Rev. Proc. 90-63

Rev. Proc. 90-63

SECTION 1. PURPOSE

01 This revenue procedure provides the exclusive procedure for taxpayers to obtain consent from the Commissioner to change their method of accounting for package design costs. It revokes Rev. Proc. 89-16, 1989-1 C.B. 822 and Rev. Proc. 89-17, 1989-1 C.B. 827. It describes three alternative methods of accounting for package design costs: (1) capitalization (see section 5.01), (2) design-by-design capitalization and 60-month amortization (see section 5.02), and (3) pool-of-cost capitalization and 48-month amortization (see section 5.03). It also provides the procedure for taxpayers to obtain consent from the Commissioner to change to each of the alternative methods, including rules relating to the availability of each of the alternative methods of accounting, and the limitations, terms and conditions the Commissioner deems necessary to change to each of the alternative methods.

02 In accordance with section 1.446-1(e)(3)(ii) of the regulations, the Commissioner waives the 180-day rule, and, in accordance with section 1.446-1(e)(2)(i), hereby grants consent to any taxpayer not described in section 9.01(2) (concerning certain taxpayers that changed (or received permission to change) their method of accounting for package design costs during the six tax years prior to the year of change) to change its method of accounting for package design costs provided the taxpayer complies with the provisions and conditions of this revenue procedure. This consent is granted for the tax year (year of change) for which the taxpayer requests a change by filing a current Form 3115 (Application for Change in Accounting Method) in the manner described in sections 9.01(1), 9.02 or 9.03. Taxpayers that are not using an acceptable method and do not voluntarily change their method of accounting for package design costs will be required to do so on audit. The Commissioner may require them to change to the capitalization method described in section 5.01 rather than one of the two amortization methods described in sections 5.02 and 5.03. See section 6.08. A taxpayer filing its first return may, in accordance with section 1.446-1(e)(1), adopt any one of the three alternative methods of accounting for package design costs provided in section 5.

03 Because this revenue procedure provides the exclusive procedure for taxpayers to change their method of accounting for package design costs, a taxpayer may not use Rev. Proc. 84-74, 1984-2 C.B. 736 to change its method of accounting for package design costs. However, this revenue procedure incorporates by reference certain provisions of Rev. Proc. 84-74.

04 A taxpayer that makes a change in method of accounting for package design costs without complying with the conditions of this revenue procedure has made a change in method of accounting without obtaining the consent of the Commissioner as required under section 446(e) of the Code.

SECTION 2. DEFINITIONS

For purposes of this revenue procedure, the terms "package design" and "package design cost" have the meanings provided in Rev. Rul. 89-23, 1989-1 C.B. 85. If the taxpayer develops the package design, the term includes the cost of materials, labor, and overhead associated with the design, including all design exploration and study (for example, the development of any related design which, although abandoned, advances the development of the design selected), refinement of the basic design selected, testing, and preparation of the final master comprehensive design. If an independent contractor performs the work, the term includes all billings related to the development of the particular package, including all design exploration and study (for example, the development of any related design which, although abandoned, advances the development of the design selected), refinement of the basic design selected, testing, and preparation of the final master comprehensive design. If the taxpayer purchases the package, the term includes the purchase price. The costs associated with coupon inserts, refund offers, and other short-lived promotion-related changes are specifically excepted from the definition of "package design cost."

SECTION 3. BACKGROUND

01 Section 263(a) of the Code provides that no deduction is allowed for any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. Section 1.263(a)-2 of the regulations includes in its examples of capital expenditures the costs of acquiring property having a useful life substantially beyond the tax year.

02 An expenditure generally must be capitalized under section 263 of the Code if the expenditure creates, enhances, or is part of the cost of acquiring a tangible or intangible asset having a useful life that extends substantially beyond the end of the tax year in which the expenditure is incurred. See Commissioner v. Lincoln Savings and Loan Association v. Commissioner, 403 U.S. 345 (1971), 1971-2 C.B. 116; Central Texas Savings and Loan Association v. United States, 731 F.2d 1181 (5th Cir. 1984); Ellis Banking Corp. v. Commissioner, 688 F.2d 1376 (11th Cir. 1982), cert. denied, 463 U.S. 1207 (1983); and Cleveland Electric Illuminating Company v. United States, 7 Cl. Ct. 220 (1985). Generally, taxpayers must capitalize package design costs incurred prior to January 1, 1987, under section 263 because those costs create intangible assets having useful lives that extend substantially beyond the end of the tax year in which the costs are incurred. See Rev. Rul. 89-23.

03 Section 263A of the Code, enacted by the Tax Reform Act of 1986, provides, in part, for the capitalization of certain direct and indirect costs with respect to real or tangible personal property produced by the taxpayer. All costs that are incurred with respect to real or tangible personal property that the taxpayer produces are to be capitalized with respect to the property. The term "produce" includes construct, build, install, manufacture, develop, improve, create, raise, or grow. For purposes of section 263A, "tangible personal property" includes a film, sound recording, video tape, book, or similar property embodying words, ideas, concepts, images, or sounds (see 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-308 (1986), 1986-3 (Vol. 4) C.B. 308) without regard to whether the property is treated as tangible or intangible under other provisions of the Code. See section 1.263A-1T(a)(5)(iii) of the regulations. Section 263A and the regulations thereunder require that costs incurred after December 31, 1986 in connection with the development and design of product packages must be capitalized. See Rev. Rul. 89- 23.

04 As stated in Rev. Rul. 89-23, package designs generally do not have an ascertainable useful life, and thus no depreciation or amortization is allowed under section 167 of the Code and the regulations thereunder. See section 1.167(a)-3 of the regulations. Only when such a package design is abandoned may the capitalized costs be deducted. See section 165 of the Code and section 1.165-2(a) of the regulations.

05 Thus, taxpayers are generally required under the Code and regulations to use the capitalization method of accounting for package design costs described in section 5.01. However, to minimize disputes regarding the accounting for package design costs, the Internal Revenue Service, as a matter of administrative convenience, will allow a taxpayer that complies with the requirements of this revenue procedure to choose one of two alternative methods of accounting for package design costs: (1) the capitalization and 60- month amortization method described in section 5.02, determined on a design-by-design basis for all package designs or; (2) the capitalization and 48-month amortization method described in section 5.03, determined on a pool-of-cost basis for all package design costs.

06 Section 446(e) of the Code provides that, except as otherwise provided, a taxpayer that changes the method of accounting on the basis of which it regularly computes its income in keeping its books shall, before computing its taxable income under the new method, secure the consent of the Secretary. Section 1.446-1(e)(2)(ii)(a) of the regulations provides that a change in method of accounting includes a change in the overall plan of accounting for gross income or deductions or a change in the treatment of any material item used in the overall plan. Section 1.446-1(e)(2)(ii)(a) defines a material item as any item that involves the proper time for the inclusion of the item in income or the taking of a deduction. Section 1.446- 1(e)(3)(i) provides generally that in order to obtain the consent of the Commissioner for an accounting method change, a taxpayer must file an application on Form 3115, Application for Change in Accounting Method, within 180 days after the beginning of the tax year for which the proposed change is to be made. Section 1.446- 1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions deemed necessary to permit taxpayers to obtain consent to change their method of accounting in accordance with section 446(e).

07 Section 481(a) of the Code provides that if a taxpayer's taxable income for any tax year is computed under a method of accounting different from the method used to compute taxable income in the preceding tax year, the taxpayer must take into account those adjustments necessary to prevent amounts from being duplicated or omitted by reason of the change in method. Section 481(a) and section 1.481-5 of the regulations provide that the adjustments required by section 481(a) may be taken into account in determining taxable income in the manner and subject to the conditions agreed to by the Commissioner and the taxpayer.

SECTION 4. SCOPE

This revenue procedure applies to any taxpayer that desires or is required to change its method of accounting for package design costs. A change in method of accounting for package design costs made pursuant to this revenue procedure does not affect the taxpayer's method of accounting for intangible property other than package designs described in section 2. This revenue procedure includes special rules for taxpayers:

(i) contacted for examination where the package design issue has not been raised (see section 6.02);

(ii) before an appeals office where the package design issue has not been raised (see section 6.03);

(iii) before a federal court where the package design issue has not been raised (see section 6.04);

(iv) the subject of a criminal investigation or proceeding (see section 6.05);

(v) under examination, before an appeals office, or before a federal court where the package design issue was raised before March 6, 1989 (see section 6.06);

(vi) under examination, before an appeals office, or before a federal court where the package design issue is raised on or after March 6, 1989 but on or before the due date of the taxpayer's tax return for its first tax year ending on or after release of this revenue procedure (see section 6.07); and

(vii) under examination, before an appeals office, or before a federal court where the package design issue is raised after the due date of the taxpayer's tax return for its first tax year ending on or after release of this revenue procedure (see section 6.08).

SECTION 5. ALTERNATIVE METHODS OF ACCOUNTING

01 THE CAPITALIZATION METHOD.

(1) DESCRIPTION OF METHOD. The treatment of the costs of developing new package designs or modifying existing designs in accordance with the capitalization method constitutes a permissible method of accounting. Under the capitalization method, the taxpayer must capitalize the costs of developing (or modifying) any package design if the asset created by those costs has no ascertainable useful life or an ascertainable useful life that extends substantially beyond the end of the tax year in which the costs are incurred. If the asset created by the costs has an ascertainable useful life, the taxpayer may amortize the costs ratably over the useful life, beginning with the month the package design (or modification to the design) is placed in service. If the asset created by the costs has no ascertainable useful life, the taxpayer may deduct the costs only upon the disposition or abandonment of the package design (or modification to the design). See Rev. Rul. 89-23.

(2) COMPUTATION OF BASIS. The basis of each package design (or modification to the design) subject to capitalization is determined by applying the provisions of section 263 of the Code and the regulations thereunder to costs incurred prior to January 1, 1987, and section 263A and the regulations thereunder to costs incurred after December 31, 1986 (regardless of the tax year the design (or modification to the design) is placed in service). The costs required to be capitalized are described in section 2.

02 THE DESIGN-BY-DESIGN CAPITALIZATION AND 60-MONTH AMORTIZATION METHOD.

(1) DESCRIPTION OF METHOD. The treatment of the costs of developing new package designs or modifying existing designs in accordance with the design-by-design capitalization and 60-month amortization method constitutes a permissible method of accounting. Under the design-by-design capitalization and 60-month amortization method, the taxpayer must capitalize the costs of developing (or modifying) any package design if the asset created by those costs has no ascertainable useful life or an ascertainable useful life that extends substantially beyond the end of the tax year in which the costs are incurred. The taxpayer must amortize the basis of any package design (or modification to the design) subject to capitalization over a period of 60 months. Thus, in computing taxable income, the basis of each package design (or modification to the design) subject to capitalization is allowed as a deduction ratably over a 60-month period, beginning with the month the design (or modification to the design) is treated as placed in service. See section 5.02(3) below. If the package design (or modification to the design) is disposed of or abandoned within the 60-month period, the taxpayer is permitted to deduct the unamortized portion of the basis of the design (or modification to the design) in the tax year of disposition or abandonment.

(2) COMPUTATION OF BASIS. Under the design-by-design capitalization and 60-month amortization method, the basis of each package design (or modification of the design) subject to capitalization must be determined by applying the provisions of section 263 of the Code and the regulations thereunder to costs incurred prior to January 1, 1987, and section 263A and the regulations thereunder to costs incurred after December 31, 1986 (regardless of the tax year the design (or modification to the design) is placed in service). The costs required to be capitalized are described in section 2.

(3) HALF-YEAR CONVENTION. Under the design-by-design capitalization and 60-month amortization method, the amortization allowance for each package design (or modification to the design) subject to capitalization must be determined by treating a design (or modification to the design) placed in service during the tax year as placed in service on the mid-point of the tax year. If the tax year in which the package design (or modification to the design) is placed in service is 12 full months, the design (or modification to the design) is treated as placed in service on the first day of the seventh month of the tax year. For guidance in computing the amortization allowance under the design-by-design capitalization and 60-month amortization method when a package design (or modification to the design) is placed in service in a taxable year of less than 12 months (a short taxable year), see Rev. Proc. 89-15, 1989-1 C.B. 816.

(4) ELIGIBILITY. The design-by-design capitalization and 60- month amortization method is a rule of administrative convenience which may only be adopted on the taxpayer's first return or pursuant to the provisions of this revenue procedure.

03 THE POOL-OF-COST CAPITALIZATION AND 48-MONTH AMORTIZATION METHOD.

(1) DESCRIPTION OF METHOD. The treatment of the costs of developing new package designs or modifying existing designs in accordance with the pool-of-cost capitalization and 48-month amortization method constitutes a permissible method of accounting. Under the pool-of-cost capitalization and 48-month amortization method, the taxpayer must capitalize all of its package design costs and amortize the costs over a period of 48 months. Thus, in computing taxable income, package design costs incurred during the tax year are allowed as a deduction ratably over a 48-month period, beginning with the month the costs are treated as incurred. See section 5.03(3) below. The taxpayer may not deduct the unamortized portion of the cost of a package design (or modification to the design) if the design (or modification to the design) is never placed in service or is disposed of or abandoned within the 48-month period.

(2) COSTS SUBJECT TO CAPITALIZATION. All package design costs are subject to capitalization without regard to whether the costs create a package design (or modification to the design) having an ascertainable useful life that extends substantially beyond the end of the tax year in which the costs are incurred. Thus, all package design costs incurred prior to January 1, 1987 that would be capitalized under section 263 of the Code and the regulations thereunder but for the fact that the costs create a package design (or modification to the design) having an ascertainable useful life that does not extend substantially beyond the end of the tax year in which the costs are incurred must be capitalized. All package design costs incurred after December 31, 1986 that would be capitalized under section 263A of the Code and the regulations thereunder but for the fact that the costs create a package design (or modification to the design) having an ascertainable useful life that does not extend substantially beyond the end of the tax year in which the costs are incurred must be capitalized. The costs required to be capitalized are described in section 2.

(3) HALF-YEAR CONVENTION. Under the pool-of-cost capitalization and 48-month amortization method, the amortization allowance for package design costs must be determined by treating all package design costs incurred during the tax year as incurred on the mid- point of the tax year. If the tax year in which the package design costs are incurred is 12 full months, the costs are treated as incurred on the first day of the seventh month of the tax year. For guidance in computing the amortization allowance under the pool-of- cost capitalization and 48-month amortization method when package design costs are incurred in a taxable year of less than 12 months (a short taxable year), see Rev. Proc. 89-15.

(4) ELIGIBILITY. The pool-of-cost capitalization and 48-month amortization method is a rule of administrative convenience which may only be adopted on the taxpayer's first return or pursuant to the provisions of this revenue procedure.

SECTION 6. AVAILABILITY OF ALTERNATIVE METHODS OF ACCOUNTING

01 IN GENERAL.

(1) AVAILABILITY. Except as provided in sections 6.02 through 6.08 below (relating to special rules for taxpayers who are under examination, are before an appeals office, are before a federal court, or are the subject of a criminal investigation or proceeding), the rules in this section 6.01 apply to a taxpayer that desires to change its method of accounting for package design costs. Provided the requirements of this revenue procedure are satisfied, the taxpayer is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5. The year of change is determined under section 6.01(2) below. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48- month amortization. The procedure for effecting the change is set forth in sections 9.01 (general procedure) and section 9.02(1) (special procedure for taxpayers changing for their first tax year ending on or after the date of release).

(2) YEAR OF CHANGE.

(a) If the Form 3115 required by section 9 is filed on or before the date that is 180 days after the beginning of the taxpayer's third tax year ending on or after December 18, 1990, the date of release of this revenue procedure, the year of change is the first tax year ending on or after December 18, 1990. The effect of this rule is to preclude a taxpayer from changing its method of accounting for package design costs for its second or third tax years ending on or after December 18, 1990. If the tax return for its first tax year ending on or after December 18, 1990 has already been filed, the taxpayer must make the change on (and attach the Form 3115 to) an amended return for that year filed on or before the date that is 180 days after the beginning of its third tax year ending on or after December 18, 1990. The taxpayer must also reflect the change in method of accounting on amended returns filed for tax years subsequent to the year of change for which returns have already been filed. See section 9.02(1).

(b) If the Form 3115 required by section 9 is filed after the date that is 180 days after the beginning of the taxpayer's third tax year ending on or after December 18, 1990, the date of release of this revenue procedure, the year of change is the applicable tax year under section 1.446-1(e)(3) of the regulations that would apply at the time the Form 3115 is filed.

02 TAXPAYER CONTACTED FOR EXAMINATION BUT PACKAGE DESIGN ISSUE NOT RAISED. Except as provided in sections 6.02(1) through 6.02(4) below, if the taxpayer has been contacted in any manner by a representative of the Service for the purpose of scheduling an examination of its federal income tax return for any year and the package design issue has not been raised by the Service, the taxpayer is not permitted to change its method of accounting for package design costs.

(1) FIRST TAXABLE YEAR WINDOW. A taxpayer described in section 6.02 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 provided the taxpayer is changing for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in section 9.02(2).

(2) TAXPAYER USING PERMISSIBLE METHOD; SPECIAL CONSENT FROM EXAMINING AGENT. A taxpayer described in section 6.02 above that is using one of the three alternative methods of accounting provided in section 5 is permitted to change its method of accounting for package design costs to another of the three alternative methods of accounting if the taxpayer obtains an agreement (which must be attached to the Form 3115) from the examining agent that there is no objection to the proposed change in method of accounting. The year of change is the applicable tax year that would apply under section 6.01 of this revenue procedure at the time the Form 3115 is filed if the taxpayer had not been under examination. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in section 9.01 or section 9.02(1).

(3) 120-DAY WINDOW AFTER RECEIPT OF A BASIC REPORT. A taxpayer described in section 6.02 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 during the 120-day period following the date of issuance by the Service of either a letter stating that there is no change in tax liability or a basic report form (a report of Individual Income Tax Examination Changes, a report of Income Tax Examination Changes, a report of Income Tax Audit Changes, or an Unagreed and Excepted Agreed report) giving notice of results of an examination by the Service of the taxpayer's liability for certain tax years. However, this section 6.02(3) does not apply (1) if the package design issue is included as an item of adjustment in a basic report form as a result of the examination by the Service, (2) if the package design issue is placed in suspense by the Service, or (3) if the taxpayer has, before the end of the 120-day period and prior to the filing of the Form 3115, received written notification from the examiner(s) that the package design issue is under consideration for the tax year under examination. The year of change is the applicable tax year that would apply under section 6.01 of this revenue procedure at the time the Form 3115 is filed if the taxpayer had not been under examination. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in sections 9.01 and 9.02(1).

(4) 30-DAY PROVISION FOR CONTINUOUS AUDIT. A taxpayer described in section 6.02 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 during the first 30 days of any tax year if (1) the taxpayer has been precluded under section 6.02 from changing its method of accounting for package design costs for at least 18 consecutive months prior to the 30-day period and (2) the taxpayer has not received written notification from the examiner that the package design issue is under consideration prior to the 30-day period. The year of change is the applicable tax year that would apply under section 6.01 of this revenue procedure at the time the Form 3115 is filed if the taxpayer had not been under examination. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in sections 9.01 and 9.02(1).

03 TAXPAYER BEFORE AN APPEALS OFFICE BUT PACKAGE DESIGN ISSUE NOT RAISED. Except as provided in sections 6.03(1) and 6.03(2) below, if the taxpayer is under consideration by an appeals office of the Service with respect to an examination and the package design issue has not been raised by the Service, the taxpayer is not permitted to change its method of accounting for package design costs.

(1) FIRST TAXABLE YEAR WINDOW. A taxpayer described in section 6.03 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 if the taxpayer is changing for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in section 9.02(2).

(2) SPECIAL CONSENT FROM APPEALS OFFICER. A taxpayer described in section 6.03 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 if the taxpayer obtains an agreement (which must be attached to the Form 3115) from the Appeals Officer that there is no objection to the proposed change in method of accounting. The year of change is the applicable tax year that would apply under section 6.01 of this revenue procedure at the time the Form 3115 is filed if the taxpayer had not been before appeals. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in sections 9.01 and 9.02(1). The Appeals Officer ordinarily will grant its consent to the proposed change. See IRM 8653, MT 8-188 (Jan. 22, 1990).

04 TAXPAYER BEFORE A FEDERAL COURT BUT PACKAGE DESIGN ISSUE NOT RAISED. Except as provided in sections 6.04(1) and 6.04(2) below, if the taxpayer is before any federal court with respect to an income tax issue arising in any tax year and the package design issue has not been raised by the Service, the taxpayer is not permitted to change its method of accounting for package design costs.

(1) FIRST TAXABLE YEAR WINDOW. A taxpayer described in section 6.04 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 if the taxpayer is changing for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in sections 9.02(2).

(2) SPECIAL CONSENT FROM COUNSEL. A taxpayer described in section 6.04 above is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5 if the taxpayer obtains an agreement (which must be attached to the Form 3115) from counsel for the government that there is no objection to the proposed change in method of accounting. The year of change is the applicable tax year that would apply under section 6.01 of this revenue procedure at the time the Form 3115 is filed if the taxpayer had not been before a federal court. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design- by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in sections 9.01 and 9.02(1).

05 TAXPAYER SUBJECT TO A CRIMINAL INVESTIGATION OR PROCEEDING. If the taxpayer is the subject of a criminal investigation or proceeding concerning, directly or indirectly, (a) the taxpayer's federal tax liability for any year, or (b) the possibility of false or fraudulent statements made by the taxpayer with respect to any issue relating to its federal tax liability for any year, the taxpayer is not permitted to change its method of accounting for package design costs.

06 TAXPAYER UNDER EXAMINATION, BEFORE AN APPEALS OFFICE, OR BEFORE A FEDERAL COURT, PACKAGE DESIGN ISSUE RAISED BEFORE MARCH 6, 1989.

(1) AVAILABILITY. If the taxpayer is under examination, before an appeals office, or before a federal court with respect to a tax year in which the package design issue has been raised before March 6, 1989, the taxpayer is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5. The year of change is determined under section 6.06(2) below. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48- month amortization. The procedure for effecting the change is set forth in section 9.03.

(2) YEAR OF CHANGE.

(a) If the taxpayer is under examination with respect to a tax year in which the package design issue has been raised, the year of change is the most recent tax year that is being examined by the Service during the examination of the taxpayer's returns, but not later than the most recent tax year for which a federal income tax return has been filed as of the date the examination began. However, if the package design issue has been raised for the first year in which the erroneous method of accounting for package design costs was used by the taxpayer (i.e., the issue has been raised for the year in which the erroneous method was initiated by the taxpayer or the year in which the taxpayer changed to the erroneous method without the consent of the Commissioner), the year of change is the year in which the erroneous method was first used by the taxpayer.

(b) If the taxpayer is before an appeals office with respect to a tax year in which the package design issue has been raised, the year of change is the earliest open year before appeals in which the issue has been raised.

(c) If the taxpayer is before a federal court with respect to a tax year in which the package design issue has been raised, the year of change is the earliest year before the court in which the issue has been raised.

(d) Notwithstanding subparagraphs (a), (b), and (c) of this section 6.06(2), if the taxpayer is under examination, before an appeals office, or before a federal court for different tax years in which the package design issue has been raised, the year of change is the earliest of the years provided in subparagraphs (a), (b), and (c) of this section 6.06(2).

07 TAXPAYER UNDER EXAMINATION, BEFORE AN APPEALS OFFICE, OR BEFORE A FEDERAL COURT, PACKAGE DESIGN ISSUE RAISED ON OR AFTER MARCH 6, 1989 BUT ON OR BEFORE THE DUE DATE OF TAXPAYER'S TAX RETURN FOR ITS FIRST TAX YEAR ENDING ON OR AFTER RELEASE. If the taxpayer is under examination, before an appeals office, or before a federal court with respect to a tax year in which the package design issue has been raised on or after March 6, 1989, but on or before the due date (determined with regard to extensions) of the taxpayer's federal income tax return for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure, the taxpayer is permitted to change its method of accounting for package design costs to any one of the three alternative methods of accounting provided in section 5. The year of change is the first tax year ending on or after December 18, 1990. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01 for a change to capitalization; section 8.02 for a change to design-by-design capitalization and 60-month amortization; and section 8.03 for a change to pool-of-cost capitalization and 48-month amortization. The procedure for effecting the change is set forth in section 9.03.

08 TAXPAYER UNDER EXAMINATION, BEFORE AN APPEALS OFFICE, OR BEFORE A FEDERAL COURT, PACKAGE DESIGN ISSUE RAISED AFTER THE DUE DATE OF TAXPAYER'S TAX RETURN FOR ITS FIRST TAX YEAR ENDING ON OR AFTER RELEASE.

(1) AVAILABILITY. If the taxpayer is under examination, before an appeals office, or before a federal court with respect to a tax year in which the package design issue has been raised after the due date (determined with regard to extensions) of the taxpayer's federal income tax return for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure, the taxpayer is permitted to change its method of accounting for package design costs only to the capitalization method. The year of change is determined under section 6.08(2) below. The rules for computing the section 481(a) adjustment and determining the adjustment period are set forth in section 8.01. The procedure for effecting the change is set forth in section 9.03.

(2) YEAR OF CHANGE.

(a) If the taxpayer is under examination with respect to a tax year in which the package design issue has been raised, the year of change is the earliest open year under examination in which the issue has been raised.

(b) If the taxpayer is before an appeals office with respect to a tax year in which the package design issue has been raised, the year of change is the earliest open year before appeals in which the issue has been raised.

(c) If the taxpayer is before a federal court with respect to a tax year in which the package design issue has been raised, the year of change is the earliest year before the court in which the issue has been raised.

(d) Notwithstanding subparagraphs (a), (b), and (c) of this section 6.08(2), if the taxpayer is under examination, before an appeals office, or before a federal court for different tax years in which the package design issue has been raised, the year of change is the earliest of the years provided in subparagraphs (a), (b), and (c) of this section 6.08(2).

SECTION 7. SPECIAL RULES RELATING TO RAISED ISSUE

For purposes of this revenue procedure, the package design issue is considered raised when the taxpayer receives written notification that the issue is under consideration (e.g., by an examination plan or an information document request). If the package design issue has been raised in more than one audit cycle, the applicability of sections 6.06, 6.07, and 6.08 is determined by reference to when the issue was first raised.

SECTION 8. SECTION 481(a) ADJUSTMENT

01 CHANGE TO THE CAPITALIZATION METHOD.

(1) COMPUTATION OF THE SECTION 481(a) ADJUSTMENT. If the taxpayer is changing its method of accounting for package design costs to the capitalization method, the section 481(a) adjustment (which will be positive) will restore to income the total amounts deducted or amortized in tax years prior to the year of change with respect to all package designs (or modifications to designs) subject to capitalization and not abandoned as of the first day of the tax year of change, less the amounts that would have been amortized during the tax years prior to the year of change with respect to designs (or modifications to designs) which had an ascertainable useful life on the date the designs (or modifications to the designs) were placed in service. The section 481(a) adjustment is the difference at the beginning of the tax year of change between the basis of all such package designs (or modifications to designs) determined under the taxpayer's present method of accounting and the basis redetermined under the capitalization method.

(2) SECTION 481(a) ADJUSTMENT PERIOD.

(a) CHANGE FROM IMPERMISSIBLE METHOD. If the taxpayer is changing to the capitalization method of accounting for package design costs from a method other than the design-by-design capitalization and 60-month amortization method or the pool-of-cost capitalization and 48-month amortization method, the adjustment period is determined in accordance with sections 8.01(2)(a)(i) and 8.01(2)(a)(ii) below.

(i) The portion of the adjustment referred to in section 8.01(1) that is attributable to costs incurred after December 31, 1986, is to be taken into account in full in computing taxable income in the tax year of change.

(ii) Except as provided in sections 8.01(2)(a)(ii)(a) and 8.01(2)(a)(ii)(b) below, the portion of the adjustment referred to in section 8.01(1) that is attributable to costs incurred before January 1, 1987, is to be taken into account in accordance with the rules set forth in the following sections of Rev. Proc. 84-74: section 5.06(1)(a) (attributable to the immediately preceding tax year rule), section 5.06(1)(b) (67- percent rule), and section 5.06(1)(e) (rule for all other situations).

(a) If a taxpayer described in section 6.01 (relating to taxpayers not contacted for examination, not before an appeals office, not before a federal court, and not subject to a criminal investigation or proceeding), 6.02 (relating to taxpayers contacted for examination where the package design issue has not been raised), 6.03 (relating to taxpayers before an appeals office where the package design issue has not been raised), or 6.04 (relating to taxpayers before a federal court where the package design issue has not been raised) files the Form 3115 required by sections 9.01 or 9.02 after the due date (determined with regard to extensions) of the taxpayer's federal income tax return for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure, then the adjustment period otherwise determined in section 8.01(2)(a)(ii) above cannot exceed 3 tax years.

(b) If a taxpayer described in section 6.08 (relating to taxpayers under examination, before an appeals office, or before a federal court where the package design issue is raised after the due date of its tax return for its first tax year ending on or after release) is changing its method of accounting for package design costs, the portion of the adjustment referred to in section 8.01(2)(a)(ii) is also to be taken into account in computing taxable income in the year of change.

(b) CHANGE FROM PERMISSIBLE METHOD. If the taxpayer is changing to the capitalization method of accounting for package design costs from the design-by-design capitalization and 60-month amortization method or the pool-of-cost capitalization and 48-month amortization method, the adjustment referred to in section 8.01(1) is to be taken into account in accordance with the rules set forth in the following sections of Rev. Proc. 84-74: section 5.06(1)(a) (attributable to the immediately preceding tax year rule), section 5.06(1)(b) (67-percent rule), and section 5.06(1)(e) (rule for all other situations).

02 CHANGE TO THE DESIGN-BY-DESIGN CAPITALIZATION AND 60-MONTH AMORTIZATION METHOD.

(1) COMPUTATION OF THE SECTION 481(a) ADJUSTMENT. If the taxpayer is changing its method of accounting for package design costs to the design-by-design capitalization and 60-month amortization method, the section 481(a) adjustment is equal to the total amounts deducted or amortized in tax years prior to the year of change with respect to all package designs (or modifications to designs) subject to capitalization and not abandoned as of the first day of the tax year of change, less the amounts that would have been amortized during the tax years prior to the year of change with respect to such designs (or modifications to designs) had the design- by-design capitalization and 60-month amortization method been used.

(2) SECTION 481(a) ADJUSTMENT PERIOD.

(a) CHANGE FROM IMPERMISSIBLE METHOD. If the taxpayer is changing to the design-by-design capitalization and 60-month amortization method of accounting for package design costs from a method other than the pool-of-cost capitalization and 48-month amortization method or the capitalization method, the total amount of the adjustment referred to in section 8.02(1) is to be taken into account in computing taxable income in the year of change.

(b) CHANGE FROM PERMISSIBLE METHOD. If the taxpayer is changing to the design-by-design capitalization and 60-month amortization method of accounting for package design costs from the pool-of-cost capitalization and 48-month amortization method or the capitalization method, the adjustment referred to in section 8.02(1) is to be taken into account in accordance with the rules set forth in the following sections of Rev. Proc. 84-74: section 5.06(1)(a) (attributable to the immediately preceding tax year rule), section 5.06(1)(b) (67-percent rule), and section 5.06(1)(e) (rule for all other situations).

03 CHANGE TO THE POOL-OF-COST CAPITALIZATION AND 48-MONTH AMORTIZATION METHOD.

(1) COMPUTATION OF THE SECTION 481(a) ADJUSTMENT. If the taxpayer is changing its method of accounting for package design costs to the pool-of-cost capitalization and 48-month amortization method, the section 481(a) adjustment is equal to the total amounts deducted or amortized in tax years prior to the year of change with respect to all package design costs treated as incurred during the tax years prior to the year of change, less the amounts that would have been amortized during the tax years prior to the year of change with respect to such costs had the pool-of-cost capitalization and 48-month amortization method been used.

(2) SECTION 481(a) ADJUSTMENT PERIOD.

(a) CHANGE FROM IMPERMISSIBLE METHOD. If the taxpayer is changing to the pool-of-cost capitalization and 48-month amortization method of accounting for package design costs from a method other than the design-by-design capitalization and 60- month amortization method or the capitalization method, the total amount of the adjustment referred to in section 8.03(1) is to be taken into account in computing taxable income in the year of change.

(b) CHANGE FROM PERMISSIBLE METHOD. If the taxpayer is changing to the pool-of-cost capitalization and 48-month amortization method of accounting for package design costs from the design-by-design capitalization and 60-month amortization method or the capitalization method, the adjustment referred to in section 8.03(1) is to be taken into account in accordance with the rules set forth in the following sections of Rev. Proc. 84-74: section 5.06(1)(a) (attributable to the immediately preceding tax year rule), section 5.06(1)(b) (67-percent rule), and section 5.06(1)(e) (rule for all other situations).

04 INSUFFICIENT INFORMATION TO COMPUTE SECTION 481(a) ADJUSTMENT. In applying section 8, if a taxpayer's books and records do not contain sufficient information to compute the section 481(a) adjustment that would have been required if the same change had been made at the beginning of the preceding 1-, 2-, or 3-tax-year period, the taxpayer may reasonably estimate these amounts. The taxpayer must attach the computations upon which the estimates are based and the perjury statement provided in section 5.06(2) of Rev. Proc. 84-74 to the Form 3115.

05 CEASING TO ENGAGE IN THE TRADE OR BUSINESS. If the taxpayer ceases to engage in the trade or business to which the adjustment referred to in section 8 relates at any time prior to the expiration of the adjustment period referred to in section 8, the balance of the adjustment not previously taken into account in computing taxable income is to be taken into account in that year. See section 5.09 of Rev. Proc. 84-74 for rules relating to the acceleration of a section 481(a) adjustment when a corporation, partnership, or sole proprietor is deemed to cease operation of its trade or business.

06 LIMITING TERMS AND CONDITIONS WITH RESPECT TO NET OPERATING LOSSES AND CREDITS. The limiting terms and conditions relating to net operating losses and credits provided in sections 5.15(1)(a) (net operating loss -- negative section 481(a) adjustment), 5.15(1)(b) (net operating loss -- positive section 481(a) adjustment), and 5.15(2) (credit carryover -- positive section 481(a) adjustment) of Rev. Proc. 84-74 apply to all changes in method of accounting made pursuant to this revenue procedure.

SECTION 9. MANNER OF EFFECTING THE CHANGE

01. PACKAGE DESIGN ISSUE NOT RAISED BY THE SERVICE.

(1) IN GENERAL. Except as provided in sections 9.01(2) and 9.02 below, if the package design issue has not been raised by the Service, the taxpayer applying for a change in method of accounting pursuant to this revenue procedure must use the following "automatic procedure." The taxpayer must complete a current Form 3115. The original of the Form 3115 must be attached to the taxpayer's timely filed (determined with regard to extensions) federal income tax return for the year of change. A copy of the Form 3115 must be filed with the National Office addressed to the Commissioner of Internal Revenue, P.O. Box 14095, Benjamin Franklin Station, Washington, D.C. 20224, within 180 days after the beginning of the tax year of change. However, if the taxpayer is changing its method Of accounting for package design costs pursuant to the 120-day provision described in section 6.02(3), the copy of the Form 3115 must be filed with the National Office within the 120-day period. If the taxpayer is changing its method of accounting for package design costs pursuant to the 30-day provision described in section 6.02(4), the copy of the Form 3115 must be filed with the National Office within the 30-day period. No user fee is required for a filing under this section 9.01(1).

(2) CHANGE DURING PRIOR SIX YEARS. Except as provided in section 9.02 below, if a taxpayer described in section 9.01(1) above (concerning taxpayers applying for a change in method of accounting where the package design issue has not been raised) changed its method of accounting for package design costs during the six tax years prior to the year of change or received permission from the National Office to change its method of accounting for package design costs for any of its six tax years immediately preceding the year of change but did not effect the requested change, the taxpayer may not use the "automatic procedure" described in section 9.01(1) above. The taxpayer must request permission to change by filing a complete current Form 3115 with the National Office addressed to the Commissioner of Internal Revenue, P.0. Box 7604, Benjamin Franklin Station, Washington, D.C. 20224, within 180 days after the beginning of the tax year of change. Consent to the change will be granted only upon a showing of extraordinary circumstances. A user fee is required for a filing under this section 9.01(2).

02. PACKAGE DESIGN ISSUE NOT RAISED BY THE SERVICE; SPECIAL PROCEDURES FOR TAXPAYERS CHANGING FOR THEIR FIRST TAX YEAR ENDING ON OR AFTER RELEASE.

(1) IN GENERAL. Except as provided in section 9.02(2) below, if the package design issue has not been raised by the Service, a taxpayer changing its method of accounting for its first tax year ending on or after December 18, 1990, the date of release of this revenue procedure, must use the following "automatic procedure." The taxpayer must attach a complete current Form 3115 to the taxpayer's timely filed (determined with regard to extensions) federal income tax return for the year of change. If the tax return for the year of change has already been filed, the taxpayer must attach a complete current Form 3115 to an amended return for the year of change filed on or before 180 days after the beginning of its third tax year ending on or after December 18, 1990. However, if the taxpayer is changing its method of accounting for package design costs pursuant to the 120-day provision described in section 6.02(3), the amended return to which the Form 3115 is attached must be filed within the 120-day period. If the taxpayer is changing its method of accounting for package design costs pursuant to the 30-day provision described in section 6.02(4), the amended return to which the Form 3115 is attached must be filed within the 30-day period. If the taxpayer is changing its method of accounting for package design costs pursuant to one of the special consent provisions described in sections 6.02(2) (special consent from examining agent), 6.03(2) (special consent from appeals officer), or 6.04(2) (special consent from counsel for the government), the amended return to which the Form 3115 is attached must be filed within the time period agreed to by the taxpayer and the examining agent, appeals officer, or counsel for the government. The taxpayer must reflect the change in method of accounting on the amended return for the year of change and on amended returns filed for tax years subsequent to the year of change for which returns have already been filed. No user fee is required for a filing under this section 9.02(1).

(2) FIRST TAXABLE YEAR WINDOW. If a taxpayer described in sections 6.02, 6.03, or 6.04 (relating to taxpayers contacted for examination, before an appeals office, or before a federal court where the package design issue has not been raised) is changing its method of accounting pursuant to sections 6.02(1), 6.03(1), or 6.04(1) (relating to first taxable year window), the taxpayer must use the following "automatic procedure." The taxpayer must attach a complete current Form 3115 to the taxpayer's timely filed (determined with regard to extensions) federal income tax return for the year of change. The taxpayer is not permitted to make the change in method of accounting on an amended return. No user fee is required for a filing under this section 9.02(2).

03 PACKAGE DESIGN ISSUE RAISED BY THE SERVICE. If the taxpayer is under examination, before an appeals office, or before a federal court with respect to a tax year in which the package design issue has been raised, the taxpayer applying for a change in method of accounting pursuant to this revenue procedure must use the following "automatic procedure." The taxpayer must provide the examining agent, appeals officer, or counsel for the government with the original and one copy of a complete current Form 3115. The examining agent, appeals officer, or counsel for the government will verify that the amount of the section 481(a) adjustment is correct and that the year of change and the adjustment period have been determined in accordance with sections 6 and 8. The Form 3115 will not be accepted unless the examining agent, appeals officer, or counsel for the government and the taxpayer are in agreement with respect to the year of change, the amount of the section 481(a) adjustment, and the adjustment period. If the examining agent, appeals officer, or counsel for the government and the taxpayer cannot agree as to these items, a technical advice request may be submitted to the National Office in accordance with Rev. Proc. 90-2, 1990-1 C.B. 386. If agreement is reached as to these items, the examining agent, appeals officer, or counsel for the government will associate the original of the Form 3115 with the taxpayer's federal income tax return for the year of change and forward the copy of the Form 3115 and pertinent comments to the National Office addressed to Commissioner of Internal Revenue, P.0. Box 14095, Benjamin Franklin Station, Washington, D.C. 20224. The taxpayer must reflect the change in method of accounting on amended returns filed for tax years subsequent to the year of change for which returns have already been filed. No user fee is required for a filing under this section 9.03.

04 ADDITIONAL INFORMATION, REPRESENTATIONS AND CONDITIONS.

(1) If the taxpayer is changing its method of accounting for package design costs to the capitalization method or the design-by- design capitalization and 60-month amortization method, the taxpayer must attach a statement to its timely filed Form 3115. The statement must provide a description of each package design, the date on which each was placed in service, and the cost basis of each (as determined under sections 5.01(2) or 5.02(2)).

(2) In addition to including all the information required on the Form 3115 and the additional information required by section 9.04(1) above, the taxpayer must: (1) state that it agrees to all the conditions of Rev. Proc. 90-63 and that it proposes to take the section 481(a) adjustment into account over the appropriate period required by section 8.01(2), 8.02(2) or 8.03(2) (whichever is applicable); and (2) indicate the period over which the section 481(a) adjustment will be taken into account and the basis for that conclusion.

(3) In order to assist in the processing of these changes in method of accounting and to insure proper handling, reference to this revenue procedure must be made a part of the Form 3115. If the taxpayer is described in sections 9.01(1) or 9.02 above (concerning taxpayers applying for a change in method of accounting where the package design issue has not been raised) and except as otherwise provided, the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63." If a taxpayer described in sections 9.01(1) or 9.02 is changing its method of accounting pursuant to the 120-day provision described in section 6.02(3), the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63/120-DAY PROVISION." If a taxpayer described in sections 9.01(1) or 9.02 is changing its method of accounting pursuant to the 30-day provision described in section 6.02(4), the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63/30-DAY PROVISION." If a taxpayer described in sections 9.01(1) or 9.02 is changing its method of accounting for package design costs pursuant to one of the special consent provisions described in sections 6.02(2) (special consent from examining agent), 6.03(2) (special consent from appeals officer), or 6.04(2) (special consent from counsel for the government), the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63/SPECIAL CONSENT PROVISION." If a taxpayer described in sections 9.01(1) or 9.02 is changing its method of accounting pursuant to the early application procedure described in section 9.05, the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63/EARLY APPLICATION PROCEDURE." If the taxpayer is described in section 9.01(2) above (concerning taxpayers that changed or received permission to change their method of accounting for package design costs during the six tax years prior to the year of change), the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "NONAUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63." If a taxpayer described in section 9.01(2) is changing its method of accounting pursuant to the early application procedure described in section 9.05, the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "NONAUTOMATIC CHANGE FILED UNDER REV. PROC. 90-63/EARLY APPLICATION PROCEDURE." If the taxpayer is described in section 9.03 above (concerning taxpayers under examination, before an appeals office, or before a federal court where the package design issue has been raised), the taxpayer must type or legibly print the following statement at the top of page 1 of Form 3115: "AUTOMATIC CHANGE FILED UNDER REV. PROC 90-63/ISSUE RAISED BY SERVICE."

(4) The signature of the person requesting the change in method of accounting and authorized to sign the Form 3115 must appear in the space provided for it on the Form 3115. For example, an officer must sign on behalf of a corporation, a general partner on behalf of a partnership, a trustee on behalf of a trust, or the individual taxpayer on behalf of a sole proprietorship. See the signature requirements set forth in the General Instructions attached to a current Form 3115 for those who are to sign.

(5) If the taxpayer is a member of an affiliated group that has elected to file a consolidated federal income tax return, a Form 3115 submitted on behalf of the taxpayer must be signed by a duly authorized officer of the common parent. See section 1.1502-77 of the regulations.

(6) If an agent is authorized to represent the taxpayer before the Service, to receive the original or copy of correspondence concerning the request, or to perform any other act(s) regarding the Form 3115 on behalf of the taxpayer, a power of attorney reflecting that authorization must be attached to the form. A taxpayer's representative without a power of attorney to represent the taxpayer as indicated in this subsection will not be given any information regarding the Form 3115 application.

(7) A taxpayer changing its method of accounting for package design costs pursuant to this revenue procedure must reconcile its books and records at the end of the year of change and at the end of later tax years to show the accounting method granted.

05 EARLY APPLICATIONS. To implement a change in method of accounting for package design costs for a tax year subsequent to its third tax year ending on or after December 18, 1990 (see section 6.01(2) which precludes a taxpayer from making the change for its second or third tax years ending on or after December 18, 1990), the date of release of this revenue procedure, a taxpayer must complete a current Form 3115 and file a copy of it with the National Office within the first 180 days after the beginning of the year of change. A qualified application for a change in method of accounting for package design costs filed after the 180th day of a tax year and before the beginning of the next tax year will be considered to be timely filed for the next tax year (year of change) for purposes of this revenue procedure. The taxpayer must file a copy of the perfected Form 3115 with the National Office addressed to the Commissioner of Internal Revenue, P.O. Box 14095, Benjamin Franklin Station, Washington, within the first 180 days after the beginning of the year of change. The original of the perfected Form 3115 must be attached to the taxpayer's timely filed (determined with regard to extensions) federal income tax return for the year of change. Unlike the early application procedure under Rev. Proc. 84-74, the taxpayer will not be notified if the early application has not been perfected.

A taxpayer described in section 9.01(2) (concerning certain taxpayers that changed or received permission to change their method of accounting for package design costs during the six tax years prior to the year of change) must file the original of the perfected Form 3115 with the National Office addressed to the Commissioner of Internal Revenue, P.O. Box 7604, Benjamin Franklin Station, Washington, D.C. 20224, within the first 180 days after the beginning of the year of change. The taxpayer will be notified if the early application has not been perfected.

SECTION 10. ESTIMATED TAXES

For purposes of any required quarterly installments made on or before January 30, 1991, no penalty shall be assessed for underpayment of estimated taxes under sections 6654 or 6655 of the Code to the extent an underpayment results from the treatment of package design costs.

SECTION 11. INQUIRIES

Inquiries regarding this revenue procedure may be addressed to the Commissioner of Internal Revenue, CC:IT&A, 1111 Constitution Avenue, N.W., Washington, D.C. 20224.

SECTION 12. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 89-16 and Rev. Proc. 89-17 are revoked. Any request for change in method of accounting filed under the provisions of Rev. Proc. 89-16 and any election filed under Rev. Proc. 89-17 will be disregarded. Any request for change in method of accounting filed under the provisions of Rev. Proc. 84-74 which is pending as of December 18, 1990, the date of release of this revenue procedure, will be returned. Rev. Rul. 89-23 is modified to delete the identification of the ruling as a designated ruling pursuant to section 5.12(2) of Rev. Proc. 84-74.

SECTION 13. EFFECTIVE DATE

01 All the provisions of this revenue procedure, except as provided in section 13.02 below, are effective with respect to Forms 3115 filed for tax years ending on or after December 18, 1990, the date of release of this revenue procedure.

02 With respect to taxpayers described in section 9.03 (concerning taxpayers under examination, before an appeals office, or before a federal court where the package design issue has been raised), the provisions of this revenue procedure are effective for Forms 3115 filed on or after December 18, 1990, the date of release of this revenue procedure.

DRAFTING INFORMATION

The principal author of this revenue procedure is Robert Testoff of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Testoff on (202) 566-4440 (not a toll-free call).