[Federal Register Volume 69, Number 115 (Wednesday, June 16, 2004)]
[Rules and Regulations]
[Pages 33571-33572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13585]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9131]
RIN 1545-BB47


Administrative Simplification of Section 481(a) Adjustment 
Periods in Various Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains amendments to regulations under 
sections 263A and 448 of the Internal Revenue Code. The amendments 
apply to taxpayers changing a method of accounting under the 
regulations and are necessary to conform the rules governing those 
changes to the rules provided in general guidance issued by the IRS for 
changing a method of accounting. Specifically, the amendments will 
allow taxpayers changing their method of accounting under the 
regulations to take any adjustment under section 481(a) resulting from 
the change into account over the same number of taxable years that is 
provided in the general guidance.

DATES: Effective Date: These regulations are effective on or after June 
16, 2004.

FOR FURTHER INFORMATION CONTACT: Christian Wood, 202-622-4930 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On May 12, 2003, the IRS and Treasury published in the Federal 
Register (68 FR 25310) proposed amendments to the regulations (REG-
142605-02) under sections 263A and 448 of the Internal Revenue Code 
(Code). These amendments pertain to the period for taking into account 
the adjustment required under section 481 to prevent duplications or 
omissions of amounts resulting from a change in method of accounting 
under section 263A or 448. Neither public comments in response to the 
proposed regulations nor any request to speak at a public hearing were 
received. The proposed regulations under sections 263A and 448 are 
adopted as revised by this Treasury decision.
    The proposed regulations provided that they are applicable to 
taxable years ending on or after the date those regulations are 
published as final regulations. However, the proposed regulations 
allowed taxpayers to rely on them for taxable years ending on or after 
May 12, 2003, by filing a Form 3115, ``Application for Change in 
Accounting Method,'' in the time and manner provided in the regulations 
(in the case of a change in method of accounting under section 448) or 
applicable administrative procedure (in the case of a change in method 
of accounting under section 263A) for such a taxable year that reflects 
a section 481 adjustment period that is consistent with the proposed 
regulations. Taxpayers may continue to rely on the proposed regulations 
for taxable years ending on or after May 12, 2003, but ending before 
June 16, 2004.

[[Page 33572]]

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because 
these regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

Drafting Information

    The principal authors of these regulations are Christian Wood and 
Grant Anderson of the Office of Associate Chief Counsel (Income Tax and 
Accounting). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. In Sec.  1.263A-7, paragraph (b)(2)(ii) is revised to read as 
follows:


Sec.  1.263A-7  Changing a method of accounting under section 263A.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Adjustment required by section 481(a). In the case of any 
taxpayer required or permitted to change its method of accounting for 
any taxable year under section 263A and the regulations thereunder, the 
change will be treated as initiated by the taxpayer for purposes of the 
adjustment required by section 481(a). The taxpayer must take the net 
section 481(a) adjustment into account over the section 481(a) 
adjustment period as determined under the applicable administrative 
procedures issued under Sec.  1.446-1(e)(3)(ii) for obtaining the 
Commissioner's consent to a change in accounting method (for example, 
see Rev. Proc. 2002-9 (2002-1 C.B. 327) and Rev. Proc. 97-27 (1997-1 
C.B. 680) (also see Sec.  601.601(d)(2) of this chapter)). This 
paragraph applies to taxable years ending on or after June 16, 2004.
* * * * *
0
Par. 3. Section 1.448-1 is amended as follows:
0
1. Paragraphs (g)(2)(i) and (g)(3)(i) are revised.
0
2. Paragraphs (g)(3)(ii) and (g)(3)(iii) are removed.
0
3. Paragraph (g)(3)(iv) is redesignated as paragraph (g)(3)(ii) and the 
introductory language is revised.
0
4. Paragraph (g)(6) is removed.
0
5. Paragraph (i)(1) is amended by removing the language ``and (4)'' and 
adding ``(4), and (5)'' in its place.
0
6. Paragraph (i)(5) is added.
    The revisions and addition read as follows:


Sec.  1.448-1   Limitation on the use of the cash receipts and 
disbursements method of accounting.

* * * * *
    (g) * * *
    (2) * * *
    (i) In general. Except as otherwise provided in paragraphs 
(g)(2)(ii) and (g)(3) of this section, a taxpayer required by this 
section to change from the cash method must take the net section 481(a) 
adjustment into account over the section 481(a) adjustment period as 
determined under the applicable administrative procedures issued under 
Sec.  1.446-1(e)(3)(ii) for obtaining the Commissioner's consent to a 
change in accounting method (for example, see Rev. Proc. 2002-9 (2002-1 
C.B. 327) and Rev. Proc. 97-27 (1997-1 C.B. 680) (also see Sec.  
601.601(d)(2) of this chapter)), provided the taxpayer complies with 
the provisions of paragraph (h)(2) or (3) of this section for its first 
section 448 year.
* * * * *
    (3) * * *
    (i) Cessation of trade or business. If the taxpayer ceases to 
engage in the trade or business to which the section 481(a) adjustment 
relates, or if the taxpayer operating the trade or business terminates 
existence, and such cessation or termination occurs prior to the 
expiration of the adjustment period described in paragraph (g)(2)(i) or 
(ii) of this section, the taxpayer must take into account, in the 
taxable year of such cessation or termination, the balance of the 
adjustment not previously taken into account in computing taxable 
income. For purposes of this paragraph (g)(3)(i), the determination as 
to whether a taxpayer has ceased to engage in the trade or business to 
which the section 481(a) adjustment relates, or has terminated its 
existence, is to be made under the principles of Sec.  1.446-
1(e)(3)(ii) and its underlying administrative procedures.
    (ii) De minimis rule for a taxpayer other than a cooperative. 
Notwithstanding paragraph (g)(2)(i) and (ii) of this section, a 
taxpayer other than a cooperative (within the meaning of section 
1381(a)) that is required to change from the cash method by this 
section may elect to use, in lieu of the adjustment period described in 
paragraph (g)(2)(i) and (ii) of this section, the adjustment period for 
de minimis section 481(a) adjustments provided in the applicable 
administrative procedure issued under Sec.  1.446-1(e)(3)(ii) for 
obtaining the Commissioner's consent to a change in accounting method. 
A taxpayer may make an election under this paragraph (g)(3)(ii) only if 
--
* * * * *
    (i) * * *
    (5) Effective date of paragraph (g)(2)(i). Paragraph (g)(2)(i) of 
this section applies to taxable years ending on or after June 16, 2004.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: June 1, 2004.

Gregory F. Jenner,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 04-13585 Filed 6-15-04; 8:45 am]
BILLING CODE 4830-01-P