Rev. Proc. 75-18

Section 1. Purpose.

The purpose of this Revenue Procedure is to clarify Rev. Proc. 70-27, 1970-2 C.B. 509, relating to changes in accounting practice or method.

.01 Section 3 is revised to make it clear that the resulting adjustment from the change in method of accounting or practice will be spread ratably over a period of "taxable" years since, for example, a taxable year can be for a period of less than 12 months (short period).

.02 Section 3 has been revised to set forth circumstances under which the resulting adjustment from a change in method of accounting or practice may be taken into account over a period of less than 10 years. In addition, to provide for situations where a year other than the year of transition may be used for allocating the resulting adjustment, the phrase "generally will" has been substituted for the word "shall".

.03 Section 4 has been revised to specify what year is the year of transition where a Federal income tax return filed by the taxpayer is under examination.

Sec. 2. Implementation.

.01 Section 3 of Rev. Proc. 70-27 is clarified to read as follows:

.01 A taxpayer's request to change his accounting practice or method for Federal income tax purposes to an acceptable practice or method consistent with the regulations will ordinarily receive favorable consideration, provided he proposes and agrees as a condition to the change to take the necessary resulting adjustment into account ratably over an appropriate period, prescribed by the Commissioner, generally 10 taxable years.

.02 In determining the period over which the adjustment referred to in section 3.01 is to be taken into account, the following shall apply:

Where the taxpayer has been in existence for less than ten taxable years or has used the accounting practice that is being changed for less than ten taxable years, then generally such lesser number of years will be the number of years over which the adjustment is taken into account. Regardless of the number of years that a taxpayer has been in existence or has used the method of accounting which is being changed, if an insubstantial portion of the adjustment referred to in section 3.01 is attributable to events in earlier years, then the period over which the adjustment is to be spread may be reduced accordingly.

.03 Ordinarily the taxable year for which the change is requested shall be referred to as the "year of transition". The period to be used for allocating the resulting adjustment generally will begin with the year of transition.

.02 Section 4.01 of Rev. Proc. 70-27 is clarified to read as follows: A taxpayer wishing to take advantage of this procedure should file Form 3115 (Application for Change in Accounting Method) with the Commissioner of Internal Revenue, Attention T:C:C, 1111 Constitution Avenue, N.W., Washington, D.C. 20224, and request the application of Rev. Proc. 70-27. Form 3115 should be filed within 180 days from the beginning of the taxable year for which the change is requested (year of transition). In addition to the information required on Form 3115, the taxpayer should state that he proposes to take the adjustment into account over a 10-year period, or other appropriate period as required under section 3.02 above. Upon consideration of the application, additional information may be required.

.03 Section 4.03 of Rev. Proc. 70-27 is clarified to read as follows: If the taxpayer's return is being examined by the Service and there is an issue involving a change in accounting practice or method the taxpayer may request application of this Revenue Procedure. In such a case, this Revenue Procedure will generally be applicable to the most recent taxable year (year of transition) for which a Federal income tax return has been filed as of the date the examination commenced. The request for application of the Revenue Procedure shall be made in a letter to the Commissioner of Internal Revenue, Attention T:C:C. This request should be sent to the District Director for the District in which the return is being examined who will forward it with his comments to the National Office. The letter shall be accompanied by a completed Form 3115 (Application for Change in Accounting Method). Pending completion of action by the National Office on the request for application of this Revenue Procedure, the District Director will suspend audit action on this particular issue.

Sec. 3. Effect on Other Documents.

Section 3 and Sections 4.01 and 4.03 of Rev. Proc. 70-27 are clarified.