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Bulletin No. 2023–7
February 13, 2023
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. 2023-9, page 471.
This revenue procedure obsoletes Rev. Proc. 92-29, 19921 C.B. 748 and provides new rules and conditions for implementing the optional safe harbor method of accounting
for real estate developers (developers) to determine when
common improvement costs may be included in the basis
of individual units of real property (units) in a real property
development project (project) to determine the gain or loss
from sale of those units (Alternative Cost Method). This
revenue procedure treats the Alternative Cost Method as a
method of accounting under §§ 446 and 481 of the Internal
Revenue Code (Code) and is an alternative to the general
requirements under § 461(h) of the Code. Under the Alternative Cost Method, a developer includes the share of the
Finding Lists begin on page ii.
estimated cost of common improvements allocable to the
units sold in the basis of such units regardless of whether
the costs have been incurred under § 461(h), subject to the
alternative cost limitations set forth in this revenue procedure. This revenue procedure also provides guidance on
the application of the Alternative Cost Method to contracts
accounted for under § 460 of the Code and the regulations
thereunder.
EXEMPT ORGANIZATIONS
Announcement 2023-4, page 470.
Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(c).
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.
February 13, 2023
Bulletin No. 2023–7
Part I
Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code
Announcement 2023-4
The Internal Revenue Service has revoked its determination that the organization listed below qualifies as an organization described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not precluded from disallowing a deduction for any
contributions made after an organization
ceases to qualify under section 170(c)(2)
if the organization has not timely filed a
suit for declaratory judgment under section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations
described in section 170(c)(2) that are oth-
erwise allowable will continue to be deductible. Protection under section 7428(c) would
begin on January 19, 2023 and would end
on the date the court first determines the organization is not described in section 170(c)
(2) as more particularly set for in section
7428(c)(1). For individual contributors, the
maximum deduction protected is $1,000,
with a husband and wife treated as one contributor. This benefit is not extended to any
individual, in whole or in part, for the acts
or omissions of the organization that were
the basis for revocation.
The Following organization is no longer qualified as an organization exempt
from income tax under Internal Revenue
Code (the “Code”) Section 501(a) as an
organization described in Section 501(c)
(3) of the Code:
NAME OF ORGANIZATION
EFFECTIVE DATE OF
REVOCATION
LOCATION
MINISTRIES DISCRETIONARY URBAN INITIATIVE INC.
1/1/2018
MILWAUKEE, WI
February 13, 2023
470
Bulletin No. 2023–7
Part III
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also: Part I, Sections 446, 460, 461, 481, 1011,
1012, 1016; 1.446-1, 1.460-1, 1.460-3, 1.460-4,
1.460-5, 1.461-1, and 1.461-4.)
Rev. Proc. 2023-9
SECTION 1. PURPOSE
This revenue procedure obsoletes Rev.
Proc. 92-29, 1992-1 C.B. 748, and provides new rules and conditions for implementing the optional safe harbor method
of accounting for real estate developers
(developers) to determine when common
improvement costs may be included in the
basis of individual units of real property (units) in a real property development
project (project) held for sale to determine
the gain or loss from sales of those units
(Alternative Cost Method). Under this
revenue procedure, the Alternative Cost
Method is a method of accounting under
§§ 446 and 481 of the Internal Revenue
Code (Code) and is an alternative to the
general requirements under § 461(h).1 Under the Alternative Cost Method, a developer includes the share of the estimated
cost of common improvements allocable
to the units sold in the basis of such units
regardless of whether the costs have been
incurred under § 461(h), subject to the alternative cost limitations set forth in this
revenue procedure. This revenue procedure also provides guidance on the application of the Alternative Cost Method to
contracts accounted for under § 460 and
the regulations thereunder.
SECTION 2. BACKGROUND
.01 Section 1011 provides, in part, that
the adjusted basis for determining gain
or loss from the sale or other disposition
of property is the taxpayer’s basis in the
property, determined under § 1012, adjusted as provided in § 1016. Section 1012
provides that the basis of property is the
cost of such property. Section 1.10162(a) provides that the cost or other basis
is properly adjusted for any expenditure
1
properly chargeable to a capital account,
including the cost of improvements and
betterments made to the property.
.02 A developer may allocate the costs
of certain common improvements to the
bases of lots held for sale “[i]f an analysis
of the common improvements indicated
that (1) the basic purpose of the taxpayer
in constructing the common improvement
is to induce sales of the lots and (2) the
taxpayer does not retain too much ownership and control of the common improvements.” Norwest Corp. and Subsidiaries
v. Commissioner, 111 T.C. 105, 134-35
(1998). See also Rev. Rul. 68-478, 19682 C.B. 330; Rev. Rul. 81-83, 1981-1 C.B.
434.
.03 Section 461(h)(1) provides that, in
determining whether an amount has been
incurred with respect to any liability during
any taxable year, the all events test is not
treated as met any earlier than when economic performance with respect to such
liability occurs. The term “liability”, as
defined in §1.446-1(c)(1)(ii)(B), includes
any item allowable as a deduction, cost, or
expense for federal income tax purposes,
as well as any amount otherwise allowable as a capitalized cost, as a cost taken
into account in computing cost of goods
sold, as a cost allocable to a long-term
contract, or as any other cost or expense.
.04 Under § 461, developers cannot add
common improvement costs to the basis of
the benefitted units until such costs are incurred under § 461(h). Thus, any common
improvement costs that have not been incurred under § 461(h) when the benefitted
units are sold cannot be included in the
basis of the units in determining the gain
or loss resulting from the sales.
.05 On April 9, 1992, the Internal Revenue Service (IRS) issued Rev. Proc. 92-29,
which provided procedures under which
the IRS would consent to developers including the estimated cost of common
improvements in the basis of units in a
project sold without meeting the economic performance requirements of § 461(h)
(92-29 alternative cost method). In order
for a developer to receive consent to use
the 92-29 alternative cost method for a
project, the developer was required to file
a request to use the 92-29 alternative cost
method with the developer’s applicable
District Director on or before the due date
of the developer’s original federal income
tax return (determined with regard to extensions of time) for the taxable year in
which the first benefitted unit in the project was sold. The developer also had to attach a copy of the request to the developer’s timely filed (determined with regard
to extensions of time) original federal income tax return for the taxable year. A request had to be filed for each project, and
the request required detailed information
about the developer, the project, and the
common improvement cost calculations
under the 92-29 alternative cost method.
See section 6.04 of Rev. Proc. 92-29. Rev.
Proc. 92-29 obsoleted Rev. Proc. 75-25,
1975-1 C.B. 720, with respect to sales of
property after December 31, 1992.
.06 The use of the 92-29 alternative
cost method was also conditioned on the
developer’s agreement to extend the statutory period of limitation for assessing
any tax deficiency arising from employing that method for each taxable year in
which the 92-29 alternative cost method
was used. To satisfy this condition, the
developer executed and filed a consent
on Form 921, Consent to Extend the Time
to Assess Income Tax, or Form 921-A,
Consent Fixing Period of Limitation On
Assessment of Income and Profits Tax, as
applicable. In addition, developers were
required to file annual statements with
the District Director for each project for
which the 92-29 alternative cost method
was used. The annual statements required
detailed information about the developer,
the project, and updates to the common
improvement cost calculations under the
92-29 alternative cost method. See section
8.02 of Rev. Proc. 92-29. The developer
also had to attach a copy of the annual
statement to the developer’s timely filed
(determined with regard to extensions of
time) original federal income tax return
for the taxable year. If the project could
not be completed within the original estimated completion period, a developer was
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).
Bulletin No. 2023–7
471
February 13, 2023
required to file a supplemental request for
consent to extend the period to use the 9229 alternative cost method and to agree to
extend the statutory period of limitation
to assess income tax for each additional
taxable year that the 92-29 alternative cost
method was used.
.07 Section 460(a) generally requires
that the taxable income from a long-term
contract be determined under the percentage-of-completion method (PCM).
Section 460(f)(1) defines a long-term
contract to include any contract for the
construction of property if the contract
is not completed in the taxable year it is
entered into. For this purpose, a contract
is for the construction of property if (1)
construction is required in order to fulfill a
taxpayer’s contractual obligations, and (2)
the construction of the property was not
completed when the contract was entered
into. How the parties characterize their
agreement, for example, as a contract for
the sale of property, is irrelevant. Section
1.460-1(b)(2)(i). Nonetheless, a contract
is not a construction contract if it requires
the taxpayer to transfer land and the estimated total allocable contract costs attributable to the taxpayer’s construction
activities (exclusive of the cost of the
land) are less than 10 percent of the total
contract price (de minimis test). Section
1.460-1(b)(2)(ii). Accordingly, contracts
for the sale of units that do not meet the
de minimis test are long-term contracts for
purposes of § 460.
.08 Section 460(e)(1) exempts from
the required use of the PCM the following
construction contracts (exempt construction contracts): (1) home construction
contracts (defined in § 460(e)(5)) and (2)
other construction contracts of taxpayers, other than tax shelters, who meet
the § 448(c) gross receipts test, and who
estimate that the contracts will be completed within two years of the contract
commencement date (generally the date
the taxpayer first incurs allocable contract
costs). A long-term construction contract
is a home construction contract if a taxpayer reasonably expects to attribute 80
percent or more of the estimated total allocable contract costs, determined as of the
close of the contracting year, to the construction of (1) dwelling units contained
in buildings containing 4 or fewer dwelling units and (2) improvements to real
February 13, 2023
property directly related to, and located at
the site of, the dwelling units (80-percent
test). Section 1.460-3(b)(2). A contract’s
share of common improvement costs is
counted toward meeting the 80 percent
test only if there are “dwelling unit costs.”
Howard Hughes Co., LLC v. Commissioner, 805 F.3d 175, 184-185 (5th Cir. 2015).
An exempt construction contract may be
accounted for under a number of “exempt
methods,” which include the completed
contract method described in § 1.4604(d) (CCM) and the accrual method. See
§ 1.460-4(c)(1).
.09 In general, for exempt construction contracts using the CCM, a taxpayer
must annually allocate to each contract all
costs that are incident to or necessary for
the taxpayer’s performance under the contract. Section 1.460-5(d). Upon contract
completion, a taxpayer generally takes
into account the gross contract price and
those allocable contract costs that have
been incurred. Section 1.460-4(d). A contract is completed upon the earlier of (1)
use of the subject matter of the contract
by the customer for its intended purpose
(other than for testing) and at least 95 percent of the total allocable contract costs
attributable to the subject matter have
been incurred by the taxpayer; or (2) final
completion and acceptance of the subject
matter of the contract. Section 1.460-1(c)
(3)(i).
.10 The Department of the Treasury
(Treasury Department) and the IRS recognize that aspects of Rev. Proc. 92-29
are outdated due to the enactment of the
Internal Revenue Service Restructuring
and Reform Act of 1998, Public Law No.
105-206, 112 Stat. 685 (1998), and the Bipartisan Budget Act of 2015, Public Law
No. 117-74, 129 Stat. 584 (2015). The
Treasury Department and the IRS also
recognize that certain terms and conditions in Rev. Proc. 92-29, including those
described in section 2.06 of this revenue
procedure, place additional administrative burdens on developers and the IRS.
Lastly, the Treasury Department and the
IRS recognize that the application of the
92-29 alternative cost method to contracts
accounted for under § 460 may be unclear.
Accordingly, this revenue procedure provides updates to Rev. Proc. 92-29 to reflect
current law; to reduce the administrative,
recordkeeping, and compliance burdens
472
associated with the use of the 92-29 alternative cost method; and to clarify its application to contracts accounted for under
§ 460 and the regulations thereunder.
.11 Under this revenue procedure, the
Alternative Cost Method is a method of
accounting under § 446. Sections 446(e)
and 1.446-1(c) require taxpayers to secure the consent of the Commissioner of
Internal Revenue (Commissioner) before
changing a method of accounting for federal income tax purposes. Section 1.4461(e)(3)(ii) authorizes the Commissioner
to prescribe administrative procedures
setting forth the limitations, terms, and
conditions necessary to permit a taxpayer
to obtain consent to change a method of
accounting.
.12 This revenue procedure provides
new rules and procedures for developers
to use the Alternative Cost Method for
certain common improvement costs. Developers that want to use the Alternative
Cost Method generally will be required to
apply the method to all qualifying projects in a trade or business instead of on
a per-project basis as required under Rev.
Proc. 92-29. Additionally, section 8 of this
revenue procedure provides the exclusive procedures for taxpayers that want
to change their method of accounting to
apply the Alternative Cost Method. To
ease the administrative burden faced by
taxpayers to comply with the change to
the Alternative Cost Method for the first
taxable year beginning after December
31, 2022, this revenue procedure (1) permits certain taxpayers to use a short Form
3115, Application for Change in Accounting Method, to make method changes to
apply the Alternative Cost Method if each
change results in a § 481(a) adjustment of
zero, and (2) waives the eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, which prohibits taxpayers from filing an automatic method
change if the taxpayer has made or requested a change for the same item during
the 5 taxable years ending with the year
of change.
SECTION 3. SCOPE
.01 Scope. The Alternative Cost Method is available to developers using an
overall accrual method of accounting that
are contractually obligated or required by
Bulletin No. 2023–7
law to provide common improvements,
as defined in section 4.02 of this revenue
procedure, as part of a qualifying project,
as defined in section 4.01 of this revenue
procedure. The Alternative Cost Method
must be applied to all projects in a trade
or business that meet the definition of a
qualifying project. That is, the Alternative Cost Method is applied on a trade
or business-by-trade or business basis
pursuant to § 1.446-1(d). However, the
alternative cost limitation in section 5.04
of this revenue procedure is calculated on
a project-by-project basis. Any common
improvement costs incurred with respect
to one qualifying project may not be included in the Alternative Cost Method calculations of a separate qualifying project.
SECTION 4. DEFINITIONS
.01 Qualifying Project.
(1) General Definition. For purposes
of this revenue procedure, the term “qualifying project” means any project of a developer for which common improvement
costs will be incurred, provided such costs
are properly allocable to–
(a) contracts that are properly accounted for under the CCM and for which one
or more benefitted units are the subject
matter, and/or
(b) benefitted units, the sales of which
are properly accounted for under an accrual method.
(2) Reasonable Method. For purposes of the definition of a qualifying project, a developer may use any reasonable
method to define a project in light of the
common improvements to be provided.
For example, a developer is using a reasonable method to define a project when
it separates commercial and residential
projects that provide for different common
improvements.
.02 Common Improvement. For purposes of this revenue procedure, the term
“common improvement” means any real
property or improvements to real property
that benefit two or more units that are separately held for sale by a developer. The
developer must be contractually obligated
or required by law to provide the common
improvement and must not be able to recover the cost of the common improvement through depreciation. See Rev. Rul.
76-247, 1976-1 C.B. 217, for guidance re-
Bulletin No. 2023–7
garding the necessary contractual obligation. Examples of common improvements
include streets, sidewalks, sewer lines,
playgrounds, clubhouses, tennis courts,
and swimming pools that the developer is
contractually obligated or required by law
to make, as long as the costs are not properly recoverable through depreciation.
However, common improvement costs do
not include, for example, the costs to manage, mow, maintain, or repair the property,
construction period interest, or property
taxes.
.03 CCM Contract. For purposes of
this revenue procedure, the term “CCM
contract” means any contract that is properly accounted for under the CCM and for
which one or more benefitted units in a
qualifying project are the subject matter.
SECTION 5. APPLICATION OF
ALTERNATIVE COST METHOD
.01 Developers Using an Accrual
Method of Accounting. A developer that
uses an accrual method to account for the
sale of units in a qualifying project and
meets the scope requirements of section 3
of this revenue procedure is permitted to
include in the basis of units sold (or make
an adjustment to income with respect to
units sold in prior taxable years) their allocable share of the estimated cost of common improvements, as determined under
section 5.03 of this revenue procedure, regardless of whether the costs are incurred
under § 461(h), subject to the alternative
cost limitation in section 5.04 of this revenue procedure.
.02 Developers Using CCM. A developer that uses the CCM to account for a
CCM contract and meets the scope requirements of section 3 of this revenue
procedure is permitted to treat a CCM
contract’s allocable share of the estimated
cost of common improvements, as determined under section 5.03 of this revenue
procedure, as incurred allocable contract
costs for purposes of determining income under § 1.460-4(d)(1) in the CCM
contract’s completion year (or making an
adjustment to income for CCM contracts
completed in prior taxable years), regardless of whether the costs are incurred under § 461(h), subject to the alternative cost
limitation in section 5.04 of this revenue
procedure. However, the Alternative Cost
473
Method is disregarded for purposes of determining the year in which a CCM contract is complete under § 1.460-1(c)(3)(i).
.03 Allocable Share of Estimated Cost of
Common Improvements.
(1) Under the Alternative Cost Method,
a developer allocates the estimated cost of
common improvements to all the benefitted units in the qualifying project (and, in
the case of a developer using the CCM,
all the CCM contracts from the qualifying
project). The allocation of the estimated
cost of common improvements among
the benefitted units (or CCM contracts)
in the qualifying project is made using
any method that is applied on a consistent basis within that qualifying project
and reasonably reflects the benefits provided to the units (or the CCM contracts)
in that qualifying project. For example, a
pro rata allocation of the estimated cost
of common improvements or an allocation of the estimated cost of common
improvements based on the relative costs
to be incurred for the benefitted unit, on
the relative size of the benefitted unit, or
on the relative fair market value of the
benefitted unit may be reasonable. Additionally, an allocation of a portion of the
estimated cost of common improvements
for certain common improvements based
on one of the foregoing approaches and a
different portion of the estimated cost of
common improvements for other common
improvements based on another of the
foregoing approaches may be reasonable.
If so, such an allocation method must be
applied consistently among all benefitted
units (or CCM contracts) in the qualifying
project, as indicated above.
(2) The “estimated cost of common
improvements” as of the end of any taxable year is equal to the amount of common improvement costs incurred under §
461(h) as of the end of the taxable year,
plus the amount of common improvement
costs the developer reasonably anticipates
it will incur under § 461(h) during the ten
succeeding taxable years (ten-taxable year
horizon). The estimated cost of common
improvements may change from taxable
year to taxable year as, for example, (1) the
developer performs obligations at costs
that differ from its previous estimate,
(2) the developer changes its estimate of
costs, (3) the developer undertakes new
legal obligations or is released from ex-
February 13, 2023
isting ones, and (4) a new taxable year is
added to the ten-taxable year horizon for
estimating costs. A developer may not
adjust the estimated cost of common improvements for a prior taxable year when
events after filing the prior year original
federal income tax return show that the
original estimate has been either understated or overstated. If, after the original return is filed, it is determined that a
greater or lesser amount should have been
claimed, the correction is made in and
for the year the determination is made.
The adjustment to the estimated cost of
common improvements is allocated to
all of the benefitted units (and/or CCM
contracts) in the project, including units
that were sold (or CCM contracts that
were completed) in prior taxable years. In
the case of units that were sold (or CCM
contracts that were completed) in a prior
taxable year, their allocable share of the
adjustment gives rise to a current year adjustment to income rather than an amended return or an administrative adjustment
request, subject to the alternative cost limitation under section 5.04 of this revenue
procedure. See section 5.06(3), Example
3, of this revenue procedure.
.04 Alternative Cost Limitation.
(1) The sum of the amount of estimated
cost of common improvements included
in the basis of (or otherwise taken into account with respect to) all of the units in
the qualifying project that have been sold
as of the end of the taxable year, or treated as incurred allocable contract costs for
purposes of determining income under §
1.460-4(d)(1) for CCM contracts completed as of the end of the taxable year,
may not exceed the total amount of common improvement costs that have been
incurred, within the meaning of § 461(h),
with respect to the qualifying project as of
the end of the taxable year (alternative cost
limitation). If the alternative cost limitation precludes a developer from including
the entire allocable share of the estimated
cost of common improvements in the basis
of the units sold (or treating the entire allocable share of the estimated cost of common improvements as incurred allocable
contract costs of completed CCM contracts) in that taxable year, the costs not
included in such year may be taken into
account in a subsequent taxable year to the
extent additional common improvement
February 13, 2023
costs have been incurred under § 461(h).
The common improvement costs incurred
in a subsequent year are allocated first to
the units already sold (or CCM contracts
already completed) and then to the units
sold in such subsequent year (or CCM
contracts completed in such subsequent
year). See section 5.06(2), Example 2, of
this revenue procedure.
(2) The alternative cost limitation must
be applied on a project-by-project basis.
Thus, the common improvement costs
incurred with respect to one qualifying
project may not be included in the alternative cost limitation of a second qualifying
project.
.05 Other Provisions in the Code. The
Alternative Cost Method does not affect
the application of general capitalization
rules to developers under §§ 263(a) and
263A. Thus, common improvement costs
incurred under § 461(h) are allocated
among the benefitted units and may provide the basis for additional computations
(for example, interest capitalization under
§ 263A(f)).
.06 Examples. The following examples
illustrate the application of the Alternative
Cost Method.
(1) Example 1. (a) Facts. Developer will build 10
houses as part of the same project on a tract of land.
The project is expected to take 3 years to complete.
Developer is contractually obligated to provide common improvements that will benefit all the houses
on the tract equally. Developer estimates that the
common improvement costs will total $500,000,
and the estimate does not change during the project. The common improvement costs are not properly recoverable through depreciation by Developer.
Pursuant to section 5.03 of this revenue procedure,
Developer allocates the estimated cost of common
improvements pro rata to each house. Accordingly,
each house’s allocable share of the estimated cost of
the common improvements is $50,000 ($500,000/10
houses). During Year 1, Developer sells four houses
and incurs, within the meaning of § 461(h), $250,000
of common improvement costs. In Year 2, Developer
sells four houses and incurs, within the meaning of §
461(h), $150,000 of common improvement costs. In
Year 3, Developer sells two houses and incurs, within
the meaning of § 461(h), $100,000 of common improvement costs. Developer uses an accrual method
of accounting to account for the sale of all 10 houses
in the development project and uses the Alternative
Cost Method.
(b) Year 1--(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Method, Developer includes $200,000 of estimated cost
of common improvements in the aggregate bases of
the four houses sold during Year 1 in determining the
gain or loss resulting from the sales. This amount is
the allocable share of the estimated cost of common
improvements for the four houses as of the end of
474
Year 1, $200,000 ($50,000 x 4) and does not exceed
the amount of the common improvement costs incurred with respect to the qualifying project under §
461(h) as of the end of Year 1 (that is, the alternative
cost limitation), $250,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method,
Developer would allocate the $250,000 of common
improvement costs incurred to all 10 houses in the
project and only include $100,000 ($250,000/10 x
4) of common improvement costs in the aggregate
bases of the houses sold during Year 1 in determining
the gain or loss resulting from the sales.
(c) Year 2--(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Method, Developer includes $200,000 of estimated cost
of common improvements in the aggregate bases of
the four houses sold during Year 2 in determining the
gain or loss resulting from the sales. This amount is
the allocable share of the estimated cost of common
improvements as of the end of Year 2 for the four
houses, $200,000 ($50,000 x 4). The total amount of
estimated cost of common improvements included in
the bases of all of the houses sold as of the end of
Year 2, $400,000 ($200,000 in Year 1 + $200,000 in
Year 2), does not exceed the amount of the common
improvement costs incurred with respect to the qualifying project under § 461(h) as of the end of Year
2 (that is, the alternative cost limitation), $400,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method,
it would allocate the $150,000 of common improvement costs incurred in Year 2 to all 10 houses in the
project ($15,000 to each house). The $60,000 allocated to the four houses sold in Year 1 would be recovered as a reduction to Developer’s income in Year
2. The $60,000 allocated to the 4 houses sold in Year
2 would be included in their aggregate adjusted bases
(along with the $100,000 of common improvement
costs incurred in Year 1) in determining the gain or
loss resulting from the sales. The remaining $30,000
allocated to the 2 houses that were not yet sold as of
the end of Year 2 would be included in their aggregate adjusted bases and recovered when those houses
are sold in Year 3.
(d) Year 3--(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Method, Developer includes $100,000 of estimated cost
of common improvements in the aggregate bases of
the two houses sold during Year 3 in determining the
gain or loss resulting from the sales. This amount is
the allocable share of the estimated cost of common
improvements as of the end of Year 3 for the two
houses, $100,000 ($50,000 x 2). The total amount of
estimated cost of common improvements included in
the bases of all of the houses sold as of the end of
Year 3, $500,000 ($200,000 in Year 1 + $200,000 in
Year 2 + $100,000 in Year 3), does not exceed the
amount of the common improvement costs incurred
with respect to the qualifying project under § 461(h)
as of the end of Year 3 (that is, the alternative cost
limitation), $500,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method, it
would allocate the $100,000 common improvement
costs incurred in Year 3 to all 10 houses in the project
($10,000 to each house). The $80,000 allocated to
the 8 houses sold in Year 1 and Year 2 would be re-
Bulletin No. 2023–7
covered as a reduction to Developer’s income in Year
3. The remaining $20,000 allocated to the 2 houses
sold in Year 3 would be included in their aggregate
adjusted bases (along with the $80,000 of common
improvement costs incurred in Year 1 and Year 2 and
allocated to such houses) in determining the gain or
loss resulting from the sales.
(2) Example 2. (a) Facts. The facts are the same
as in Example 1, except that the project is expected
to take 4 years to complete, and Developer incurs,
within the meaning of § 461(h), $30,000 of common
improvement costs in Year 2, $130,000 of common
improvement costs in Year 3, and $90,000 of common
improvement costs in Year 4. In addition, Developer sells only one house in Year 3 and one house in
Year 4.
(b) Year 1. Alternative Cost Method Used. The
results in Year 1 are the same as in Example 1.
(c) Year 2. Alternative Cost Method Used. Because Developer used the Alternative Cost Method,
Developer may include $80,000 of estimated cost
of common improvements in the aggregate bases of
the four houses sold during Year 2 in determining
the gain or loss resulting from the sales. The total
amount of estimated cost of common improvements
allocable to all of the houses sold as of the end of
Year 2, $400,000 ($200,000 in Year 1 + $200,000
in Year 2), exceeds the alternative cost limitation
of $280,000 ($250,000 + $30,000) by $120,000
($400,000 - $280,000). The estimated cost not yet
taken into account because of the alternative cost
limitation, $120,000, may be taken into account
when common improvement costs are incurred in a
subsequent year.
(c) Year 3. Alternative Cost Method Used. Because Developer used the Alternative Cost Method, Developer may take into account $130,000 of
estimated cost of common improvements in Year
3. The total amount of estimated cost of common
improvements allocable to all of the houses sold as
of the end of Year 3, $450,000 ($200,000 in Year
1 + $200,000 in Year 2 + $50,000 in Year 3), exceeds the alternative cost limitation of $410,000
($250,000 + $30,000 + 130,000) by $40,000
($450,000 - $410,000). Developer first allocates
$120,000 of the estimated cost to the four houses
sold in Year 2 and recovers the amount as a reduction to income in Year 3. Developer includes the
remaining $10,000 ($130,000 - $120,000) in the
basis of the house sold in Year 3 in determining the
gain or loss resulting from the sale. The estimated
cost not included in basis because of the alternative
cost limitation, $40,000, may be taken into account
when the remaining $90,000 of common improvement costs are incurred in Year 4.
(3) Example 3. (a) Facts. The facts are the same
as in Example 1, except that in Year 2, after the filing
of Developer’s original federal income tax return for
Year 1, Developer determines that the estimated cost
for common improvements increased from $500,000
to $700,000. Further, during Year 2, Developer incurs, within the meaning of § 461(h), $340,000 of
common improvement costs (rather than $150,000).
In Year 3, after the filing of Developer’s original
federal income tax return for Year 2, Developer
determines that the estimated cost for common improvements decreased from $700,000 to $625,000.
During Year 3, Developer incurs, within the meaning
Bulletin No. 2023–7
of § 461(h), $35,000 of common improvement costs
(rather than $100,000).
(b) Year 2. Alternative Cost Method Used. Developer does not amend its federal income tax return or
file an administrative adjustment request for Year 1
to account for the change in the estimated cost of
common improvements. The correction to the estimated cost of common improvements is made in
Year 2. The $200,000 increase to the estimate of the
cost of common improvements is allocated equally to all 10 homes in the project. The total amount
of estimated cost of common improvements taken
into account for Year 2 is $360,000, comprised of
$280,000 ($700,000/10 x 4) of estimated cost of
common improvements included in the aggregate
bases of the four houses sold during Year 2 plus
$80,000 of the Year 2 increase to the estimate of the
cost of common improvements that is allocated to
the four houses sold in Year 1 ($20,000 x 4), which
reduces Developer’s income for Year 2. The total
amount of estimated cost of common improvements
included in the bases of (or otherwise taken into account with respect to) all of the houses sold as of
the end of Year 2, $560,000 ($200,000 in Year 1 +
$360,000 in Year 2), does not exceed the amount of
the common improvement costs incurred with respect to the qualifying project under § 461(h) as of
the end of Year 2 (that is, alternative cost limitation),
$590,000.
(c) Year 3. Alternative Cost Method Used. Developer does not amend its federal income tax return or file an administrative adjustment request for
Year 2 to account for the change in the estimated
cost of common improvements. The correction to the
estimated cost of common improvements is made
in Year 3. The $75,000 downward adjustment to
the estimate of the cost of common improvements
is allocated equally to all 10 homes in the project.
The total amount of estimated cost of common improvements taken into account in Year 3 is $65,000,
which is comprised of $125,000 ($625,000/10 x 2)
of common improvement costs included in the aggregate bases of the two houses sold during Year 3
minus $60,000 of the Year 3 decrease in the estimate
of the cost of common improvements allocable to the
eight houses sold in Year 1 and Year 2 ($7,500 x 8),
which increases Developer’s income in Year 3. The
total amount of estimated cost of common improvements included in the bases of (or otherwise taken
into account with respect to) all of the houses sold as
of the end of Year 3, $625,000 ($200,000 in Year 1 +
$360,000 in Year 2 + $65,000 in Year 3), does not exceed the amount of the common improvement costs
incurred with respect to the qualifying project under
§ 461(h) as of the end of Year 3 (that is, alternative
cost limitation), $625,000.
(4) Example 4. (a) Facts. The facts are the same
as in Example 1, except that the 10 houses are each
the subject matter of a CCM contract. Each CCM
contract requires Developer to construct a house and
common improvements. In Years 1, 2, and 3, when
Developer sells four, four and two houses, respectively, it has incurred, without regard to the Alternative Cost Method, at least 95 percent of the estimated allocable costs of each of the respective CCM
contracts.
(b) Year 1--(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Meth-
475
od, Developer treats $200,000 of estimated cost of
common improvements as incurred allocable contract costs for purposes of determining income upon
completion of the four CCM contracts in Year 1. This
amount is the allocable share of the estimated cost of
common improvements for the four CCM contracts
completed in Year 1, $200,000 ($50,000 x 4), and
does not exceed the amount of the common improvement costs incurred with respect to the qualifying
project under § 461(h) as of the end of Year 1 (that is,
the alternative cost limitation), $250,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method,
Developer would have allocated the $250,000 of
common improvement costs incurred to all 10 CCM
contracts for houses in the project and only treated
$100,000 ($250,000/10 x 4) of common improvement costs as incurred allocable contract costs for
purposes of determining income upon the completion of the four CCM contracts in Year 1.
(c) Year 2—(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Method, Developer treats $200,000 of estimated cost of
common improvements as incurred allocable contract costs for purposes of determining income upon
completion of the four CCM contracts in Year 2. This
amount is the allocable share of the estimated cost
of common improvements for the four CCM contracts completed during Year 2, $200,000 ($50,000
x 4). The total amount of estimated cost of common
improvements treated as incurred allocable contract
costs for all eight CCM contracts completed as of
the end of Year 2, $400,000 ($200,000 in Year 1 +
$200,000 in Year 2), does not exceed the amount of
the common improvement costs incurred with respect to the qualifying project under § 461(h) as of
the end of Year 2 (that is, the alternative cost limitation), $400,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method,
it would have allocated the $150,000 of common
improvement costs incurred in Year 2 to all 10 CCM
contracts ($15,000 to each contract). The $60,000 allocated to the four CCM contracts completed in Year
1 would have been recovered as a reduction to Developer’s income in Year 2. The $60,000 allocated to
the four CCM contracts completed in Year 2 would
have been treated as incurred allocable contract costs
for purposes of determining income upon completion of the contracts (along with the $100,000 of
common improvement costs incurred in Year 1 and
allocated to such contracts). The remaining $30,000
allocated to the two CCM contracts that were not yet
completed as of the end of Year 2 would be included
in the allocable contract costs for such contracts and
recovered when those contracts were completed in
Year 3.
(d) Year 3--(i) Alternative Cost Method Used.
Because Developer used the Alternative Cost Method, Developer treats $100,000 of estimated costs of
common improvements as incurred allocable contract costs for purposes of determining income upon
completion of the two CCM contracts in Year 3. This
amount is the allocable share of the estimated cost
of common improvements for the two CCM contracts completed during Year 3, $100,000 ($50,000
x 2). The total amount of estimated cost of common
improvements treated as incurred allocable con-
February 13, 2023
tract costs for all ten CCM contracts completed as
of the end of Year 3, $500,000 ($200,000 in Year 1
+ $200,000 in Year 2 + $100,000 in Year 3), does
not exceed the amount of the common improvement
costs incurred with respect to the qualifying project
under § 461(h) as of the end of Year 3 (that is, the
alternative cost limitation), $500,000.
(ii) Alternative Cost Method Not Used. If Developer had not used the Alternative Cost Method,
it would have allocated the $100,000 common improvement costs incurred in Year 3 to all 10 CCM
contracts ($10,000 to each contract). The $80,000
allocated to the eight CCM contracts completed in
Year 1 and in Year 2 would have been recovered as
a reduction to Developer’s income in Year 3. The
remaining $20,000 allocated to two CCM contracts
completed in Year 3 would have been treated as incurred allocable contract costs for such contracts
(along with the $80,000 of common improvement
costs incurred in Year 1 and Year 2 and allocated to
such contracts).
obligation or legal requirement to provide
the common improvements.
.03 Retention Period for Records.
Pursuant to § 1.6001-1(e), all books and
records required to be maintained in section 6.02 of this revenue procedure are
required to be retained so long as the contents thereof may become material in the
administration of any internal revenue
law. For this purpose, such books and records need to be retained, at a minimum,
as long as costs of the qualifying project
may be incurred or taken into account and
for 3 years after the filing of the federal tax
return for the last taxable year in which
the costs of the qualifying project may be
incurred or taken into account.
SECTION 6. RETENTION AND
PRODUCTION OF RECORDS
SECTION 7. TAXPAYERS THAT
DO NOT USE THE ALTERNATIVE
COST METHOD
.01 In General. A developer using the
Alternative Cost Method must keep, and
timely provide to the Commissioner upon
request, records and books of account
that are sufficient to establish compliance
with the requirements of this revenue
procedure. See § 1.6001-1. If a developer fails to provide the required records in
a timely manner or fails to demonstrate
reasonable cause for the failure to maintain and produce the required records,
the developer’s method of accounting for
its common improvement costs may be
changed at the discretion of the Commissioner to a proper method of accounting.
See Rev. Proc. 2002-18, 2002-13 I.R.B.
678.
.02 Sufficiency of Records. The records
and books of account that are sufficient
to establish compliance with the requirements of this revenue procedure will include sufficient information to support (1)
the estimated cost of common improvements for each qualifying project, including documentation showing how the
developer determined the estimated cost
of common improvements and that the
estimate was reasonable, and any changes
to that estimate, (2) the allocation of the
estimated cost of common improvements
to each of the benefitted houses, parcels or
lots in the qualifying project (and to each
CCM contract), (3) the application of the
alternative cost limitation to the qualifying
project, and (4) the taxpayer’s contractual
February 13, 2023
A developer that fails to substantially
comply with the provisions of this revenue
procedure, including a developer whose
estimates of common improvement costs
are unreasonable under the circumstances,
will not be permitted to use the Alternative
Cost Method and therefore must include
only common improvement costs that
have been incurred under § 461(h) in the
basis of benefitted units (or in allocable
contract costs) of a project for the purpose
of determining the gain or loss resulting
from the sale of the units (or income upon
CCM contract completion).
SECTION 8. CHANGE IN METHOD
OF ACCOUNTING
.01 In general. The Alternative Cost
Method is a method of accounting subject
to § 446 and the regulations under § 446.
A change to the Alternative Cost Method
as provided in this revenue procedure is a
change in method of accounting to which
§§ 446(e) and 481 apply. An eligible taxpayer that wants to change to the Alternative Cost Method as defined in section 5
of this revenue procedure, or that wants
to change from the 92-29 alternative cost
method, must use the automatic change
procedures in Rev. Proc. 2015-13 or its
successor.
.02 Automatic change procedures. Rev.
Proc. 2022-14 is modified to add new section 20.14 to read as follows:
476
.14 Alternative Cost Method.
(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for common improvement costs either to (1) use the Alternative Cost Method in accordance with
Rev. Proc. 2023-9; or (2) discontinue using the alternative cost method under Rev.
Proc. 92-29 (92-29 alternative cost method) and instead account for common improvement costs using an accrual method
of accounting under § 461.
(2) Applicability. This change applies
to a taxpayer:
(a) that wants to change to the Alternative Cost Method described in Rev. Proc.
2023-9, for all of its qualifying projects
within a trade or business, including taxpayers that want to change their method
of allocating adjustments to the estimated
cost of common improvements for all of
their qualifying projects within a trade or
business;
(b) that, on the first day of the first taxable year beginning after December 31,
2022, in the same trade or business, uses
the 92-29 alternative cost method for one
or more qualifying projects that are in
progress and an accrual method under §
461 to account for common improvement
costs for one or more qualifying projects
that are in progress (legacy rule). For purposes of this section, a qualifying project
is in progress if the developer has sold
at least one unit in the project in a prior
taxable year (or in the case of a developer
that uses the completed contract method,
has completed at least one contract in the
project in a prior taxable year) and holds
units in the project available for sale
during the taxable year. In this situation,
the taxpayer is not required to change
to the Alternative Cost Method for such
qualifying projects in progress using an
accrual method under § 461 as long as
all new qualifying projects in the trade
or business are accounted for using the
Alternative Cost Method in accordance
with Rev. Proc. 2023-9; or
(c) that, on the first day of the first taxable year beginning after December 31,
2022, wants to change from the 92-29 alternative cost method to an accrual method under § 461 for all of its qualifying
projects in a trade or business.
(3) Inapplicability. This change does
not apply to a taxpayer that is using the
Bulletin No. 2023–7
Alternative Cost Method described in
Rev. Proc. 2023-9 that wants to change
its method of allocating the estimated
cost of common improvements among the
benefitted units in the qualifying project
(and in the case of a taxpayer using the
completed contract method described in §
1.460-4(d) (CCM), a taxpayer that wants
to change its method of allocating the estimated cost of common improvements
among all the CCM contracts, as defined
in section 4.03 of Rev. Proc. 2023-9, in the
qualifying project).
(4) Short Form 3115 in lieu of a standard Form 3115 for certain taxpayers.
(a) Applicability. The procedures described in section 20.14(4)(b) may be
used by a taxpayer to make a change in
method of accounting described in section
20.14(2)(a) or (b) for the taxpayer’s first
taxable year beginning after December
31, 2022, provided the taxpayer otherwise
meets the requirements of this section
20.14(4)(a). A taxpayer may use a short
Form 3115 in lieu of a standard Form 3115
only if the § 481(a) adjustment required by
each such change is zero, and the taxpayer either: (1) is currently using the 92-29
alternative cost method for all qualifying
projects and wants to change to the Alternative Cost Method in accordance with
Rev. Proc. 2023-9 for all trades or businesses with such qualifying projects for
the taxpayer’s first taxable year beginning
after December 31, 2022; or (2) wants to
apply the legacy rule described in section
20.14(2)(b) of this revenue procedure to
change to the Alternative Cost Method
in accordance with Rev. Proc. 2023-9 for
the taxpayer’s first taxable year beginning
after December 31, 2022. Notwithstanding any provisions of this section 20.14, a
taxpayer making more than one change in
method of accounting under 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
method change procedures.
(b) Short Form 3115. A taxpayer making a change under section 20.14(4)(a) for
the taxpayer’s first taxable year beginning
after December 31, 2022, is required to
complete only the following information
on Form 3115 (Rev. 2018):
(i) The identification section of page 1
(above Part I);
Bulletin No. 2023–7
(ii) The signature section at the bottom
of page 1;
(iii) Part I, line 1(a); and
(iv) For taxpayers using the legacy
rule, Part II, line 16(a) identifying any
qualifying projects in progress for which
the taxpayer used the 92-29 alternative
cost method and any qualifying projects in progress for which taxpayer will
continue to use an accrual method of accounting.
(5) Eligibility rule temporarily inapplicable. 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 20.14 for the taxpayer’s first taxable year beginning after
December 31, 2022.
(6) Examples. The following examples
illustrate the application of the Alternative Cost Method in accordance with Rev.
Proc. 2023-9.
(a) Example 1. (i) Facts. Developer, a calendar
year taxpayer that uses an overall accrual method of
accounting, is in the business of developing residential subdivisions. As of December 31, 2022, Developer has two subdivision projects in progress in its
only trade or business, Project A and Project B; both
projects are separate qualifying projects, as defined
in section 4.01 of Rev. Proc. 2023-9. Developer sold
the first lots in both projects during the 2022 taxable
year. Developer requested consent to use the 92-29
alternative cost method for Project A in 2022. Developer has not requested consent to use the 92-29
alternative cost method for Project B.
(ii) Application of the Alternative Cost Method in
accordance with Rev. Proc. 2023-9 for all qualifying
projects. Developer wants to use the Alternative Cost
Method for both qualifying projects. Developer must
file a change in method of accounting using the automatic change in method of accounting procedures
of this section 20.14 and must calculate the § 481(a)
adjustment resulting from changing the method of
accounting for Project A and Project B, if any.
(b) Example 2. Application of the legacy rule.
The facts are the same as in Example 1, except that
Developer wants to use the Alternative Cost Method for Project A but not for Project B. Pursuant to
section 20.14 of this revenue procedure, Developer
does not have to apply the Alternative Cost Method to Project B. However, if the Developer applies
the Alternative Cost Method for Project A, then
the Developer must also apply the Alternative Cost
Method to all new qualifying projects in its trade or
business for taxable years beginning after December
31, 2022. Developer must also calculate the § 481(a)
adjustment resulting from changing the method of
accounting for Project A, if any.
(7) Designated automatic accounting
method change number.
(a) Change to the Alternative Cost
Method in accordance with Rev. Proc.
2023-9. The designated automatic ac-
477
counting method change number for a
change to the Alternative Cost Method
in accordance with section 20.14(2)(a) is
“266.”
(b) Legacy rule. The designated automatic accounting method change number
for a taxpayer that wants to apply the legacy rule described in section 20.14(2)(b)
for the taxpayer’s first taxable year beginning after December 31, 2022, is “267.”
(c) Change to an accrual method. The
designated automatic accounting method
change number for a change to an accrual method in accordance with section
20.14(2)(c) for the taxpayer’s first taxable
year beginning after December 31, 2022,
is “268.”
(8) Contact information. For further
information regarding a change under this
section 20.14, contact Maria Castillo Valle
at (202) 317-7003 (not a toll-free call).
SECTION 9. EFFECT ON OTHER
DOCUMENTS
.01 This revenue procedure obsoletes
Rev. Proc. 92-29 for taxable years beginning after December 31, 2022.
.02 This revenue procedure modifies
and amplifies Rev. Proc. 2022-14.
SECTION 10. EFFECTIVE DATE
.01 This revenue procedure is effective
for taxable years beginning after December 31, 2022.
.02 Developers that have received consent pursuant to Rev. Proc. 92-29 to use
the 92-29 alternative cost method cannot
use the 92-29 alternative cost method for
taxable years beginning after December
31, 2022. Developers who wish to use the
Alternative Cost Method must follow the
rules and satisfy the conditions in this revenue procedure for taxable years beginning after December 31, 2022.
SECTION 11. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
submitted to the Office of Management
and Budget for review under OMB control number 1545-0123 in accordance with
the Paperwork Reduction Act (44 U.S.C.
3507(d)). An agency may not conduct or
February 13, 2023
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid OMB control number. The
collection of information in this revenue
procedure is in section 8. This information
is necessary and will be used to determine
whether the taxpayer properly changed to
a permitted method of accounting. The
February 13, 2023
collections of information are required for
the taxpayer to obtain consent to change
its method of accounting.
SECTION 12. DRAFTING
INFORMATION
the Office of Associate Chief Counsel
(Income Tax & Accounting). For further information regarding this revenue
procedure, contact Ms. Castillo Valle at
(202) 317-7003.
The principal author of this revenue procedure is Maria Castillo Valle of
478
Bulletin No. 2023–7
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is being made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously published ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the substance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases in litigation, or the outcome of a Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
Bulletin No. 2023–7
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
i
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
February 13, 2023
Numerical Finding List1
Bulletin 2023–7
Announcements:
2023-2, 2023-2 I.R.B. 344
2023-1, 2023-3 I.R.B. 422
2023-3, 2023-5 I.R.B. 447
2023-4, 2023-7 I.R.B. 470
Notices:
2023-4, 2023-2 I.R.B. 321
2023-5, 2023-2 I.R.B. 324
2023-6, 2023-2 I.R.B. 328
2023-8, 2023-2 I.R.B. 341
2023-1, 2023-3 I.R.B. 373
2023-2, 2023-3 I.R.B. 374
2023-3, 2023-3 I.R.B. 388
2023-7, 2023-3 I.R.B. 390
2023-9, 2023-3 I.R.B. 402
2023-10, 2023-3 I.R.B. 403
2023-11, 2023-3 I.R.B. 404
2023-12, 2023-6 I.R.B. 450
2023-13, 2023-6 I.R.B. 454
Proposed Regulations:
REG-100442-22, 2023-3 I.R.B. 423
REG-146537-06, 2023-3 I.R.B. 436
REG-114666-22, 2023-4 I.R.B. 437
Revenue Procedures:
2023-1, 2023-1 I.R.B. 1
2023-2, 2023-1 I.R.B. 120
2023-3, 2023-1 I.R.B. 144
2023-4, 2023-1 I.R.B. 162
2023-5, 2023-1 I.R.B. 265
2023-7, 2023-1 I.R.B. 305
2023-8, 2023-3 I.R.B. 407
2023-10, 2023-3 I.R.B. 411
2023-11, 2023-3 I.R.B. 417
2023-14, 2023-6 I.R.B. 466
2023-9, 2023-7 I.R.B. 471
Revenue Rulings:
2023-1, 2023-2 I.R.B. 309
2023-3, 2023-6 I.R.B. 448
Treasury Decisions:
9970, 2023-2 I.R.B. 311
9771, 2023-3 I.R.B. 346
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.
1
February 13, 2023
ii
Bulletin No. 2023–7
Finding List of Current Actions on
Previously Published Items1
Bulletin 2023–7
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.
1
Bulletin No. 2023–7
iii
February 13, 2023
Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300
INTERNAL REVENUE BULLETIN
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