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70. Functional currency (section 985) — to the use of

recurring item exception authorized by Regulations section

another functional currency for the applicant or its qualified

1.461-5. For information regarding the scope limitations and

business unit. See section 11B.01 in the Appendix of Rev. Proc.

how to complete Form 3115, see Rev. Proc. 2006-12 or Rev.

2002-9.

Proc. 2005-9, as modified by Rev. Proc. 2005-17. Compute the

71. Rule of 78s (section 1272) — for stated interest on

section 481(a) adjustment taking into account only amounts

certain short-term consumer loans, from the Rule of 78s

paid or incurred in tax years ending on or after January 24,

method to the constant yield method. See section 5.04 in the

2002. See Rev. Proc. 2006-12 or Rev. Proc. 2005-9, as

Appendix of Rev. Proc. 2002-9.

modified by Rev. Proc. 2005-17.

72. Original issue discount (sections 1272 and 1273) — to

79. REMIC inducement fees (section 446) — for

the principal-reduction method for de minimis original issue

inducement fees received in connection with becoming holders

discount (OID). Attach the statement required by section

of noneconomic residual interests in REMICS, to a safe harbor

12.01(3) in the Appendix of Rev. Proc. 2002-9. Audit protection

method provided under Regulations section 1.446-6(e)(1) or

and scope limitations do not apply to this change. This change

(e)(2). See Rev. Proc. 2004-30, 2004-21 I.R.B. 950.

is made on a cut-off basis. See section 12.01 in the Appendix of

80. “All events test” method for credit card annual fees

Rev. Proc. 2002-9.

(section 446) — to a method that satisfies the all events test in

73. Market discount bonds (section 1278) — from

accordance with Rev. Rul. 2004-52, 2004-22 I.R.B. 973. Scope

including market discount currently in income for the tax year to

limitations do not apply if the change is made for the applicant’s

which the discount is attributable to including market discount in

first or second tax year ending on or after December 31, 2003.

income for the tax year of disposition or partial principal

See Rev. Proc. 2004-32, 2004-22 I.R.B. 988.

payment (revoking the section 1278(b) election). Attach the

81. Ratable inclusion method for credit card annual fees

statement required by section 12A.01(4) in the Appendix of

(section 446) — to the ratable inclusion method for credit card

Rev. Proc. 2002-9. This change is made on a cut-off basis. See

annual fees. Scope limitations do not apply if the change is

section 12A.01 in the Appendix of Rev. Proc. 2002-9.

made for the applicant’s first or second tax year ending on or

74. Interest income on short-term obligations (section

after December 31, 2003. See Rev. Proc. 2004-32, 2004-22

1281) — to currently including accrued interest and discount in

I.R.B. 988.

income (to comply with section 1281). The entire section 481(a)

82. Credit card late fees (section 1272) — to a method that

adjustment must be taken into account in the year of change.

treats credit card late fees as interest income that creates or

See section 13.01 in the Appendix of Rev. Proc. 2002-9.

increases OID on the pool of credit card loans to which the fees

75. Stated interest on short-term loans (section 1281) —

relate. Scope limitations do not apply if the change is made for

for a bank using the cash receipts and disbursements method

the applicant’s first or second tax year ending on or after

of accounting, from accruing stated interest on short-term loans

December 31, 2003. See Rev. Proc. 2004-33, 2004-22 I.R.B.

made in the ordinary course of business to using the cash

989.

method to report such interest. Scope limitations do not apply to

83. Full inclusion method for certain advance payments

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

(section 451) — to the full inclusion method as described in

taken into account in the year of change. See section 13.02 in

section 5.01 of Rev. Proc. 2004-34, 2004-22 I.R.B. 991. Scope

the Appendix of Rev. Proc. 2002-9.

limitations do not apply if the change is made for the applicant’s

76. Sales of mortgage loans (section 1286) — for

first or second tax year ending on or after December 31, 2003,

accounting for certain sales of mortgage loans in which the

provided the applicant’s method of accounting for advance

seller also enters into a contract to service the mortgages in

payments is not an issue under consideration for tax years

consideration for amounts received from interest payments,

under examination. The applicant must be using, or changing

from a method that is inconsistent with Rev. Rul. 91-46, 1991-2

to, an overall accrual method of accounting. See Rev. Proc.

C.B. 358, to a method that is consistent with Rev. Rul. 91-46.

2004-34.

However, the change is only an automatic accounting method

84. Deferral method for certain advance payments

change for certain taxpayers who are under examination. This

(section 451) — to the deferral method as described in section

change does not fall under the procedures of Rev. Proc.

5.02 of Rev. Proc. 2004-34, 2004-22 I.R.B. 991 (except as

2002-9. Instead, see Rev. Proc. 91-51, 1991-2 C.B. 779.

provided in section 8.03 and 8.04(2) of Rev. Proc. 2004-34).

77. Environmental remediation costs (section 263A) — for

The applicant must be using, or changing to, an overall accrual

costs incurred to clean up land that a taxpayer contaminated

method of accounting. Scope limitations do not apply if the

with hazardous waste from the taxpayer’s manufacturing

change is made for the applicant’s first or second tax year

operations, to capitalizing such costs in inventory costs under

ending on or after December 31, 2003, provided that the

section 263A. The applicant requesting this change and another

applicant’s method of accounting for advance payments is not

automatic change under section 263A may file one Form 3115

an issue under consideration for tax years under examination.

to make both changes, but must comply with the ordering rules

In lieu of the information requested on line 1 of Schedule B of

of Regulations section 1.263A-7(b)(2). See Rev. Rul. 2004-18,

Form 3115, attach the information required in section 8.02(3) of

2004-8 I.R.B. 509.

Rev. Proc. 2004-34. An applicant requesting this change and

78. Costs of intangibles and certain transactions (section

designated automatic accounting method change number 30

263(a)) — for amounts paid or incurred to acquire or create

(overall accrual method (section 446)), or 34 (overall accrual

intangibles, or to facilitate an acquisition of a trade or business,

method (section 448)) (with or without designated automatic

a change in the capital structure of a business entity, and

accounting method change number 35 (nonaccrual-experience

certain other transactions, to a method of accounting provided

method)), must file a single Form 3115 for all such changes.

in Regulations sections 1.263(a)-4, 1.263(a)-5, and

See Rev. Proc. 2004-34.

1.167(a)-3(b). For a tax year ending on or after December 31,

85. Film producer’s treatment of certain creative property

2005, or for an earlier tax year that is after the applicant’s

costs (section 446) — to account for creative property costs

second tax year ending on or after December 31, 2003, see

under the safe harbor method provided in Rev. Proc. 2004-36,

Rev. Proc. 2006-12, 2006-3 I.R.B. 310. For an applicant’s

2004-24 I.R.B. 1063. Scope limitations do not apply if the

second tax year ending on or after December 31, 2003, see

change is made for the applicant’s first or second tax year

Rev. Proc. 2005-9, 2005-2 I.R.B. 303, as modified by Rev.

ending on or after December 31, 2003. See Rev. Proc.

Proc. 2005-17, 2005-13 I.R.B. 797, which also provides, if the

2004-36.

applicant desires, a change to utilize the 3

month rule

86. Timber fertilization (section 162) — for costs incurred

authorized by Regulations section 1.461-4(d)(6)(ii) or the

by a timber grower for the post-establishment fertilization of an

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Instructions For Form 3115 - Application For Change In Accounting Method - Internal Revenue Service - 2006 Page 14

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