Rev. Proc. 70-15

Section 1. Purpose

The purpose of this Revenue Procedure is to provide for the treatment of the balance of the adjustment required under section 481(a) of the Internal Revenue Code of 1954 in the case of a change in method of accounting for bad debts where the taxpayer ceases to engage in a trade or business during the ten-year period over which the total adjustment is to be taken into account under Revenue Procedure 64-51, C.B. 1964-2, 1003.

Sec. 2. Background

.01 Revenue Procedure 64-51 provides an administrative procedure whereby taxpayers may expeditiously obtain consent to change their method of accounting for bad debts from the specific charge-off method to the reserve method.

.02 Section 3 of the Revenue Procedure 64-51 provides in part that a taxpayer desiring to change his method of accounting from the specific charge-off method to the reserve method may do so by filing an application on Form 3115. The application shall be filed within the first ninety days of the taxable year in which the change is to be effected. That section also requires that the taxpayer attach a copy of the application to the income tax return filed for the taxable year of change.

.03 Section 4 of Revenue Procedure 64-51 provides the manner for effecting such a change. Among the conditions required therein is that the taxpayer take into account in computing taxable income for the taxable year of the change and for each of the nine succeeding taxable years, one-tenth of the amount of the net adjustment required (the so-called ten-year spread).

Sec. 3. Application

A taxpayer who has changed his method of accounting for bad debts under the provisions of Revenue Procedure 64-51 and ceased to engage in a trade or business (other than in a transaction to which section 381 of the Code applies) during the ten-year period over which the adjustment is to be spread must attach a copy of the Form 3115 to the return for the taxable year in which he ceased to engage in a trade or business together with a statement showing the balance of the adjustment not previously taken into account in computing taxable income. This balance of the adjustment is to be taken into account in the taxable year in which he ceased to engage in a trade or business.

Sec. 4. Effect on Other Documents

Revenue Procedure 64-51 is hereby amplified.