 1, 2021. For a
specified fee that is not a specified credit
card fee, a taxpayer may neither choose
to apply the final regulations to, nor rely
on the proposed regulations for, a taxable
year beginning before January 6, 2022.
.09 The final regulations obsolete Rev.
Proc. 2004-33, 2004-1 C.B. 989, Rev.
Proc. 2004-34, Rev. Proc. 2005-47, 20052 C.B. 269, Rev. Proc. 2011-18, Rev.
Proc. 2013-29, and Notice 2018-35 for
taxable years beginning on or after January 1, 2021. A taxpayer that relied on the
now obsoleted guidance must determine
whether a change in method of accounting
occurs once it ceases to use the obsoleted
guidance.
.10 A change to comply with the final regulations under §§ 1.451-3, 1.4518, and/or 1.1275-2(l), as applicable, is a
change in method of accounting to which
the provisions of §§ 446 and 481 and the
accompanying regulations apply. Except

August 30, 2021

as otherwise provided by the Code or the
regulations, § 446(e) and § 1.446-1(e)(2)
require a taxpayer to secure the consent
of the Commissioner before changing a
method of accounting for Federal income
tax purposes. Section 1.446-1(e)(3)(ii)
authorizes the Commissioner to prescribe
administrative procedures that provide
the terms and conditions necessary for a
taxpayer to obtain consent to a change in
method of accounting. Rev. Proc. 2015-13
provides the general procedures by which
a taxpayer may obtain automatic consent
of the Commissioner to a change in method of accounting described in the List of
Automatic Changes. Section 6.03(1) of
Rev. Proc. 2015-13 sets forth the application procedures for timely filing a change
in method of accounting under the automatic change procedures. Such procedural
guidance provides that a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting on an
amended Federal income tax return, unless specifically authorized by the Commissioner or by statute. See section 2.05
of Rev. Proc. 2015-13, 2015-5 I.R.B 419,
425. A taxpayer that chooses to early apply the final regulations under §§ 1.451-3,
1.451-8, and/or 1.1275-2(l), as applicable,
to a taxable year beginning before January
1, 2021, must follow the rules for changes
in method of accounting under § 446, the
accompanying regulations, and the applicable procedural guidance, as described
above. Accordingly, such taxpayer cannot change its method(s) of accounting
to early apply the final regulations under
§§ 1.451-3, 1.451-8, and/or 1.1275-2(l),
as applicable, on an amended Federal income tax return.
.11 Because a change to comply with
§§ 1.451-3, 1.451-8, and/or 1.1275-2(l),
as applicable, is a change in method of accounting to which the provisions of § 446
and the accompanying regulations apply,
the item being changed to comply with
§§ 1.451-3, 1.451-8, and/or 1.1275-2(l),
as applicable, is determined by applying
§ 446 and the accompanying regulations.
See §§ 1.451-3(l)(1) and 1.451-8(g)(2). In
that regard, while §§ 451(b) and (c) and
the final regulations use the term “item of
gross income” to generally refer to income
that arises under a specific contract, the
term “item of gross income” is not synonymous with the terms “item” or “material

338

item” as used throughout the regulations
under § 446.
.12 Rev. Proc. 2013-26, 2013-22 I.R.B.
1160, describes the proportional method
of accounting for OID on a pool of credit card receivables. Under § 1.1275-2(l),
OID no longer includes a specified fee,
such as a specified credit card fee, that is
subject to the timing rules of § 1.451-3.
Therefore, Rev. Proc. 2021-35, 2021-35
I.R.B. 355, modifies Rev. Proc. 2013-26
to make clear that the proportional method
no longer applies to a specified fee, including a specified credit card fee. See section
16.12 of Rev. Proc. 2019-43, as modified
by this revenue procedure, for the procedures by which a taxpayer, including a
taxpayer using the proportional method
of accounting, can change its method of
accounting for specified credit card fees
to comply with § 451(b), as amended by
the TCJA, and §§1.451-3 and 1.1275-2(l).
Pursuant to that change, a taxpayer that
is already using the proportional method
of accounting is required to remove any
specified credit card fees from its pools
of credit card receivables. See Rev. Proc.
2021-35.
.13 Rev. Proc. 2019-43 provides the
current List of Automatic Changes to
which the automatic change procedures in
Rev. Proc. 2015-13 apply. Section 3 of this
revenue procedure modifies Rev. Proc.
2019-43 to provide procedures for a taxpayer to obtain the automatic consent of
the Commissioner to change its methods
of accounting to comply with §§ 1.451-3,
1.451-8, and/or 1.1275-2(l), as applicable,
including special terms and conditions for
certain changes to comply with §§ 1.4513, 1.451-8, and/or 1.1275-2(l), as applicable. Section 3 of this revenue procedure
also makes changes to the current automatic changes in Rev. Proc. 2019-43 by:
(1) modifying sections 12.01, 12.02,
22.05, 22.11, and 22.18 of Rev. Proc.
2019-43 to temporarily waive the eligibility rule in section 5.01(f) of Rev. Proc.
2015-13 for certain inventory changes
made in connection with changes to comply with §§ 1.451-3 and 1.451-8.
(2) modifying the change in overall
method of accounting from the cash method to an accrual method in section 15.01
for taxpayers with an AFS;
(3) removing the automatic change for
credit card late fees in section 16.06;

Bulletin No. 2021–35

(4) modifying the automatic change for
advance payments under section 16.07 by
making the change inapplicable for a year
of change beginning on or after January
1, 2021;
(5) removing the automatic change for
credit card cash advance fees in section
16.08;
(6) modifying section 16.11 to make it
inapplicable for changes to comply with
§§ 451(b) and (c) and the regulations
thereunder, and modifying sections 16.10
and 16.12 to provide terms and conditions
that are similar to those provided under
section 16.11 for certain changes made in
the year in which the taxpayer adopts the
New Standards that are no longer permitted to be made under section 16.11 and
that are now made under sections 16.10 or
16.12;
(7) modifying section 16.12 to remove
the automatic change to comply with
§ 451(b);
(8) correcting sections 16.11 and 16.12
of Rev. Proc. 2019-43 by providing that
changes in method of accounting made
under sections 16.11 and 16.12 with regard
to taxpayers who are members of consolidated groups generally are governed by
sections 16.11 and 16.12, as applicable,
rather than by § 1.1502-17(b)(2), which
is applicable to changes in the application
of the timing rules of § 1.1502-13 in accounting for intercompany transactions
within the meaning of § 1.1502-13(b)(1)
(i). See § 1.1502-17(a) and (b)(1);
(9) modifying section 16.12 to provide
that the rules for netting the § 481(a) adjustment provided in section 16.12(4)(b)
(iii) of Rev. Proc. 2019-43, as modified by
this revenue procedure, generally apply to
certain changes related to the cost offset
methods under §§ 1.451-3(c) and § 1.4518(e) that are required to be filed under the
non-automatic change procedures;
(10) modifying section 20 to provide
a temporary automatic change under new
section 20.13 for a taxpayer to change
its method of accounting for inventory
costs to comply with §§ 1.461-1(a)(2) and
1.461-4(d)(4) if the taxpayer: (a) presently
takes inventory costs into account in a taxable year prior to the taxable year in which
such costs are incurred under § 461 and
the regulations thereunder; (b) recovers
such costs in a taxable year prior to the
taxable year in which ownership of inven-

Bulletin No. 2021–35

tory is transferred to the customer to offset
income inclusions under § 451(b) and/or
§ 451(c); and (c) meets certain other requirements; and
(11) modifying the automatic change
for OID on a pool of credit card receivables in section 30.02 (proportional method).
.14 Section 4 of this revenue procedure
modifies Rev. Proc. 2015-13 to provide
procedures for a taxpayer to obtain the
consent of the Commissioner to change
its method of accounting to comply with
§§ 1.451-3 and/or 1.451-8, as applicable,
by:
(1) adding a new automatic change
eligibility rule under section 5.01(1)(g)
that requires certain taxpayers making
a cost-offset related inventory method
change, as defined in new section 5.06, to
also make the corresponding cost offset
change for the same year of change; and
(2) adding concurrent automatic method change language in section 6.03(1)(b)
to provide for certain taxpayers to make
one or more cost-offset related inventory
method changes and one or more corresponding cost offset changes on the same
Form 3115, Application for Change in Accounting Method.
SECTION 3. MODIFICATIONS TO
REV. PROC. 2019-43
.01 Modification to section 12.01 of
Rev. Proc. 2019-43, relating to certain
uniform capitalization (UNICAP) methods
used by resellers and reseller-producers.
Section 12.01(2) of Rev. Proc. 2019-43 is
modified by adding new subparagraph (c)
to read as follows:
(c) Eligibility rule temporarily inapplicable for certain changes related to cost
offset method. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does
not apply to a method change under this
section 12.01 if:
(i) the taxpayer made or requested to
make a change during any of the five taxable years ending with the year of change
to recover inventory costs in a taxable
year prior to the taxable year in which
ownership of the inventory is transferred
to the customer to offset inclusions under
§ 451(b) and/or 451(c), as applicable;
(ii) in the case of a taxpayer with an
applicable financial statement (AFS), as

339

defined in section 16.12(1)(b) of this revenue procedure, the taxpayer makes, for the
same year of change, a change in method
of accounting for income from the sale of
inventory under section 16.12(2)(a)(iii) of
this revenue procedure and, to the extent
the taxpayer receives advance payments
for the sale of inventory, section 16.12(2)
(a)(iv) of this revenue procedure, or in the
case of a taxpayer that does not have an
AFS, the taxpayer concurrently changes its method of accounting for advance
payments from the sale of inventory under
section 16.12(2)(b)(ii) of this revenue procedure; and
(iii) the taxpayer makes the change under this section 12.01 for its early application year, as defined in section 16.12(4)
(c)(i) of this revenue procedure, or if a
taxpayer does not apply § 1.451-3 and/
or § 1.451-8 for a taxable year beginning
before January 1, 2021, for the taxpayer’s
first taxable year beginning on or after
January 1, 2021.
.02 Modification to section 12.02 of
Rev. Proc. 2019-43, relating to certain
uniform capitalization (UNICAP) methods used by producers and reseller-producers. Section 12.02(4) of Rev. Proc.
2019-43 is modified to read as follows:
(4) Eligibility rule temporarily inapplicable.
(a) In general. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to the
changes described in this section 12.02 for
the taxpayer’s first, second, or third taxable year ending on or after November 20,
2018.
(b) Eligibility rule temporarily inapplicable for certain changes related to cost
offset method. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does
not apply to a method change under this
section 12.02 if:
(i) the taxpayer made or requested to
make a change during any of the five taxable years ending with the year of change
to recover inventory costs in a taxable
year prior to the taxable year in which
ownership of the inventory is transferred
to the customer to offset inclusions under
§ 451(b) and/or 451(c), as applicable;
(ii) in the case of a taxpayer with an
applicable financial statement (AFS), as
defined in section 16.12(1)(b) of this revenue procedure, the taxpayer makes, for the

August 30, 2021

same year of change, a change in method
of accounting for income from the sale of
inventory under section 16.12(2)(a)(iii) of
this revenue procedure and, to the extent
the taxpayer receives advance payments
for the sale of inventory, section 16.12(2)
(a)(iv) of this revenue procedure, or in the
case of a taxpayer that does not have an
AFS, the taxpayer concurrently changes its method of accounting for advance
payments from the sale of inventory under
section 16.12(2)(b)(ii) of this revenue procedure; and
(iii) the taxpayer makes the change under this section 12.02 for its early application year, as defined in section 16.12(4)
(c)(i) of this revenue procedure, or if a
taxpayer does not apply § 1.451-3 and/or
§ 1.451-8, as applicable, for a taxable year
beginning before January 1, 2021, for the
taxpayer’s first taxable year beginning on
or after January 1, 2021.
.03 Modifications to section 15.01 of
Rev. Proc. 2019-43, relating to changes
in overall method of accounting from the
cash method to an accrual method.
(1) Section 15.01(1)(a) of Rev. Proc.
2019-43 is modified by replacing the last
paragraph thereof with the following:
Lastly, for a taxable year beginning after December 31, 2017, or December 31,
2018 in the case of specified credit card
fees, as defined in § 1.451-3(j)(2), and before January 1, 2021, a taxpayer with an
applicable financial statement (AFS) that
is changing its overall method of accounting from the cash method to an accrual
method qualifies to use this section 15.01
to comply with § 451(b)(1), and, if applicable, § 451(b)(4), or the proposed regulations under § 1.451-3 (REG-104870-18;
84 FR 47191) (proposed § 1.451-3). For a
taxable year beginning after December 31,
2017, or December 31, 2018 in the case of
specified credit card fees, a taxpayer with
an AFS that is changing its overall method
of accounting from the cash method to an
accrual method qualifies to use this section 15.01 to comply with § 1.451-3. For
purposes of this section 15.01, the term
“AFS” is defined under: § 451(b)(3) for a
taxpayer making a change to comply with
§ 451(b); proposed § 1.451-3(c)(1) for a
taxpayer making a change to comply with
proposed § 1.451-3; or § 1.451-3(b)(5) for
a taxpayer making a change to comply
with § 1.451-3.

August 30, 2021

A taxpayer that uses this section 15.01
to comply with § 1.451-3 must attach a
statement to its Form 3115 that provides
a description of the proposed method(s)
under § 1.451-3 to which it is changing.
For example, a taxpayer that chooses to
apply the alternative AFS revenue method in § 1.451-3(b)(2)(ii) must indicate in
the statement attached to its Form 3115
that it is choosing to comply with the AFS
income inclusion rule in § 1.451-3(b)(1)
by applying the alternative AFS revenue
method described in § 1.451-3(b)(2)(ii).
(2) Section 15.01(1)(b) of Rev. Proc.
2019-43 is modified by removing division (ix), and adding new divisions (ix)
through (xiii) to read as follows:
(ix) a taxpayer with an AFS that wants
to make a change in method of accounting
for allocating transaction price between
item(s) of gross income that are subject
to § 451 and item(s) of gross income that
are subject to a special method of accounting, as defined in § 451(b)(2), proposed
§ 1.451-3(c)(5), or § 1.451-3(a)(14), as
applicable, including a change to comply
with the transaction price allocation rules
in § 1.451-3(d)(5);
(x) a taxpayer with an AFS that wants
to change to use the AFS cost offset method, as defined in § 1.451-3(c), if the taxpayer receives advance payments from the
sale of inventory and does not also make
a concurrent change to apply the advance
payment cost offset method, as defined in
§ 1.451-8(e), for the same year of change
by using section 16.12 of this revenue
procedure, or a taxpayer with an AFS that
wants to change to use the advance payment cost offset method if the taxpayer
is required to include gross income from
the sale of inventory under § 1.451-3 and
does not also make a change to apply the
AFS cost offset method;
(xi) a taxpayer with an AFS that wants
to make a change in method of accounting
for specified fees, as defined in proposed
§ 1.451-3(i)(2) or § 1.451-3(j)(2), as applicable, other than specified credit card
fees;
(xii) a taxpayer that wants to make a
change in method of accounting for payments within the scope of the specified
good exception, as defined in § 1.451-8(a)
(1)(ii), if the proposed method of accounting is to include such payments in gross
income under § 1.451-3 in one or more

340

taxable years following the taxable year
of receipt; or
(xiii) a taxpayer with an AFS that
makes a change to apply § 1.451-3 for a
taxable year that begins before January 1,
2021, and fails to comply with the requirements in § 1.451-3(m)(3).
(3) Section 15.01(2)(b) of Rev. Proc.
2019-43 is modified to read as follows:
(b) Accrual method of accounting is
a method identified by § 446(c)(2) and
§§ 1.446-1(c)(1)(ii), 1.451-1(a), 1.4513, and 1.461-1(a)(2). For a taxable year
beginning after December 31, 2017, for
which the taxpayer has an AFS, the all
events test under § 451(b)(1)(C) and
§ 1.451-1(a) for any item of gross income,
or portion thereof, is met no later than
when that item, or portion thereof, is taken
into account as AFS revenue. See § 451(b)
(1) and § 1.451-3(b).
(4) Section 15.01(2)(d) of Rev. Proc.
2019-43 is modified to read as follows:
(d) Special method of accounting within the meaning of this section 15.01 is a
method of accounting, other than the cash
method, expressly permitted or required
by the Code, regulations, or in other guidance published in the IRB, that deviates
from the tax accrual accounting rules of
§§ 446, 451, 461, and the regulations
thereunder. For purposes of this section
15.01, a deferral method under section
451(c) and the regulations thereunder
is deemed to be a special method of accounting. Examples of special methods of
accounting include the installment method
of accounting under § 453, the mark-tomarket method under § 475, and a longterm contract method under § 460. In
contrast, application of the all-events test
under a specific set of facts is not a special
method of accounting. See, for example,
Rev. Rul. 69-314, 1969-1 C.B. 139 (concerning the treatment of retainages).
(5) Section 15.01(3)(a) of Rev. Proc.
2019-43 is modified by adding new division (iii) to read as follows:
(iii) Section 481(a) adjustment period
for changes relating to specified credit
card fees. In the case of income from a
specified credit card fee, the § 481(a) adjustment period for any qualified change
in method of accounting is six taxable
years (year of change and next five taxable years). For purposes of this section
15.01(3)(a)(iii), a qualified change in

Bulletin No. 2021–35

method of accounting is a change in method of accounting for income from a specified credit card fee to a method that is
required by § 451(b), as added by section
13221 of Public Law 115-97, 131 Stat.
2054 (Dec. 22, 2017), commonly referred
to as the Tax Cuts and Jobs Act (TCJA),
for such income, but only for the taxpayer’s first taxable year beginning after December 31, 2018. Accordingly, a taxpayer
that makes a qualified change in method
of accounting as part of its overall method
change under section 15.01 of this revenue procedure is required to use an adjustment period of six taxable years for the
portion of the overall § 481(a) adjustment
that is attributable to the qualified change
in method of accounting. The § 481(a) adjustment period for the remainder of the
overall § 481(a) adjustment required by
section 15.01(3)(a)(i) of this revenue procedure is determined without regard to the
qualified change in method of accounting.
(6) Section 15.01(3)(b)(ii) of Rev. Proc.
2019-43 is modified to read as follows:
(ii) Certain eligibility rule temporarily inapplicable. For a taxpayer with an
AFS that changes to an overall accrual method under this section 15.01 that
complies with § 451(b)(1), and, if applicable, § 451(b)(4), or proposed § 1.4513, the eligibility rule in section 5.01(1)
(e) of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, does not apply to such change for
the taxpayer’s first, second or third taxable year beginning after December 31,
2017, provided such taxable year begins
before January 1, 2021. In addition, for a
taxpayer with an AFS that changes to an
overall accrual method under this section
15.01 that complies with § 1.451-3 for a
taxable year beginning before January 1,
2021, the eligibility rule in section 5.01(1)
(e) of Rev. Proc. 2015-13 does not apply
to such change for such taxable year. For
a taxpayer with an AFS that does not apply § 1.451-3 for a taxable year beginning
before January 1, 2021, and changes to an
overall accrual method under this section
15.01 that complies with § 1.451-3 for the
first taxable year that begins on or after
January 1, 2021, the eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015-13 does
not apply to such change for such taxable
year.
(7) Section 15.01(3)(d)(i) of Rev. Proc.
2019-43, is modified to read as follows:

Bulletin No. 2021–35

(i) Concurrent automatic changes. Except as provided in section 15.01(3)(d)(ii)
of this revenue procedure, a taxpayer that
is changing from the overall cash method to an overall accrual method under
this section 15.01 and changing to one or
more special methods, as permitted under
section 15.01(1)(a)(ii), (iii), or (iv) of this
revenue procedure, must timely file a single Form 3115 for all changes and must
enter the designated automatic accounting
method change numbers for all changes
on the appropriate line of Form 3115. For
example, a taxpayer making both a change
from the overall cash method to an overall
accrual method under this section 15.01
and a change to the deferral method for
advance payments under section 16.07
or 16.12 of this revenue procedure must
timely file a single Form 3115 for both
changes and enter the designated automatic accounting method change numbers
for both changes on the appropriate line
on that Form 3115. See section 6.03(1)(b)
of Rev. Proc. 2015-13 for information on
making concurrent changes.
(8) Section 15.01(3) of Rev. Proc.
2019-43 is modified by:
(a) removing subparagraph (f), titled
“Concurrent automatic changes for a
taxpayer with an AFS that complies with
§ 451(b).”; and
(b) removing subparagraph (g), titled
“Concurrent change in the timing of recognition of income due to the New Standards.”
(9) Section 15.01(5) of Rev. Proc.
2019-43 is modified to read as follows:
(5) No ruling on method used. The
consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under
this section 15.01 is not a determination
by the Commissioner that the new method
of accounting is a permissible method of
accounting under § 451(b) and does not
create a presumption that the allocation
method used under § 451(b)(4) is a permissible method of accounting. The director may ascertain whether the new method
of accounting is a permissible method of
accounting under § 451 and whether the
allocation method is permissible under
§ 451(b)(4). This section 15.01(5) does
not apply to a taxpayer with an AFS that is
making a change to a method of accounting permissible under proposed § 1.451-3
or § 1.451-3.

341

.04 Modification to section 16.06 of
Rev. Proc. 2019-43, relating to credit
card late fees. Section 16.06 of Rev. Proc.
2019-43 is modified to remove the automatic change in method of accounting in
section 16.06 for credit card late fees and
to read as follows:
.06 [Reserved]
.05 Modification to section 16.07 of
Rev. Proc. 2019-43, relating to advance
payments. Section 16.07(1) of Rev. Proc.
2019-43 is modified by: redesignating
subparagraph (b) as division (b)(i) with
a new heading that reads “In general.”;
adding a heading to subparagraph (b) that
reads “Inapplicability.”; and adding new
division (b)(ii) to read as follows:
(ii) Limited time to make change. This
change does not apply to taxable years beginning on or after January 1, 2021.
.06 Modification to section 16.08 of
Rev. Proc. 2019-43, relating to credit card
cash advance fees. Section 16.08 of Rev.
Proc. 2019-43 is modified to remove the
automatic change in method of accounting in section 16.08 for credit card cash
advance fees and to read as follows:
.08 [Reserved]
.07 Modification of section 16.10 of
Rev. Proc. 2019-43, relating to changes
in applicable financial statements for purposes of applying certain revenue recognition methods of accounting.
(1) Section 16.10 of Rev. Proc. 201943 is modified to read as follows:
.10 Change in applicable financial
statements (AFS) for purposes of applying
certain revenue recognition methods of
accounting.
(1) Description of change.
(a) Applicability.
(i) This change applies to a taxpayer
that has an applicable financial statement
(AFS), as defined in section 4.06 of Rev.
Proc. 2004-34, 2004-1 C.B. 991, as modified and clarified by Rev. Proc. 2011-18,
2011-5 I.R.B. 443, and Rev. Proc. 201329, 2013-33 I.R.B. 141, and as modified
by Rev. Proc. 2011-14, 2011-4 I.R.B. 330,
that: (A) receives advance payments, as
defined in section 4 of Rev. Proc. 2004-34,
(B) uses the deferral method described in
section 5.02(3)(a) of Rev. Proc. 2004-34
for including those advance payments in
gross income in accordance with its AFS,
(C) changes the manner in which it recognizes advance payments in revenues in its

August 30, 2021

AFS, and (D) wants to change its method
of accounting to use the new AFS method
of recognizing advance payments in revenues in its AFS for determining the extent
to which advance payments are included
in gross income under Rev. Proc. 2004-34.
See also Notice 2018-35, 2018-18 I.R.B.
520.
(ii) This change applies to a taxpayer
that has an AFS, as defined in proposed
§ 1.451-8(b)(2) (REG-104554-18; 84 FR
47191), that : (A) receives advance payments, as defined in proposed § 1.4518(b)(1); (B) uses the deferral method
described in proposed § 1.451-8(c); (C)
changes the manner in which it recognizes
advance payments in revenues in its AFS;
and (D) wants to change its method of accounting to use the new AFS method of
recognizing advance payments in revenues in its AFS for determining the extent
to which advance payments are included
in income under proposed § 1.451-8(c).
(iii) This change applies to a taxpayer
with an AFS, as defined in § 451(b)(3),
that: (A) includes amounts in income in
accordance with § 451(b); (B) changes
the manner in which the item, or portion
thereof, is taken into account in revenue in
its AFS, as defined in § 451(b)(3), including, if applicable, a change in the manner
in which transaction price is allocated to
performance obligations; and (C) wants to
change its method of accounting to use the
new AFS method of taking into account
the item, or portion thereof, in revenue in
its AFS for purposes of § 451(b)(1)(A),
including, if applicable, a change in the
manner in which transaction price is allocated for purposes of § 451(b)(4).
(iv) This change applies to a taxpayer with an AFS, as defined in proposed
§ 1.451-3(c)(1) (REG-104870-18; 84
FR 47205), that: (A) includes amounts
in income in accordance with proposed
§ 1.451-3; (B) changes the manner in
which the item, or portion thereof, is taken
into account as revenue in its AFS, including, if applicable, a change in the manner
in which transaction price is allocated to
performance obligations; and (C) wants
to change its method of accounting to use
the new AFS method of taking into account the item, or portion thereof, in revenue in its AFS for purposes of proposed
§ 1.451-3(b), including, if applicable, a
change in the manner in which transaction

August 30, 2021

price is allocated for purposes of proposed
§ 1.451-3(g).
(v) This change applies to a taxpayer
with an AFS, as defined in § 1.451-3(a)
(5), that: (A) includes amounts in income
in accordance with § 1.451-3; (B) changes
the manner in which the item, or portion
thereof, is taken into account as AFS revenue, as defined in § 1.451-3(a)(4), including, if applicable, a change in the manner
in which transaction price is allocated to
performance obligations; and (C) wants
to change its method of accounting to use
the new AFS method of taking into account the item, or portion thereof, in AFS
revenue for purposes of § 1.451-3(b)(1),
including, if applicable, a change in the
manner in which transaction price is allocated for purposes of § 1.451-3(d).
(vi) This change applies to a taxpayer
with an AFS, as defined in § 1.451-3(a)
(5), that: (A) receives an advance payment, as defined in § 1.451-8(a)(1); (B)
uses the deferral method described in
§ 1.451-8(c); (C) changes the manner in
which it recognizes advance payments in
AFS revenue, as defined in § 1.451-8(a)
(4), including, if applicable, a change in
the manner in which payments are allocated to performance obligations; and (D)
wants to change its method of accounting
to use the new AFS method of recognizing advance payments in AFS revenue
for purposes of determining the extent to
which advance payments are included in
income under § 1.451-8, including, if applicable, a change in the manner in which
payments are allocated for purposes of
§ 1.451-8(c)(8).
(b) Inapplicability.
(i) Changes relating to Rev. Proc.
2004-34. The change described in section
16.10(1)(a)(i) of this revenue procedure
does not apply to:
(A) a taxpayer that uses a present method of accounting for advance payments
that is not the deferral method described in
section 5.02(3)(a) of Rev. Proc. 2004-34.
For example, this change does not apply
to a taxpayer that uses the full inclusion
method under section 5.01 of Rev. Proc.
2004-34;
(B) a taxpayer that wants to change
its method for allocating payments under
section 5.02(4) of Rev. Proc. 2004-34; or
(C) taxable years beginning on or after
January 1, 2021.

342

(ii) Changes relating to § 451(b), proposed § 1.451-3, or proposed § 1.451-8.
A change described in section 16.10(1)(a)
(ii), (iii), or (iv) of this revenue procedure
does not apply to:
(A) a taxpayer whose present method of
accounting does not comply with § 451(b)
or proposed § 1.451-3, as applicable, for
a change described in section 16.10(1)(a)
(iii) or (iv) of this revenue procedure;
(B) a taxpayer whose present method
is not the deferral method under proposed
§ 1.451-8(c), for a change described in
section 16.10(1)(a)(ii) of this revenue procedure. For example, this change does not
apply to a taxpayer that uses the full inclusion method under § 451(c)(1)(A) or proposed § 1.451-8(a), or the non-AFS deferral method under proposed § 1.451-8(d);
(C) a taxpayer that wants to change
its method for allocating payments under
§ 451(c)(1)(D) or proposed § 1.451-8(c)
(6);
(D) a taxpayer that wants to change its
method for allocating transaction price
between performance obligations that
are accounted for under § 451(b) or proposed § 1.451-3, and performance obligations that are accounted for under a
special method of accounting, as defined
in § 451(b)(2) and proposed § 1.451-3(c)
(5); or
(E) taxable years beginning on or after
January 1, 2021.
(iii) Changes relating to § 1.451-3 or
§ 1.451-8. A change described in section
16.10(1)(a)(v) or (vi) of this revenue procedure does not apply to:
(A) a taxpayer whose present method of
accounting is not described in § 1.451-3,
for a change described in section 16.10(1)
(a)(v) of this revenue procedure. A taxpayer that wants to change to a method
of accounting described in §1.451-3 must
use section 16.12(2)(a)(v) of this revenue
procedure to make such change;
(B) a taxpayer whose present method
of accounting for advance payments is not
the deferral method under § 1.451-8(c),
for a change described in section 16.10(1)
(a)(vi) of this revenue procedure. For example, this change does not apply to a taxpayer that uses the full inclusion method
under § 1.451-8(b) or the non-AFS deferral method under § 1.451-8(d). However,
this change does apply to a taxpayer that
uses both the cost offset method under

Bulletin No. 2021–35

§ 1.451-8(e) and the deferral method under § 1.451-8(c);
(C) a taxpayer that wants to change its
method for allocating payments described
in § 1.451-8(c)(8)(iii); or
(D) a taxpayer that wants to change its
method for allocating transaction price for
contracts described in § 1.451-3(d)(5).
(c) Restatements of AFS. A taxpayer’s restatement of its AFS for financial
accounting presentation does not affect
the propriety of the taxpayer’s method of
accounting for revenue recognized in the
prior taxable year(s). For example, if the
taxpayer properly uses the deferral method described in § 1.451-8(c) for including
advance payments in gross income in accordance with its AFS, the taxpayer satisfies the requirement of section 16.10(1)(a)
(vi) of this revenue procedure even if the
AFS for that taxable year is later restated
and may change its method of accounting
under this section 16.10 if it is otherwise
eligible.
(2) Manner of making change.
(a) Cut-off basis or a § 481(a) adjustment.
(i) Cut-off basis for certain changes.
(A) In general. Except as provided in
section 16.10(2)(a)(i)(B) of this revenue
procedure, a change made under section
16.10(1)(a)(i), (ii), or (vi) of this revenue
procedure is made on a cut-off basis and
applies to advance payments received by
the taxpayer on or after the beginning of
the year of change. Accordingly, any advance payments received prior to the year
of change (prior advance payments) are
accounted for under the taxpayer’s former
method of accounting, and any advance
payments received in the year of change
and in subsequent taxable years are accounted for under the taxpayer’s new
method of accounting. A taxpayer that
changes its method of allocating payments
for purposes of § 1.451-8(c)(8)(i) must allocate any payments received prior to the
year of change using the taxpayer’s former method of accounting. Accordingly,
a § 481(a) adjustment is neither permitted
nor required.
(B) Section 481(a) adjustment for
certain changes. If a taxpayer makes a
change under section 16.10(1)(a)(i), (ii),
or (vi) of this revenue procedure, and the
AFS treatment of prior advance payments
in the year of change or a subsequent tax-

Bulletin No. 2021–35

able year is relevant for purposes of determining the amount of such payments that
is required to be included in gross income
in the year of change or a subsequent taxable year, the taxpayer must implement
the change with a § 481(a) adjustment as
provided in sections 7.02 and 7.03 of Rev.
Proc. 2015-13.
(ii) Cut-off basis or § 481(a) adjustment for certain changes. A taxpayer that
makes a change under section 16.10(1)(a)
(iii) or (iv) of this revenue procedure as a
result of adopting the New Standards, as
defined in section 16.11(1) of this revenue
procedure, in the year of change may implement the change with either a § 481(a)
adjustment as provided in sections 7.02
and 7.03 of Rev. Proc. 2015-13, or on a
cut-off basis. If the taxpayer implements
the change on a cut-off basis,
(A) the change applies to contracts entered into on or after the beginning of the
year of change;
(B) all changes made under section
16.10(1)(a)(iii) or (iv) of this revenue procedures for the same year of change must
be implemented using a cut-off basis; and
(C) a § 481(a) adjustment is neither
permitted nor required.
(iii) Computing § 481(a) adjustments
when the year of change is a year in which
the taxpayer implements a change in accounting principle with a retained earnings adjustment. If the year of change is
a year in which the taxpayer implements
a change in accounting principle for AFS
purposes, including a change in the method of applying an accounting principle
for AFS purposes, and the change in accounting principle is implemented with a
retained earnings adjustment that is taken
into account during the year of change, the
taxpayer is required to treat such adjustment as being taken into account in the
taxable year prior to the year of change
for purposes of computing the § 481(a)
adjustment. An AFS change to adopt the
New Standards, as defined in section
16.11(1) of this revenue procedure, is an
example of a change in accounting principle.
(iv) Example. Computing a § 481(a)
adjustment when the taxpayer presently
uses the AFS cost offset method - related accounts. B is in the trade or business
of selling computers. B uses an accrual
method of accounting and computes Fed-

343

eral income tax on a calendar-year basis
and has an AFS, as defined in § 1.451-3(a)
(5). B is not under examination within
the meaning of section 3.18 of Rev. Proc.
2015-13. B does not receive advance payments. For 2021, B makes two changes
in method of accounting to comply with
§ 1.451-3. Specifically, pursuant to section
16.12(2)(a)(iii)(A) of this revenue procedure, B changes its method of accounting
for gross income from the sale of computers to apply the AFS income inclusion
rule and, pursuant to section 16.12(2)(a)
(iii)(C) of this revenue procedure, changes
its method of accounting to apply the AFS
cost offset method. For 2022, B changes the manner in which income from the
sale of computers is taken into account as
AFS revenue, as defined in § 1.451-3(a)
(4), and changes its method of accounting
under section 16.10(1)(a)(v) of this section to use the new AFS method. However, B continues to use the AFS cost offset
method. In computing the § 481(a) adjustment resulting from the change to the
new method of computing AFS revenue
for 2022 under section 16.10(1)(a)(v) of
this revenue procedure, B must take into
account its continued use of the AFS cost
offset method. See section 3.15 of Rev.
Proc. 2015-13.
(b) In accordance with § 1.446-1(e)
(3)(ii), the requirement of § 1.446-1(e)
(3)(i) to file a Form 3115 is waived and a
statement in lieu of a Form 3115 is authorized for a change made under this section
16.10. Notwithstanding the definition of
Form 3115 in section 3.07 of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, the statement
in lieu of a Form 3115 that is permitted
under this section 16.10 is considered a
Form 3115 for purposes of the automatic
consent procedures of Rev. Proc. 2015-13.
However, the requirement to file the duplicate copy, under section 6.03(1)(a) of Rev.
Proc. 2015-13, is waived. The statement
attached to the taxpayer’s return for the
year of change must include the following
information for each applicant:
(i) the designated automatic accounting
change number for this change, which is
“153;”
(ii) the applicant’s name, employer
identification number (or social security
number in the case of an individual), and
type of applicant, as would be provided
had a Form 3115 been required;

August 30, 2021

(iii) the year of change (both the beginning and ending dates);
(iv) the type of AFS used by the applicant, as defined in applicable guidance,
and which change the applicant is making under section 16.10(1)(a) of this revenue procedure. See section 4.06 of Rev.
Proc. 2004-34, § 451(b)(3), proposed
§ 1.451-8(b)(2), proposed § 1.451-3(c)(1),
§ 1.451-3(a)(5); and/or § 1.451-8(a)(5), as
applicable;
(v) a detailed and complete description of each item affected by the change
in AFS revenue recognition and the line
number (or schedule) where the affected
item is reflected on the Federal income tax
return for the year of change, and if applicable, the § 481(a) adjustment for each
change; and
(vi) a detailed description of the basis
used for AFS revenue recognition (that is,
the method the applicant uses in its AFS)
both before and after the AFS change.
(c) Concurrent automatic change. A
taxpayer may make more than one change
under this section 16.10 on the same statement in lieu of a Form 3115 for the same
year of change. The taxpayer must separately provide all of the information required for each change on that statement.
(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)
(f) Rev. Proc. 2015-13 does not apply to
this change.
(4) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for this
change. See section 8.02(2) of Rev. Proc.
2015-13.
(5) Designated automatic accounting
method change number. The designated automatic accounting method change
number for a change under this section
16.10 is “153.”
(6) Contact information. For further
information regarding a change under this
section, contact Maria Castillo-Valle at
(202) 317-7003 (not a toll-free number).
.08 Modification to section 16.11 of
Rev. Proc. 2019-43, relating to changes in
the timing of recognition of income due to
the New Standards.
(1) Section 16.11(2) of Rev. Proc.
2019-43 is modified by deleting the last
two sentences.
(2) Section 16.11(3) of Rev. Proc.
2019-43 is modified by removing the “or”

August 30, 2021

at the end of section 16.11(3)(d), inserting
at the end of section 16.11(3)(e) an “; or”
and adding a new subparagraph (f) at the
end thereof to read as follows:
(f) an item of gross income that is
required to be accounted for under
§ 451(b) or § 451(c). Accordingly, a
taxpayer that wants to make a change
in method of accounting for an item of
gross income to comply with § 451(b),
the proposed section 451(b) regulations
(REG-104870-18; 84 FR 47205) (proposed § 1.451-3), the proposed section
451(c) regulations (REG-104554-18;
84 FR 47191) (proposed § 1.451-8),
§ 1.451-3 and/or § 1.451-8, as applicable, in the year in which it adopts the
New Standards is not permitted to do so
under section 16.11 of this revenue procedure. See, however, sections 16.07,
16.10, or 16.12, as applicable, of this
revenue procedure.
(3) Section 16.11(4) of Rev. Proc.
2019-43 is modified by replacing the date
“May 10, 2021” with the date “May 10,
2022.”
(4) Section 16.11(5)(a) of Rev. Proc.
2019-43 is modified to read as follows:
(a) Cut-off basis or § 481(a) adjustment. A taxpayer making a change under
this section 16.11 may implement the
change with either a § 481(a) adjustment
as provided in sections 7.02 and 7.03 of
Rev. Proc. 2015-13, or on a cut-off basis.
If the taxpayer implements the change on
a cut-off basis, (i) the taxpayer must allocate any payments received prior to the
year of change using the taxpayer’s former method of accounting, (ii) all changes
made under this section 16.11 must be implemented using a cut-off basis, and (iii)
a § 481(a) adjustment is neither permitted
nor required. Changes under this section
16.11 with regard to taxpayers who are
members of consolidated groups generally are governed by this section 16.11
rather than by § 1.1502-17(b)(2) (applicable to changes in the application of the
timing rules of § 1.1502-13 in accounting
for intercompany transactions (within the
meaning of § 1.1502-13(b)(1)(i)). See
§ 1.1502-17(a) and (b)(1).
(5) Section 16.11(6) of Rev. Proc. 201943 is removed and paragraphs (7)–(11) are
renumbered (6)-(10), respectively.
(6) Newly renumbered section 16.11(6)
of Rev. Proc. 2019-43 is modified by re-

344

placing the date “May 10, 2021” with the
date “May 10, 2022.”
(7) Newly renumbered section
16.11(10) of Rev. Proc. 2019-43 is modified to read as follows:
(10) Contact information. For further
information regarding a change under this
section, contact Sharon Horn at (202) 3177003 (not a toll-free number).
.09 Modifications to section 16.12 of
Rev. Proc. 2019-43, relating to changes
in the timing of income recognition under
§ 451(b) and (c).
(1) Section 16.12 of Rev. Proc. 201943 is modified to read as follows:
.12 Changes in the timing of income
recognition under § 451(b) and (c).
(1) Description of change.
(a) In general. This change applies to
an accrual method taxpayer with an applicable financial statement (AFS) that wants
to make certain changes in method of accounting described in section 16.12(2)(a)
of this revenue procedure. This change
also applies to a taxpayer without an AFS
that wants to make certain changes in
method of accounting described in section
16.12(2)(b) of this revenue procedure.
(b) Applicable terms. For this section
16.12, the term “AFS” is defined under
proposed § 1.451-3(c)(1) (REG-10487018; 84 FR 47205) for a taxpayer making
a change to apply proposed § 1.451-3 and/
or proposed § 1.451-8 (REG-104554-18;
84 FR 47191), as applicable, or under
§ 1.451-3(b)(5) for a taxpayer making a
change to apply § 1.451-3 and/or § 1.4518, as applicable. Additionally, because a
change to comply with §§ 1.451-3, 1.4518, and/or 1.1275-2(l), as applicable, is a
change in method of accounting to which
the provisions of § 446 and the accompanying regulations apply, the item being changed to comply with §§ 1.451-3,
1.451-8, and/or 1.1275-2(l), as applicable,
is determined by applying § 446 and the
accompanying regulations. See §§ 1.4513(l)(1) and 1.451-8(g)(2). In that regard,
while §§ 451(b) and (c) and the final regulations use the term “item of gross income” to generally refer to income that
arises under a specific contract, the term
“item of gross income” is not synonymous
with the terms “item” or “material item”
as used throughout the regulations under
§ 446.
(2) Applicability.

Bulletin No. 2021–35

(a) Taxpayer with an AFS. This change
applies to an accrual method taxpayer
with an AFS that:
(i) for a taxable year beginning before January 1, 2021, wants to change
to a method of accounting under proposed § 1.451-3 (including a change for
a specified credit card fee under proposed
§ 1.451-3(i) and proposed § 1.1275-2(l));
(ii) for a taxable year beginning before January 1, 2021, wants to change to
a method of accounting for advance payments under proposed § 1.451-8(a) or (c);
(iii) wants to make one of the following
changes under § 1.451-3:
(A) a change to comply with the AFS
income inclusion rule in § 1.451-3(b)
under which the taxpayer determines the
amount of an item of gross income that
is treated as “taken into account as AFS
revenue” by making the AFS revenue
adjustments provided in § 1.451-3(b)(2)
(i) (including a change for specified credit card fees under §§ 1.451-3(j)(2) and
1.1275-2(l));
(B) a change to comply with the AFS
income inclusion rule in § 1.451-3(b)
under which the taxpayer determines the
amount of the item of gross income that
is “taken into account as AFS revenue” by
making the AFS revenue adjustments provided in § 1.451-3(b)(2)(ii) (including a
change for specified credit card fees under
§§ 1.451-3(j)(2) and 1.1275-2(l)) (Alternative AFS Revenue Method);
(C) except as provided in section
16.12(2)(a)(iii)(E) of this section, a change
to apply the AFS cost offset method in
§ 1.451-3(c) to determine the amount of
an item of gross income from the sale of
inventory that is required to be included
in gross income under the AFS income inclusion rule in § 1.451-3(b);
(D) a change from applying a cost offset method, including the AFS cost offset
method in § 1.451-3(c), to not applying
a cost offset method to determine the
amount of an item of gross income from
the sale of inventory that is required to be
included in gross income under the AFS
income inclusion rule in § 1.451-3(b);
(E) a change to comply with § 1.4513(c)(5)(ii) as a result of a concurrent
cost-offset related inventory method
change, as defined in section 5.06 of Rev.
Proc. 2015-13 (or successor), or because
the taxpayer determines its cost of goods

Bulletin No. 2021–35

in progress offset by reference to costs
that the taxpayer has impermissibly capitalized and/or allocated under its present
method of accounting for inventory;
(F) a change to comply with the transaction price allocation rules in § 1.4513(d); or
(G) a change to a method of accounting
described in § 1.451-3(h)(4) when a taxpayer’s AFS covers mismatched reportable periods; or
(iv) wants to make one of the following
changes in method of accounting for advance payments under § 1.451-8:
(A) a change to the full inclusion method provided in § 1.451-8(b);
(B) a change to the deferral method
provided in § 1.451-8(c);
(C) a change to the specified goods
§ 451(c) method described in § 1.451-8(f)
to treat payments that otherwise qualify
for the specified good exception, as defined in § 1.451-8(a)(1)(ii)(H), as advance
payments and account for such payments
either under the full inclusion method provided in § 1.451-8(b) or under the deferral
method provided in § 1.451-8(c);
(D) except as provided in section
16.12(2)(a)(iv)(F) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e)
to determine the amount of an advance
payment from the sale of inventory that
is required to be included in gross income
under either the full inclusion method in
§ 1.451-8(b) or the deferral method in
§ 1.451-8(c), as applicable;
(E) a change from applying a cost offset
method, including the advance payment
cost offset method in § 1.451-8(e), to not
applying a cost offset method to determine
the amount of an advance payment from
the sale of inventory that is required to be
included in gross income under either the
full inclusion method in § 1.451-8(b) or
the deferral method in § 1.451-8(c), as applicable;
(F) a change to comply with § 1.4518(e)(8)(ii) as a result of a concurrent
cost-offset related inventory method
change, as defined in section 5.06 of Rev.
Proc. 2015-13 (or successor), or because
the taxpayer presently determines its cost
of goods in progress offset by reference to
costs that the taxpayer has impermissibly
capitalized and/or allocated under its present method of accounting for inventory;

345

(G) a change to a method of accounting
described in § 1.451-8(c)(7), which refers
to the methods described in § 1.451-3(h)
(4), when a taxpayer’s AFS covers mismatched reporting periods; or
(H) a change to comply with the payment allocation rules in § 1.451-8(c)(8).
(b) Taxpayer without an AFS. This
change applies to a taxpayer that does not
have an AFS that:
(i) for a taxable year beginning after
December 31, 2017, and before January 1,
2021, wants to change to a method of accounting for advance payments under proposed § 1.451-8(a) or (d); or
(ii) wants to make one of the following
changes in method of accounting for advance payments under § 1.451-8:
(A) a change to the full inclusion method provided in § 1.451-8(b);
(B) a change to the deferral method
provided in § 1.451-8(d)(3);
(C) except as provided in section
16.12(2)(b)(ii)(E) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e)
to determine the amount of an advance
payment from the sale of inventory that
is required to be included in gross income
under either the full inclusion method in
§ 1.451-8(b) or the deferral method in
§ 1.451-8(d)(3), as applicable;
(D) a change from applying a cost offset
method, including the advance payment
cost offset method in § 1.451-8(e), to not
applying a cost offset method to determine
the amount of an advance payment from
the sale of inventory that is required to be
included in gross income under either the
full inclusion method in § 1.451-8(b) or
the deferral method in § 1.451-8(d)(3), as
applicable;
(E) a change to comply with § 1.4518(e)(8)(ii) as a result of a concurrent
cost-offset related inventory method
change, as defined in section 5.06 of
Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of
goods in progress offset by reference to
costs that the taxpayer has impermissibly capitalized and/or allocated under its
present method of accounting for inventory; or
(F) a change to a payment allocation
method described in § 1.451-8(d)(4)(ii).
(3) Inapplicability. Section 16.12(2) of
this revenue procedure does not apply to:

August 30, 2021

(a) a change in method of accounting
to use a special method of accounting, as
defined in proposed § 1.451-3(c)(5) or
§ 1.451-3(a)(13), as applicable;
(b) a change in method of allocating
transaction price between item(s) of gross
income that are accounted for under proposed § 1.451-3 or § 1.451-3, as applicable, and items(s) of gross income that
are accounted for under a special method of accounting, as defined in proposed
§ 1.451-3(c)(5) or § 1.451-3(a)(14), as
applicable, including a change to comply
with § 1.451-3(d)(5);
(c) a change described in section
16.12(2)(a)(iii)(E), section 16.12(2)(a)
(iv)(F) or section 16.12(2)(b)(ii)(E) of
this revenue procedure, as applicable, if,
immediately after such change is made,
the taxpayer’s method of accounting for
cost offsets does not otherwise comply
with the AFS cost offset method under
§ 1.451-3(c) and/or the advance payment
cost offset method under § 1.451-8(e), as
applicable;
(d) a change described in section
16.12(2)(a)(iii)(E), section 16.12(2)(a)(iv)
(F) or section 16.12(2)(b)(ii)(E) of this
revenue procedure, including a change to
comply with § 1.451-3(c)(5)(ii) or § 1.4518(e)(8)(ii) because the taxpayer determines
its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under
its present method of accounting for inventory, unless the taxpayer makes, for the
same year of change, the cost-offset related
inventory method change(s), as defined in
section 5.06 of Rev. Proc. 2015-13;
(e) a change to use the AFS cost offset
method if the taxpayer receives advance
payments from the sale of inventory and
does not also make a change to apply the
advance payment cost offset method, or a
change to use the advance payment cost
offset method if the taxpayer is required
to include gross income from the sale of
inventory under § 1.451-3 and does not
also make a change to apply the AFS cost
offset method;
(f) a change to use the deferral method in § 1.451-8(c) for allocable payments
described in § 1.451-8(c)(8)(iii)(A) (other than allocable payments described in
§ 1.451-8(c)(8)(iii)(B));
(g) a taxpayer that presently uses the
deferral method in § 1.451-8(c) for alloca-

August 30, 2021

ble payments described in § 1.451-8(c)(8)
(iii)(A) that wants to change its payment
allocation method to an allocation method
that is not described in § 1.451-8(c)(8)(iii)
(B);
(h) a change to use the deferral method
in § 1.451-8(d)(3) for allocable payments
described in § 1.451-8(d)(4)(i) other than
either allocable payments described in
§ 1.451-8(d)(4)(ii) or allocable payments
that are wholly attributable to two or more
items described in § 1.451-8(a)(1)(i)(C);
(i) a taxpayer that presently uses the
deferral method in § 1.451-8(d)(3) for
allocable payments described in § 1.4518(d)(4)(i) that wants to change its payment
allocation method to an allocation method
that is not described in § 1.451-8(d)(4)(ii);
(j) a taxpayer without an AFS that
wants to change its method of accounting for advance payments to the deferral
method under proposed § 1.451-8(d)(3) or
§ 1.451-8(d)(3) under which the taxpayer
determines the extent to which an advance
payment is earned by using the following:
(i) a statistical basis if adequate data are
available to the taxpayer; or (ii) the use of
any other basis that in the opinion of the
Commissioner results in a clear reflection
of income;
(k) a change in method of accounting
for specified fees, as defined in proposed
§ 1.451-3(i)(2) or § 1.451-3(j)(2), as applicable, other than specified credit card
fees;
(l) a change in method of accounting
that qualifies under another automatic
change provided in this revenue procedure including, for example, a change
described in section 16.10 of this revenue
procedure;
(m) a change in method of accounting
for a liability, as defined in § 1.446-1(c)
(1)(ii)(B);
(n) a change in a taxpayer’s mismatched reporting periods method described in § 1.451-3(h)(4) if the taxpayer uses the deferral method for advance
payments under § 1.451-8(c) and does
not also change to the same mismatched
reporting periods method for purposes of
accounting for advance payments pursuant to § 1.451-8(c)(7) for the same year
of change; or, if applicable, a change in
a taxpayer’s mismatched reporting periods method pursuant to § 1.451-8(c)(7)
if the taxpayer uses the deferral method

346

for advance payments under § 1.451-8(c)
and does not also change to the same mismatched reporting periods method for
purposes of § 1.451-3(h)(4) for the same
year of change;
(o) a change in method of accounting for payments within the scope of the
specified good exception, as defined in
§ 1.451-8(a)(1)(ii), if the proposed method of accounting is to include such payments in gross income under § 1.451-3 in
one or more taxable years following the
taxable year of receipt; and
(p) a taxpayer that makes one or more
changes under section 16.12(2)(a)(iii) or
(iv) of this revenue procedure for a taxable year that begins before January 1,
2021, unless the taxpayer complies with
all the requirements in §§ 1.451-3(m)(3),
1.451-8(h)(2), and 1.1275-2(l)(2)(ii), as
applicable.
(4) Manner of making change.
(a) Short Form 3115. A taxpayer making a change under this section 16.12 for
its early application year, as defined in
section 16.12(4)(c)(i) of this revenue procedure, or in the case of a taxpayer that
does not apply § 1.451-3 and/or § 1.451-8,
as applicable, for a taxable year beginning
before January 1, 2021, for its first taxable year beginning on or after January 1,
2021, is required to complete the following information on Form 3115 (Rev. December 2018), and the requirement to file
the duplicate copy, under section 6.03(1)
(a) of Rev. Proc. 2015-13 is waived:
(i) The identification section of page 1
(above Part I);
(ii) The signature section at the bottom
of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,
16c, and 19; and
(v) Part IV, all lines. For a taxpayer
making a change under this section 16.12,
the statement required for Line 26 of
Form 3115 should list the § 481(a) adjustment(s).
(vi) Schedule B, all lines except line 1e.
(b) Special rules relating to § 481(a)
adjustment or cut-off basis.
(i) Section 481(a) adjustment period
for changes relating to specified credit
card fees. In the case of income from a
specified credit card fee, the § 481(a) adjustment period for any qualified change
in method of accounting described in this

Bulletin No. 2021–35

section 16.12(4)(b)(i) is six taxable years,
including the year of change and next five
taxable years. For purposes of the preceding sentence, a qualified change in method of accounting is a change in method of
accounting for income from a specified
credit card fee to a method that is required
by § 451(b), as added by section 13221 of
Public Law 115-97, 131 Stat. 2054 (Dec.
22, 2017), commonly referred to as the
Tax Cuts and Jobs Act (TCJA), for such
income, but only for the taxpayer’s first
taxable year beginning after December
31, 2018. Section 16.12(4)(b)(ii) of this
revenue procedure may not be used for
a change relating to specified credit card
fees.
(ii) Cut-off basis or § 481(a) adjustment.
(A) In general. Changes under this section 16.12 with regard to taxpayers who
are members of consolidated groups generally are governed by this section 16.12,
rather than by § 1.1502-17(b)(2) (applicable to changes in the application of the
timing rules of § 1.1502-13 in accounting
for intercompany transactions (within the
meaning of § 1.1502-13(b)(1)(i))). See
§ 1.1502-17(a) and (b)(1).
(B) Cut-off basis or § 481(a) adjustment for changes made under section
16.12(2)(a)(i) of this revenue procedure
when taxpayer is also adopting the New
Standards. Except as otherwise provided
in this section 16.12(4)(b)(ii), a taxpayer making a change described in section
16.12(2)(a)(i) of this revenue procedure
may implement the change with either a
§ 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13
or on a cut-off basis provided the year of
change is the same year that the taxpayer
adopts the New Standards, as defined in
section 16.11 of this revenue procedure.
A taxpayer described in section 16.12(4)
(c)(i)(B) or (C) of this revenue procedure
that uses the streamlined procedures provided in section 16.12(4)(c) of this revenue procedure may not make a change in
method of accounting on a cut-off basis.
If the taxpayer makes a change described
in section 16.12(2)(a)(i) of this revenue
procedure for the taxable year in which it
adopts the New Standards and chooses to
implement such change on a cut-off basis,
(1) the change applies to contracts entered
into on or after the beginning of the year

Bulletin No. 2021–35

of change, (2) all changes made under
section 16.12(2)(a)(i) of this revenue procedure must be implemented using a cutoff basis, and (3) a § 481(a) adjustment is
neither permitted nor required.
(C) Cut-off basis or § 481(a) adjustment for certain changes under proposed
§ 1.451-8(c). Except as otherwise provided in this section 16.12(4)(b)(ii), a taxpayer making a change described in section
16.12(2)(a)(ii) of this revenue procedure
may implement the change with either a
§ 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13
or on a cut-off basis. A taxpayer described
in section 16.12(4)(c)(i)(B) of this revenue
procedure that uses the streamlined procedures provided in section 16.12(4)(c) of
this revenue procedure may not make a
change in method of accounting on a cutoff basis. If the taxpayer implements the
change on a cut-off basis, (1) the change
applies to contracts entered into on or after
the beginning of the year of change, (2)
all changes made under section 16.12(2)
(a)(ii) of this revenue procedure to comply with proposed § 1.451-8(c) must be
implemented using a cut-off basis, and (3)
a § 481(a) adjustment is neither permitted
nor required.
(D) Computing section 481(a) adjustments when the year of change is a year in
which the taxpayer implements a change
in accounting principle with a retained
earnings adjustment. If the year of change
is a year in which the taxpayer implements
a change in accounting principle for AFS
purposes, including a change in the method of applying an accounting principle
for AFS purposes, and the change in accounting principle is implemented with a
retained earnings adjustment that is taken
into account during the year of change, the
taxpayer is required to treat such adjustment as being taken into account in the
taxable year prior to the year of change for
purposes of computing the section 481(a)
adjustment. An AFS change to adopt the
New Standards, as defined in section
16.11(1) of this revenue procedure, is an
example of a change in accounting principle.
(iii) Netting of the section § 481(a) adjustment.
(A) Required netting for changes made
under § 1.451-3 related to inventory sales.
A taxpayer that makes a change described

347

in section 16.12(2)(a)(iii)(C) or (D) of
this revenue procedure and one or more
changes described in section 16.12(2)(a)
(iii)(A), (B), and/or (G) of this revenue
procedure for gross income from inventory sales for the same year of change must
provide a single net § 481(a) adjustment
for all such changes. The § 481(a) adjustment period described in section 7.03 of
Rev. Proc. 2015-13 is determined based
on the net § 481(a) adjustment.
(B) Required netting for changes made
under §1.451-8 related to inventory sales
for taxpayers with an AFS. A taxpayer
that makes a change described in section
16.12(2)(a)(iv)(D) or (E) of this revenue
procedure and one or more changes described in section 16.12(2)(a)(iv)(A), (B),
(C), and/or (G) of this revenue procedure
for advance payments from the sale of inventory for the same year of change must
provide a single net § 481(a) adjustment
for all such changes. The § 481(a) adjustment period described in section 7.03 of
Rev. Proc. 2015-13 is determined based
on the net § 481(a) adjustment.
(C) Required netting for changes made
under § 1.451-8 related to inventory sales
for taxpayers without an AFS. A taxpayer
that makes a change described in section
16.12(2)(b)(ii)(C) or (D) of this revenue
procedure and one or more changes in
method of accounting described in section 16.12(2)(b)(ii)(A) or (B) of this revenue procedure for advance payments
from the sale of inventory for the same
year of change must provide a single net
§ 481(a) adjustment for all such changes.
The § 481(a) adjustment period described
in section 7.03 of Rev. Proc. 2015-13 is
determined based on the net § 481(a) adjustment.
(D) Required netting for non-automatic method changes under § 1.451-3 and/
or § 1.451-8 related to inventory sales.
The rules in section 16.12(4)(b)(iii) of this
revenue procedure generally will apply to
a non-automatic change under § 1.4513 and/or § 1.451-8 for which the netting
rules of section 16.12(4)(b)(iii) of this
revenue procedure would otherwise apply
if the taxpayer were eligible to make the
change under section 16.12 of this revenue procedure.
(iv) Special § 481(a) adjustment rules
for cost offset method change(s) under
§ 1.451-3 and/or § 1.451-8 made with

August 30, 2021

corresponding cost-offset related inventory method change(s).
(A) Required netting rule for changes
described in section 16.12(2)(a)(iii)(E). A
taxpayer that makes more than one method change under section 16.12(2)(a)(iii)
(E) of this revenue procedure for the same
year of change must provide a single net
§ 481(a) adjustment for all such changes.
The § 481(a) adjustment period for this
net § 481(a) adjustment is determined by
applying the rules in section 16.12(4)(b)
(iv)(D) of this revenue procedure.
(B) Required netting rule for changes
described in section 16.12(2)(a)(iv)(F). A
taxpayer that makes more than one method change under section 16.12(2)(a)(iv)
(F) of this revenue procedure for the same
year of change must provide a single net
§ 481(a) adjustment for all such changes.
The § 481(a) adjustment period for this
net § 481(a) adjustment is determined by
applying the rules in section 16.12(4)(b)
(iv)(D) of this revenue procedure.
(C) Required netting rule for changes
described in section 16.12(2)(b)(ii)(E). A
taxpayer that makes more than one method change under section 16.12(2)(b)(ii)
(E) of this revenue procedure for the same
year of change must provide a single net
§ 481(a) adjustment for all such changes.
The § 481(a) adjustment period for this
net § 481(a) adjustment is determined by
applying the rules in section 16.12(4)(b)
(iv)(D) of this revenue procedure.
(D) Special § 481(a) adjustment
spread period. For purposes of sections
7.02 and 7.03 of Rev. Proc. 2015-13, the
§ 481(a) adjustment spread period for a
cost offset change described in section
16.12(2)(a)(iii)(E), section 16.12(2)(a)(iv)
(F), or section 16.12(2)(b)(ii)(E) of this
revenue procedure, whether the § 481(a)
adjustment is positive or negative, is the
same as the § 481(a) spread period for the
corresponding cost-offset related inventory method change, as defined in section
5.06 of Rev. Proc. 2015-13. The rules of
section 7.02 and 7.03 of Rev. Proc. 201513, including the short period rule and
the accelerated adjustment period rules,
apply to determine the spread period for
the § 481(a) adjustment for the cost-offset
related inventory method change, which is
used to determine the § 481(a) adjustment
spread period for a positive or negative
§ 481(a) adjustment for the correspond-

August 30, 2021

ing cost offset change described in section
16.12(2)(a)(iii)(E), section 16.12(2)(a)(iv)
(F), or section 16.12(2)(b)(ii)(E) of this
revenue procedure. If the taxpayer must
net the § 481(a) adjustments for cost offset changes under section 16.12(4)(b)(iv)
(A), (B) or (C) of this revenue procedure,
as applicable, the spread period for any
such net § 481(a) adjustment is the same
as the § 481(a) spread period for the corresponding cost-offset related inventory
method changes, determined by netting
the § 481(a) adjustments from such corresponding cost-offset related inventory
method changes. The requirement that the
taxpayer net the § 481(a) adjustments for
such corresponding cost-offset related inventory method changes is solely for purposes of determining the spread period for
the net § 481(a) adjustment determined
under section 16.12(4)(b)(iv)(A), (B), or
(C), as applicable. This section 16.12(4)
(b)(iv)(D) does not apply if, after applying the netting rules in section 16.12(4)
(b)(iv)(A), (B), or (C), as applicable, the
§ 481(a) adjustment for the corresponding
cost offset change(s) is zero. For example,
if the taxpayer makes a cost-offset related
inventory method change that is implemented on a cut-off basis and the § 481(a)
adjustment for the taxpayer’s corresponding change described in section 16.12(2)
(a)(iii)(E), section 16.12(2)(a)(iv)(F), or
section 16.12(2)(b)(ii)(E) of this revenue
procedure is zero as a result, this section
16.12(4)(b)(iv)(D) does not apply.
(v) Examples. For each of the following examples, the taxpayer uses an accrual method of accounting, is on a calendar year, and has an AFS, as defined in
§ 1.451-3(a)(5). The taxpayer implements
§ 1.451-3 and, if applicable, § 1.451-8, beginning with its 2021 taxable year.
(A) Example 1. Netting rules. A is engaged in a
single trade or business of selling and servicing computers. A is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. A does
not receive advance payments. For 2021, A makes
multiple changes in method of accounting to apply
§ 1.451-3. Specifically, A changes its method of accounting for gross income from the sale of computers
to apply the AFS income inclusion rule pursuant to
section 16.12(2)(a)(iii)(A) of this revenue procedure
and to apply the AFS cost offset method pursuant to
section 16.12(2)(a)(iii)(C) of this revenue procedure.
A also changes its method of accounting for gross
income from computer services to apply the AFS
income inclusion rule pursuant to section 16.12(2)
(a)(iii)(A) of this revenue procedure. Since A made
a change described in section 16.12(2)(a)(iii)(C) of

348

this revenue procedure and a change described in
section 16.12(2)(a)(iii)(A) of this revenue procedure
for gross income from computer sales for the same
year of change, A must net the § 481(a) adjustments
resulting from these changes in the manner required
by section 16.12(4)(b)(iii)(A) of this revenue procedure. The § 481(a) adjustment resulting from A’s
change in method of accounting for income from
computer services under section 16.12(2)(a)(iii)
(A) of this revenue procedure is not netted with the
§ 481(a) adjustments resulting from the computer
sales method changes.
(B) Example 2. Special section 481(a) adjustment period under section 16.12(4)(b)(iv) of this
revenue procedure. The facts are the same as in Example 1. For 2022, A changes its inventory method
under section 12.01 of this revenue procedure and,
as a result, also changes its cost offset method to
comply with § 1.451-3(c)(5)(ii) pursuant to section
16.12(2)(a)(iii)(E) of this revenue procedure. The
cost-offset related inventory method change under
section 12.01 of this revenue procedure results in a
positive § 481(a) adjustment that is spread over four
taxable years under section 7.01 and 7.03 of Rev.
Proc. 2015-13. The cost offset method change under
section 16.12(2)(a)(iii)(E) of this revenue procedure
results in a negative § 481(a) adjustment. Section
16.12(4)(b)(iv)(D) of this revenue procedure requires A to spread the negative § 481(a) adjustment
over four taxable years consistent with the § 481(a)
adjustment period for the concurrent cost-offset related inventory method change under section 12.01
of this revenue procedure.

(c) Streamlined method change procedures for certain taxpayers.
(i) Applicability. The procedures described in this section 16.12(4)(c) may be
used by a taxpayer to make a change in
method of accounting described in section
16.12(2)(a)(iii)(A), (B), (F), and/or (G),
section 16.12(2)(a)(iv)(A), (B), (C), (G),
and/or (H), or section 16.12(2)(b)(ii)(A),
(B), and/or (F) of this revenue procedure
for the taxpayer’s early application year,
provided the taxpayer meets the requirements in this section 16.12(4)(c). For
purposes of section 16.12, a taxpayer’s
“early application year” means the taxable
year beginning before January 1, 2021, in
which a taxpayer first applies § 1.451-3
and/or § 1.451-8, as applicable. In addition, in the case of a taxpayer that does
not apply § 1.451-3 and/or § 1.451-8 for
a taxable year beginning before January
1, 2021, the procedures described in this
section 16.12(4)(c) may be used to make
a change in method of accounting described in section 16.12(2)(a)(iii)(A), (B),
(F), and/or (G), section 16.12(2)(a)(iv)
(A), (B), (C), (G), and/or (H), or section
16.12(2)(b)(ii)(A), (B), and/or (F) of this
revenue procedure, for the taxpayer’s first

Bulletin No. 2021–35

taxable year beginning on or after January
1, 2021, provided the taxpayer meets the
requirements in this section 16.12(4)(c).
A taxpayer may not use the streamlined
procedures for any change in method of
accounting described in section 16.12(2)
of this revenue procedure if the taxpayer
is also making a change in method of accounting described in sections 16.12(2)(a)
(iii)(C), (D), and/or (E), sections 16.12(2)
(a)(iv)(D), (E), and/or (F), or sections
16.12(2)(b)(ii)(C), (D), and/or (E) of this
revenue procedure for the same year of
change. In addition, a taxpayer may not
use the streamlined procedures if one or
more of the inapplicability rules provided
in section 16.12(3) of this revenue procedure applies to the change. A taxpayer that
is otherwise permitted to use the streamlined method change procedures in this
section 16.12(4)(c) may use these streamlined procedures if the taxpayer meets one
of the following requirements:
(A) the taxpayer, other than a tax shelter, as defined in § 448(d)(3), meets the
§ 448(c) gross receipts test (a “small business taxpayer”) for the year of change. The
taxpayer meets the § 448(c) gross receipts
test if the taxpayer has average annual
gross receipts for the three prior taxable
years of $25,000,000 or less (adjusted for
inflation). See § 448(c)(4). For a taxable
year beginning in 2019, 2020, or 2021, the
inflation-adjusted amount is $26,000,000.
See Rev. Proc. 2018-57, 2018-49 I.R.B.
827, Rev. Proc. 2019-44, 2019-47 I.R.B.
1093, or Rev. Proc. 2020-45, 2020-46
I.R.B. 1016 as applicable;
(B) the taxpayer is making one or more
changes described in section 16.12(2)(a)
(iii)(A), (B), (F), and/or (G) of this revenue procedure, and the § 481(a) adjustment required by each of the changes is
zero. A taxpayer that meets this requirement is permitted to make the changes described in section 16.12(2)(a)(iii)(A), (B),
(F), and/or (G) of this revenue procedure
under the streamlined method change procedures. Notwithstanding any provisions
of this section 16.12, a taxpayer making
more than one change in method of accounting under section 16.12(2)(a)(iii)
(A), (B), (F), and/or (G) of this revenue
procedure for the same year of change is
not permitted to net the § 481(a) adjustments to determine if the taxpayer meets
the requirements to use the streamlined

Bulletin No. 2021–35

method change procedures. See section
16.12(7)(a) of this revenue procedure for
more information on making concurrent
changes; or
(C) the taxpayer is making one or more
changes described in section 16.12(2)(a)
(iv)(A), (B), (C), (G), and/or (H), or section 16.12(2)(b)(ii)(A), (B), and/or (F) of
this revenue procedure, and the § 481(a)
adjustment required by each of the changes is zero. A taxpayer that meets this requirement is permitted to make the changes described in section 16.12(2)(a)(iv)
(A), (B), (C), (G), and/or (H), or section
16.12(2)(b)(ii)(A), (B), and/or (F) of this
revenue procedure under the streamlined
method change procedures. Notwithstanding any provisions of this section 16.12,
a taxpayer making more than one change
in method of accounting under section
16.12(2) for the same year of change is not
permitted to net the § 481(a) adjustments
to determine if the taxpayer meets the requirements to use the streamlined method
change procedures. See section 16.12(7)
(a) of this revenue procedure for more information on making concurrent changes.
(ii) No Form 3115 required. In accordance with § 1.446-1(e)(3)(ii), the
requirement of § 1.446-1(e)(3)(i) to file
a Form 3115 is waived for a taxpayer
making a change in method of accounting
under this section 16.12 using the streamlined method change procedures. Thus,
a taxpayer using the streamlined method
change procedures is not required to file a
Form 3115 and is not required to attach a
separate statement when making a change
under this section 16.12.
(d) Certain cost offset changes made
on an amended return.
(i) In general. Notwithstanding section
6.03(1)(a) of Rev. Proc. 2015-13, a taxpayer making a change described in section 16.12(2)(a)(iii)(E), section 16.12(2)
(a)(iv)(F), or section 16.12(2)(b)(ii)(E)
of this revenue procedure, as applicable,
which corresponds to a cost-offset related
inventory method change filed under the
non-automatic method change procedures
of Rev. Proc. 2015-13 for the same year
of change may make the corresponding
cost offset change described in section
16.12(2)(a)(iii)(E), section 16.12(2)(a)
(iv)(F), or section 16.12(2)(b)(ii)(E) on
an amended Federal income tax return for
the cost offset year of change (as defined

349

in section 16.12(4)(d)(ii) of this revenue
procedure) provided:
(A) the taxpayer received consent for
the cost-offset related inventory method change filed under the non-automatic
method change procedures for the year
of change after the time the taxpayer was
required to file the original Form 3115
for the corresponding cost offset change
under section 16.12(2)(a)(iii)(E), section
16.12(2)(a)(iv)(F), or section 16.12(2)(b)
(ii)(E) of this revenue procedure, as applicable, in accordance with section 6.03(1)
(a)(i)(A) of Rev. Proc. 2015-13 for the
cost offset year of change;
(B) the taxpayer timely signs and returns the Consent Agreement for the
non-automatic corresponding cost-offset
related inventory method change in accordance with section 11.03(2)(c)(i) of Rev.
Proc. 2015-13, and timely implements
such non-automatic change in accordance
with section 11.03(2)(c)(ii)(A) or (B) of
Rev. Proc. 2015-13;
(C) the taxpayer implements the corresponding cost offset method change
described in section 16.12(2)(a)(iii)(E),
section 16.12(2)(a)(iv)(F), or section
16.12(2)(b)(ii)(E) of this revenue procedure, as applicable, on the same amended
Federal income tax return that the taxpayer implements the cost-offset related
inventory method change described in
section 16.12(4)(d)(i)(A) of this revenue
procedure; and
(D) the taxpayer’s amended Federal income tax return for the year of change includes any adjustments to taxable income
or tax liability resulting from the change(s)
in method of accounting for the cost-offset
related inventory method change(s) specified in the letter ruling and the corresponding cost offset method change(s).
(ii) Cost offset year of change. For purposes of this section 16.12(4)(d), a taxpayer’s cost offset year of change is the same
year of change that the taxpayer received
consent under the non-automatic change
procedures for the cost-offset inventory
related change.
(iii) Filing requirements. Notwithstanding section 6.03(1)(a) of Rev. Proc.
2015-13, a taxpayer making a change
under section 16.12(2)(a)(iii)(E), section
16.12(2)(a)(iv)(F), or section 16.12(2)(b)
(ii)(E) of this revenue procedure in accordance with section 16.12(4)(d) of this rev-

August 30, 2021

enue procedure must attach the original
Form 3115 to the taxpayer’s timely filed
amended Federal income tax return for the
cost offset year of change and must file the
required copy (with signature) of the Form
3115 with the IRS in Ogden, UT, no later
than the date the taxpayer timely files the
amended Federal income tax return that
implements the cost-offset related inventory method described in section 16.12(4)
(d)(i)(A) of this revenue procedure, as
provided in section 11.03(2)(c)(ii)(A) or
(B) of Rev. Proc. 2015-13.
(5) Eligibility rule inapplicable.
(a) Eligibility rule temporarily inapplicable for changes under sections 16.12(2)
(a)(i), (2)(a)(ii), or (2)(b)(i) of this revenue
procedure. Except as otherwise provided in section 16.12(5)(c) of this revenue
procedure, the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a change under section 16.12(2)
(a)(i), (a)(ii) or (2)(b)(i) of this revenue
procedure for a taxpayer’s first, second or
third taxable year beginning after December 31, 2017, provided the taxable year
begins before January 1, 2021.
(b) Eligibility rule temporarily inapplicable for changes under sections 16.12(2)
(a)(iii), (2)(a)(iv), or (2)(b)(ii) of this revenue procedure. Except as otherwise provided in section 16.12(5)(c) of this revenue procedure, for a taxpayer that applies
§ 1.451-3 and/or § 1.451-8, as applicable,
for a taxable year beginning before January 1, 2021, the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a change under section 16.12(2)
(a)(iii), (2)(a)(iv), or (2)(b)(ii) of this
revenue procedure for a taxpayer’s early application year, as defined in section
16.12(4)(c)(i) of this revenue procedure.
Except as otherwise provided in this section 16.12(5), for a taxpayer that does not
apply § 1.451-3 and/or § 1.451-8 for a
taxable year beginning before January 1,
2021, the eligibility rule in section 5.01(1)
(f) of Rev. Proc. 2015-13 does not apply
to a change under section 16.12(2)(a)(iii),
(2)(a)(iv), or (2)(b)(ii) of this revenue procedure for a taxpayer’s first taxable year
beginning on or after January 1, 2021.
(c) Changes related to specified credit card fees. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a specified credit card fee change
made under section 16.12(2)(a)(i) of this
revenue procedure for a taxpayer’s first

August 30, 2021

or second taxable year beginning after
December 31, 2018, provided the taxable
year begins before January 1, 2021. In addition, for a taxpayer that applies § 1.4513 and § 1.1275-2(l) for specified credit
card fees for a taxable year beginning before January 1, 2021, the eligibility rule
in section 5.01(1)(f) of Rev. Proc. 201513 does not apply to a specified credit
card fee cha

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A4880f47f0a9abfd0. Public record. Not legal advice.