Requirements Respecting the Adoption or Change of Accounting Method; Extensions of Time To Make Elections

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301 and 601

[TD 8719]

RIN 1545-AU41 and 1545-AV19

Requirements Respecting the Adoption or Change of Accounting

Method; Extensions of Time To Make Elections

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the

procedure for requesting a change in accounting method and to the

standards for granting an extension of time to request a change in

accounting method. The regulations provide for a longer period of time

for filing an application for change in accounting method with the

Commissioner. The regulations also provide that an extension of time to

file an application for change in accounting method will be granted

only in unusual and compelling circumstances. The regulations affect

taxpayers requesting a change in method of accounting for federal

income tax purposes. The text of these temporary regulations also

serves as the text of the proposed regulations set forth in the notice

of proposed rulemaking on this subject in the Proposed Rules section of

this issue of the Federal Register.

DATES: These regulations are effective May 15, 1997.

For dates of applicability of these regulations, see Secs. 1.446-

1T(e)(3)(iii), 301.9100-1T(h) and 601.204T(e) of these regulations.

FOR FURTHER INFORMATION CONTACT: Cheryl L. Oseekey at (202) 622-4970

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Regulations on Income

Taxes (26 CFR part 1), the Regulations on Procedure and Administration

(26 CFR part 301), and the Statement of Procedural Rules (26 CFR part

601) relating to the requirements for changes in method of accounting

and extensions of time to make elections. Proposed and temporary

regulations relating to extensions of time to make elections were

published in the Federal Register for June 27, 1996 (61 FR 29714 and 61

FR 33365). These regulations extend the time for filing an application

for change in accounting method under Sec. 1.446-1(e)(3)(i) and amend

Secs. 301.9100-1T and 301.9100-3T to provide that an extension of time

to file an application for change in accounting method beyond the year

provided in these regulations will be granted only in unusual and

compelling circumstances.

Explanation of Provisions

Section 446(e) requires that a taxpayer obtain the Commissioner's

consent before changing a method of accounting. Sections 1.446-

1(e)(3)(i) and 601.204(b) require the taxpayer to file a Form 3115,

Application for Change in Accounting Method, with the Commissioner

within the first 180 days of the taxable year in which the taxpayer

desires to make the change. Sections 301.9100-1T and 301.9100-3T

provide limited relief for extending the time to file a Form 3115 (not

to exceed 90 days from the deadline for filing the Form 3115 except in

unusual and compelling circumstances).

Sections 1.446-1(e)(3)(i) and 601.204(b) are amended to provide

that a taxpayer must file a Form 3115 with the Commissioner during the

taxable year in which the taxpayer desires to make the change in method

of accounting. Taxpayers are encouraged to file the Form 3115 as early

as possible during the year of change to provide the IRS adequate time

to process the application prior to the original due date of the

taxpayer's return.

In addition, Secs. 301.9100-1T and 301.9100-3T are amended to

provide that an extension of time to file a Form 3115 (i.e., beyond the

taxable year) will only be granted in unusual and compelling

circumstances.

These amendments are effective for Forms 3115 filed on or after May

15, 1997.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

does not apply to these regulations. Sections 1.446-1(e)(3)(i) and

601.204(b) require a taxpayer to file a Form 3115, Application for

Change in Accounting Method, with the Commissioner within the first 180

days of the taxable year in which the taxpayer desires to make the

change. The temporary regulations in this document, Secs. 1.446-

1T(e)(3)(i) and 601.204T(b), merely extend the time for filing the Form

3115 and, therefore, do not contain a new collection of information.

Thus, because the regulations do not impose a collection of information

on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)

does not apply. Pursuant to section 7805(f) of the Internal Revenue

Code, these temporary regulations will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment

on their impact on small business.

Drafting Information

The principal author of these regulations is Cheryl L. Oseekey of

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

However, other personnel from the IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, ncome

taxes, Penalties, Reporting and recordkeeping requirements.

[[Page 26741]]

26 CFR Part 601

Administrative practice and procedure, Freedom of information,

Reporting and recordkeeping requirements, Taxes.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 301, and 601 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 1.446-1, paragraph (e)(3)(i) is amended by adding a

sentence at the end of the paragraph to read as follows:

Sec. 1.446-1 General rule for methods of accounting.

* * * * *

(e)(3) * * * For any Form 3115 filed on or after May 15, 1997, see

Sec. 1.446-1T(e)(3)(i)(B).

Par. 3. Section 1.446-1T is added to read as follows:

Sec. 1.446-1T General rule for methods of accounting (temporary).

(a) through (d) [Reserved] For further guidance, see Sec. 1.446-1

(a) through (d).

(e) Requirement respecting the adoption or change of accounting

method.

(1) and (2) [Reserved] For further guidance, see Sec. 1.446-1(e)

(1) and (2).

(3)(i)(A) [Reserved] For further guidance, see Sec. 1.446-

1(e)(3)(i).

(B) For any Form 3115 filed on or after May 15, 1997, permission to

change a taxpayer's method of accounting will not be granted unless the

taxpayer agrees to the Commissioner's prescribed terms and conditions

for effecting the change, including the taxable year or years in which

any adjustment necessary to prevent amounts from being duplicated or

omitted is to be taken into account.

(ii) and (iii) [Reserved] For further guidance, see Sec. 1.446-

1(e)(3) (ii) and (iii).

PART 301--PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part 301 continues to read in

part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 5. In Sec. 301.9100-1T, paragraph (h) is amended by adding a

sentence at the end of the paragraph to read as follows:

Sec. 301.9100-1T Extensions of time to make elections (temporary).

* * * * *

(h) * * * In addition, Sec. 301.9100-3T(c)(2)(i) is effective for

any Form 3115 filed on or after May 15, 1997.

Par. 6. In Sec. 301.9100-3T, paragraph (c)(2)(i) is revised to read

as follows:

Sec. 301.9100-3T Other extensions (temporary).

* * * * *

(c) * * *

(2) * * *

(i) Subject to the procedure described in Sec. 1.446-1T(e)(3)(i) of

this chapter (requiring the advance written consent of the

Commissioner);

* * * * *

PART 601--STATEMENT OF PROCEDURAL RULES

Par. 7. The authority citation for part 601 continues to read as

follows:

Authority: 26 U.S.C. 301 and 552, unless otherwise noted.

Par. 8. Section 601.204, paragraph (b) is amended by adding a

sentence at the end of the paragraph to read as follows:

Sec. 601.204 Changes in accounting periods and in methods of

accounting.

* * * * *

(b) * * * For any Form 3115 filed on or after May 15, 1997, see

Sec. 601.204T(b)(2).

Par. 9. Section 601.204T is added to read as follows:

Sec. 601.204T Changes in accounting periods and in methods of

accounting (temporary).

(a) [Reserved] For further guidance, see Sec. 601.204(a).

(b) Methods of accounting. (1) [Reserved] For further guidance, see

Sec. 601.204(b).

(2) For any Form 3115 filed on or after May 15, 1997, application

for permission to change the method of accounting employed shall be

made on Form 3115 and filed with the Commissioner during the taxable

year in which the taxpayer desires to make the change in method of

accounting. Permission to change the method of accounting will not be

granted unless the taxpayer and the Commissioner agree to the terms and

conditions under which the change will be effected.

(c) and (d) [Reserved] For further guidance, see Sec. 601.204 (c)

and (d).

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: May 2, 1997.

Donald C. Lubick,

Assistant Secretary of the Treasury.

[FR Doc. 97-12514 Filed 5-14-97; 8:45 am]

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