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25. Impact fees (section 263A) — for impact fees incurred in

Complete Schedule A, Part I, of Form 3115. Also, complete

connection with the new construction or expansion of a

Schedule D, Parts II and III, of Form 3115, as applicable. Scope

residential building, to treating the costs as capital expenditures

limitations do not apply to this change. The applicant may

allocable to the building. Complete Schedule E of Form 3115 if

request this change and designated automatic accounting

the building is depreciable. The applicant may request this

method change number 50 (small taxpayer ($1 million)

change and designated automatic accounting method change

inventory exception) on a single Form 3115. See section 5.05 in

numbers 77 (environmental remediation costs) and 92

the Appendix of Rev. Proc. 2002-9.

(allocation of environmental remediation costs to production) on

33. Overall cash method ($10 million) (section 446) — for

a single Form 3115, but must comply with the ordering rules of

qualifying applicants changing to the overall cash method.

Regulations section 1.263A-7(b)(2). See Rev. Rul. 2002-9,

Complete Schedule A, Part I, of Form 3115. Also, complete

2002-10 I.R.B. 614.

Schedule D, Parts II and III, of Form 3115, as applicable. Scope

26. Related party transactions (section 267) — for losses,

limitations do not apply to this change. The applicant may

expenses, and qualified stated interest incurred in transactions

request this change and designated automatic accounting

between related parties, to disallowing or deferring certain

method change number 51 (small taxpayer ($10 million)

deductions attributable to such transactions in accordance with

inventory exception) on a single Form 3115. See Rev. Proc.

section 267. See section 4A.01 in the Appendix of Rev. Proc.

2002-28, 2002-18 I.R.B. 815.

2002-9.

34. Overall accrual method (section 448) — to an overall

27. Deferred compensation determination (section

accrual method for the applicant’s first tax year it is required to

404) — for determining whether an item of compensation is

change from the cash method by section 448. Complete

deferred compensation or when the item is paid, from making

Schedule A, Part I, of Form 3115. Also, complete Schedule D,

the determination by reference to when the item is secured to

Parts II and III, of Form 3115, as applicable. An applicant

making the determination by reference to when the item is

requesting this change, designated automatic accounting

actually received. Audit protection and scope limitations do not

method change number 35 (nonaccrual-experience method),

apply to this change. The section 481(a) adjustment must be

and/or designated automatic accounting method change

taken into account ratably over three tax years. See section

number 84 (deferral method for certain advance payments)

4B.01 in the Appendix of Rev. Proc. 2002-9.

must file a single Form 3115 for all such changes. This change

28. Bonus or vacation pay deferred compensation

does not fall under the procedures of Rev. Proc. 2002-9.

(section 404) — for bonuses that are deferred compensation,

Instead, see Regulations section 1.448-1.

from treating as deductible or capitalizable when accrued, to

35. Nonaccrual-experience method (section 448) — for an

treating as deductible or capitalizable in the year in which

applicant changing its method of accounting for amounts

includible in the employee’s income, and for vacation pay that is

received for the performance of services in fields described in

deferred compensation, from treating as deductible or

section 448(d)(2)(A) (that is, health, law, engineering,

capitalizable when accrued to treating as deductible or

architecture, accounting, actuarial science, performing arts, or

capitalizable in the year in which paid to the employee. See

consulting), from an overall accrual method to a

section 4B.02 in the Appendix of Rev. Proc. 2002-9.

nonaccrual-experience method, from one

29. Grace period contributions (section 404) — for

nonaccrual-experience method to another

contributions made to a section 401(k) qualified cash or

nonaccrual-experience method, and/or from the present

deferred arrangement or matching contributions under section

method to a periodic system under Notice 88-51, 1988-1 C.B.

401(m), from treating contributions made after the end of the

535. An applicant requesting this change, designated automatic

tax year but before the due date of the tax return as being “on

accounting method change number 34 (overall accrual method

account of” the tax year without regard to when the underlying

under section 448), and/or designated automatic accounting

compensation is earned to treating such contributions as not

method change number 84 (deferral method for certain

being “on account of” the tax year if they are attributable to

advance payments) must file a single Form 3115 for all such

compensation earned after the end of that tax year. See Rev.

changes. See Temporary Regulations section 1.448-2T(g) and

Rul. 2002-46, 2002-29 I.R.B. 117, as modified by Rev. Rul.

(h) and Notice 88-51.

2002-73, 2002-45 I.R.B. 805.

36. Interest accrual on non-performing loans (section

30. Overall accrual method (section 446) — for a qualifying

451) — for an accrual method bank accounting for qualified

applicant, from a cash receipts and disbursements or a hybrid

stated interest on non-performing loans, to the method whereby

method to an overall accrual method, or to an overall accrual

interest is accrued until either the loan is worthless under

method in conjunction with the recurring item exception under

section 166 and is charged off as a bad debt or the interest is

section 461(h)(3), or to an overall accrual method for an

determined to be uncollectible. See section 5A.01 in the

applicant required to change to an overall accrual method under

Appendix of Rev. Proc. 2002-9.

section 448, but who is ineligible to make the change under

37. Advance rentals (section 451) — for advance rentals

Regulations section 1.448-1(h)(2) (relating to the “first section

other than advance rentals subject to section 467, to inclusion

448 year”). Complete Schedule A, Part I, of Form 3115. Also

in gross income in the tax year received. See section 5A.03 in

complete Schedule D, Parts II and III, of Form 3115, as

the Appendix of Rev. Proc. 2002-9.

applicable. An applicant requesting this change and designated

38. State tax refunds (section 451) — for an accrual method

automatic accounting method change number 84 (deferral

applicant with state or local income or franchise tax refunds, to

method for certain advance payments) must file a single Form

accrue these items in the tax year the applicant receives

3115 for both changes. See section 5.01 in the Appendix of

payments or notice of approval of its refund claim (whichever is

Rev. Proc. 2002-9.

earlier), in accordance with Rev. Rul. 2003-3, 2003-2 I.R.B.

31. Multi-year insurance policies for multi-year service

252. See Rev. Rul. 2003-3.

warranty contracts (section 446) — for a manufacturer,

39. Capital cost reduction (CCR) payments (section

wholesaler, or retailer of motor vehicles or other durable

451) — for CCR payments (as defined in Rev. Proc. 2002-36,

consumer goods accounting for multi-year insurance policies for

2002-21 I.R.B. 993) made by vehicle lessees, to the method

multi-year service warranty contracts, to capitalizing and

that excludes these payments from the applicant’s gross

amortizing the costs. See section 5.03 in the Appendix of Rev.

income and from the applicant’s bases in the purchased

Proc. 2002-9.

vehicles. See Rev. Proc. 2002-36.

32. Overall cash method ($1 million) (section 446) — for

40. Exclusion for certain returned magazines,

qualifying applicants changing to the overall cash method.

paperbacks, or records (section 458) — for an accrual

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Instructions For Form 3115 - Application For Change In Accounting Method - Internal Revenue Service - 2006 Page 11

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