Fringe benefits aircraft valuation formula. For purposes of section 1.61-21(g) of the Income Tax Regulations, relating to the rule for valuing non-commercial flights on employer-provided aircraft, the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the second half of 2012 are set forth.

This procedure modifies the rules under section 446 of the Code in Rev. Proc. 2011-14, 2011-4 I.R.B. 330, and Rev. Proc. 97-27, 1997-1 C.B. 680, regarding certain changes in method of accounting by taxpayers that engage in a transaction to which section 381(a) applies that occurs on or after August 31, 2011. The procedure also modifies section 3.09 of the APPENDIX of Rev. Proc. 2011-14 regarding a change in method of accounting described in Rev. Proc. 2011-43 for taxpayers in the business of transporting, delivering, or selling electricity. Finally, the procedure clarifies and modifies section 8.04 of the APPENDIX of Rev. Proc. 2011-14 regarding a change in method of accounting for amounts paid or incurred for the installation of energy efficient commercial building property under section 179D. Rev. Proc. 97-27 modified. Rev. Proc. 2011-14 clarified and modified.

This notice describes safe harbor methods that employers may use to determine which employees are treated as full-time employees for purposes of the shared employer responsibility provisions of section 4980H of the Code.

This notice provides temporary guidance regarding the 90-day waiting period limitation in Public Health Service Act (PHS Act) section 2708.

Per capita payments from proceeds of settlements of Indian tribal trust cases. This notice advises taxpayers that per capita payments to Indian tribal members made from the proceeds of the settlement of certain litigation between the United States and Indian tribes are excluded from gross income.

This procedure contains updates to Publication 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, Electronically, revised (9-2012).

For purposes of the taxation of fringe benefits under section 61 of the Internal Revenue Code, section 1.61-21(g) of the Income Tax Regulations provides a rule for valuing noncommercial flights on employer-provided aircraft. Section 1.61-21(g)(5) provides an aircraft valuation formula to determine the value of such flights. The value of a flight is determined under the base aircraft valuation formula (also known as the Standard Industry Fare Level formula or SIFL) by multiplying the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided in section 1.61-21(g)(7) and then adding the applicable terminal charge. The SIFL cents-per-mile rates in the formula and the terminal charge are calculated by the Department of Transportation and are reviewed semi-annually.

The following chart sets forth the terminal charge and SIFL mileage rates:

The principal author of this revenue ruling is Kathleen Edmondson of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt/Government Entities). For further information regarding this revenue ruling, contact Ms. Edmondson at (202) 622-0047 (not a toll-free call).

This notice describes safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for purposes of the shared employer responsibility provisions of § 4980H of the Internal Revenue Code (Code). Specifically, the administrative guidance in this notice, modifying and expanding on previous guidance, includes a safe harbor method that employers may apply to specified newly-hired employees.

As described more fully below, this notice —

This guidance is intended to encourage employers to continue providing and potentially to expand group health plan coverage for their employees by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable for a payment under § 4980H, to protect employees from unnecessary cost, confusion, and disruption of coverage, and to minimize administrative burdens on the Affordable Insurance Exchanges (Exchanges).

Simultaneously with the issuance of this notice, the Department of the Treasury, the Department of Labor (DOL), and the Department of Health and Human Services (HHS) (the Departments) are jointly providing administrative guidance under § 2708 of the Public Health Service Act (PHS Act).^[1] PHS Act § 2708 applies to group health plans and group health insurance issuers and provides that any waiting period under a group health plan must not exceed 90 days. To clarify how the PHS Act § 2708 90-day waiting period limitation coordinates with § 4980H, this notice applies portions of the Departments’ separate and simultaneous PHS Act § 2708 guidance. DOL and HHS concur in the application of PHS Act § 2708 in this notice.

This notice consists of a background section briefly summarizing the § 4980H and PHS Act § 2708 statutory framework and the administrative guidance issued to date (section II); a description of the safe harbors available for employers for determining full-time employee status in the case of ongoing employees and newly-hired variable hour and seasonal employees (including the transition from newly-hired to ongoing employees and a series of examples illustrating how the safe harbors apply) (section III); a description of the reliance provided to employers through at least 2014 (section IV); and a request for comments (section V).

For compliance with § 4980H at least through the end of 2014, employers may rely on (1) the safe harbor method for ongoing employees described in section III.A and B, above; (2) the rule for new employees reasonably expected to work full-time described in section III.C, above, (3) the safe harbor method for new variable hour and seasonal employees described in section III.D, above, and (4) the safe harbor based on Form W-2 wages described in Notice 2011-73 and Notice 2012-17. Employers will not be required to comply with any subsequent guidance on these issues that is more restrictive until at least January 1, 2015.

This reliance covers a measurement period that begins in 2013 or 2014 and the associated stability period (which may extend into 2014, 2015 or 2016). For example, the use of a 12-month measurement period in accordance with this notice beginning on July 1, 2013 and ending on June 30, 2014 might be used to classify employees for a stability period that runs from July 1, 2014 through June 30, 2015. In addition, as stated earlier, use of any of the safe harbor methods described in this notice is not required, but rather is optional for all employers.

Treasury and the IRS intend that upcoming regulations on the employer shared responsibility provisions under § 4980H will address the issues described in this notice, including the specific issues identified below, in addition to other aspects of § 4980H.

As part of the efforts to develop workable and flexible rules on the application of § 4980H, with extensive input from stakeholders, Treasury and the IRS have issued several notices describing potential approaches to interpreting § 4980H and requesting public comments. In response, numerous helpful comments have been received and reviewed. Those comments continue to be considered and taken into account in the process of formulating regulations and other administrative guidance that stakeholders will be able to rely on. Among the specific issues currently under consideration with respect to the identification of full-time employees under § 4980H are the following:

In view of the anticipated timing of regulations and other guidance that stakeholders will be able to rely on, it is requested that those who wish to submit any further comments on these or other issues relating to this notice do so by September 30, 2012. Comments should include a reference to Notice 2012-58. Send submissions to CC:PA:LPD:PR (Notice 2012-58), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2012-58), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2012-58” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying.

No inference should be drawn from any provision of this notice concerning any other provision of § 4980H or any other provision of the Affordable Care Act.

The principal author of this notice is Mireille Khoury of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Khoury at (202) 622-6080 (not a toll-free call).

The Departments of Labor, Health and Human Services (HHS), and the Treasury (the Departments) are working together to develop coordinated regulations and other administrative guidance to assist stakeholders with implementation of the Patient Protection and Affordable Care Act (Affordable Care Act). This notice, which is being issued in substantially identical form by the other two Departments, provides temporary guidance regarding the 90-day waiting period limitation in Public Health Service Act (PHS Act) section 2708.^[9] The guidance will remain in effect at least through the end of 2014. In addition, the Treasury Department, including the Internal Revenue Service (IRS), is concurrently issuing a notice providing administrative guidance on the shared responsibility of employers under section 4980H of the Internal Revenue Code (Code). See IRS Notice 2012-58. That guidance has been coordinated with the Departments of Labor and HHS and with the guidance contained in this notice.

PHS Act section 2708 provides that, for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.^[10] PHS Act section 2704(b)(4), ERISA section 701(b)(4), and Code section 9801(b)(4) define a waiting period to be the period that must pass with respect to an individual before the individual is eligible to be covered for benefits under the terms of the plan. In 2004 regulations, the Departments defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.^[11]

PHS Act section 2708 does not require the employer to offer coverage to any particular employee or class of employees, including part-time employees. PHS Act section 2708 merely prevents an otherwise eligible employee (or dependent) from having to wait more than 90 days before coverage becomes effective.

The Departments invited comments on the 90-day waiting period limitation, in addition to requesting comments on the employer shared responsibility provisions of Code section 4980H, in IRS Notice 2011-36.^[12] Subsequent guidance outlined various approaches under consideration with respect to both the 90-day waiting period limitation and the employer shared responsibility provisions.^[13] Specifically, the guidance outlined an approach under which employers would be permitted, under certain circumstances, to use an eligibility condition requiring an employee to complete a specified number of cumulative hours of service in order to be eligible for the coverage under the plan. Comments were invited on this and other aspects of the guidance, including how rules relating to the potential look-back/stability period safe harbor method for determining the full-time status of employees under Code section 4980H should be coordinated with the 90-day waiting period limitation of PHS Act section 2708.

This section provides temporary guidance on what the Departments will consider as compliance with PHS Act section 2708, and this guidance will remain in effect at least through the end of 2014. Regulations or other guidance on these issues applicable for periods after 2014 will provide adequate time to comply with any additional or modified requirements.

Examples set forth below illustrate how the “designed to avoid compliance with the 90-day waiting period limitation” standard applies to various plan eligibility conditions at least through the end of 2014. Comments are invited on additional examples (if any) that would be helpful to include in future regulations or other guidance.

Example 1. (i) Facts. Employer W’s group health plan provides for coverage to begin on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms. Enrollment forms are distributed on an employee’s start date. Employee A is hired and starts on October 31, which is the first day of the payroll period. On November 2, A completes and files all the forms necessary to enroll in the plan. A’s coverage under the plan becomes effective on November 14, which is the first day of the first payroll period after A completes the enrollment forms.

(ii) Conclusion. In this Example 1, under the terms of W’s plan, coverage may become effective as early as October 31, depending on when A completes the applicable enrollment forms. Under the terms of the plan, when coverage becomes effective is dependent solely on the length of time taken by A to complete the enrollment materials. Therefore, under the terms of the plan, A may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, and the plan complies with PHS Act section 2708.

Example 2. (i) Facts. Employer X’s group health plan limits eligibility for coverage to full-time employees. Coverage becomes effective on the first day of the calendar month following the date the employee becomes eligible. Employee B begins working full time for Employer X on April 11. Prior to this date, B worked part time for X. B enrolls in the plan and coverage is effective May 1.

(ii) Conclusion. In this Example 2, the period from April 11 through April 30 is a waiting period. The period while B was working part time is not part of the waiting period because B was not in a class of employees eligible for coverage under the terms of the plan while working part time, and full-time versus part-time status is a bona fide employment-based condition that is not considered to be designed to avoid compliance with the 90-day waiting period limitation.

Example 3. (i) Facts. Under Employer Y’s group health plan, only employees who work full time (defined under the plan as regularly working 30 hours per week) are eligible for coverage. Employee C begins work for Employer Y on November 26 of Year 1. C’s hours are reasonably expected to vary, with an opportunity to work between 20 and 45 hours per week, depending on shift availability and C’s availability. Therefore, it cannot be determined at C’s start date that C is reasonably expected to work full time. Under the terms of the plan, variable- hour employees, such as C, are eligible to enroll in the plan if they are determined to be full time after a measurement period of 12 months. Coverage is made effective no later than the first day of the first calendar month after the applicable enrollment forms are received. C’s 12-month measurement period ends November 25 of Year 2. C is determined to be full time and is notified of C’s plan eligibility. If C then elects coverage, C’s first day of coverage will be January 1 of Year 3.

(ii) Conclusion. In this Example 3, the measurement period is not considered to be designed to avoid compliance with the 90-day waiting period limitation (and is, therefore, permissible) because the plan may use a reasonable period of time to determine whether a variable-hour employee is full time under PHS Act section 2708 if the period of time is consistent with the timeframe permitted for such determinations under Code section 4980H. In such circumstances, the time period for determining whether an employee is full time will not be considered to avoid the 90-day waiting period limitation if coverage can become effective no later than 13 months from C’s start date, plus the time remaining until the first day of the next calendar month.

Example 4. (i) Facts. Employee D begins working 25 hours per week for Employer Z on January 3 and is considered a part-time employee for purposes of Z’s group health plans. Z sponsors a group health plan that provides coverage to part-time employees after they have completed a cumulative 1,200 hours of service. D satisfies the plan’s cumulative hours of service condition on December 15.

(ii) Conclusion. In this Example 4, the cumulative hours of service condition with respect to part-time employees is not considered to be designed to avoid compliance with the 90-day waiting period limitation. Accordingly, coverage for D under the plan must begin no later than the 91^st day after D works 1,200 hours. (If the plan’s cumulative hours of service requirement were more than 1,200 hours, the Departments would consider the requirement to be designed to avoid compliance with the 90-day waiting period limitation.)

Employers, plans and issuers may rely on the compliance guidance in this notice at least through the end of 2014. An employee or related individual is not eligible for minimum essential coverage under the plan (and therefore may be eligible for a premium tax credit or cost-sharing reduction) during any period when coverage is not offered, including any measurement period or administrative period prior to when coverage takes effect. Thus, all employees, whether full-time, part-time, or variable, who are not offered the opportunity to enroll in health insurance by their employer will be eligible to receive premium tax credits and cost-sharing reductions for Exchange coverage if they meet other conditions for receipt of these credits.

Comments are requested by September 30, 2012. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are posted on the Internet as received, and can be retrieved by most Internet search engines. Comments may be submitted anonymously. Comments will be shared among the Departments.

Comments may be sent electronically to: e-ohpsca-er.ebsa@dol.gov. Alternatively, comments may be sent via mail or hand delivery to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

The Departments have coordinated on the guidance and other information contained in this notice and are publishing substantively identical issuances. Questions concerning the information contained herein may be directed to the Internal Revenue Service at 202-622-6080; the Department of Labor’s Office of Health Plan Standards and Compliance Assistance at 202-693-8335; or the Department of HHS at 410-786-1565 or phig@cms.hhs.gov. Additional information for employers regarding the Affordable Care Act is available at www.healthcare.gov and www.dol.gov/ebsa/healthreform.

This notice provides guidance concerning the federal income tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes.

The United States has entered into settlement agreements with the federally recognized Indian tribes listed in the Appendix to this notice, settling litigation in which the tribes allege that the Department of the Interior and the Department of the Treasury mismanaged monetary assets and natural resources the United States holds in trust for the benefit of the tribes (“Tribal Trust cases”). Upon receiving the settlement proceeds, the tribes will dismiss their claims with prejudice. See Press Release, U.S. Department of Justice, Attorney General Holder and Secretary Salazar Announce $1 Billion Settlement of Tribal Trust Accounting and Management Lawsuits Filed by More Than 40 Tribes (April 11, 2012) at http://www.justice.gov/opa/pr/2012/April/12-ag-460.html. The United States foresees the possibility of future substantially similar settlements of substantially similar claims brought by other federally recognized Indian tribes.

Most of the Indian tribes that have reached Tribal Trust case settlements with the United States have directed that the settlement proceeds be transferred to accounts at private banks or other third-party institutions, where the proceeds will be invested until the tribes use the funds for various purposes, which may include making per capita payments to their members. Other Indian tribes have directed that all or part of the settlement proceeds be paid into a trust account established or maintained by the Secretary of the Interior, through the Office of the Special Trustee for American Indians, for the benefit of the tribes, until the tribes provide instructions for the disposition of the funds, which may include making per capita payments to their members.

Although agreeing to settlements, the United States admits no liability in the Tribal Trust case settlements and the government has no fiduciary responsibilities over the Tribal Trust case settlement proceeds that the tribes receive and that are deposited into accounts at private banks or other third-party institutions.

Several tribes and other affiliated organizations requested direct consultation on the income tax treatment of per capita payments from the Tribal Trust case settlements. In response to these requests and in the spirit of Executive Order 13175, direct consultation and communication occurred. These consultations and conversations were extremely useful in preparing this notice.

Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived. Under § 61, Congress intends to tax all gains and undeniable accessions to wealth, clearly realized, over which taxpayers have complete dominion. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207. Indians are citizens subject to the payment of income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956), 1956-1 C.B. 605.

The Per Capita Act, Pub. L. No. 98-64, 97 Stat. 365, 25 U.S.C. §§ 117a through 117c, provides authority to Indian tribes to make per capita payments to Indians out of tribal trust revenue. Under 25 U.S.C. § 117a, funds held in trust by the Secretary of the Interior for an Indian tribe that are to be distributed per capita to members of that tribe may be distributed by either the Secretary of the Interior or, at the request of the governing body of the tribe and subject to the approval of the Secretary of the Interior, the tribe.

The Indian Tribal Judgment Funds Use or Distribution Act, 25 U.S.C. §§ 1401 through 1408, concerns the distribution of certain judgment funds to Indian tribes. Under 25 U.S.C. § 117b(a), funds distributed under 25 U.S.C. § 117a are subject to the provisions of 25 U.S.C. § 1407. Under 25 U.S.C. § 1407, the funds described in that section, and all interest and investment income accrued on the funds while held in trust, are not subject to federal income taxes. See also H.R. Rep. No. 98-230 at 3 (1983), which provides that per capita distributions of tribal trust revenue “shall be subject to the provisions of [25 U.S.C. § 1407] with respect to tax exemptions.”

To determine the federal income tax treatment of per capita payments from Tribal Trust case settlement proceeds, “the test is not whether the action was one in tort or contract, but rather the question to be asked is ‘In lieu of what were the damages awarded?’” See Raytheon Production Corp. v. Commissioner, 144 F.2d 110, 113 (1^st Cir. 1944), aff’g 1 T.C. 952 (1943). The fact that a suit ends in a compromise settlement does not change the nature of the recovery; the determining factor is the nature of the underlying claim. Raytheon Production Corp. at 114. Therefore, although the United States admits no liability in the Tribal Trust cases, Raytheon Production Corp. requires an examination of the underlying claims asserted by the tribes. The Tribal Trust case settlements described in this notice resolve claims, in relevant part, that the Department of the Interior and the Department of the Treasury mismanaged trust accounts, lands, and natural resources. The tribes assert that, absent this mismanagement of their trust funds and resources, their government administered trust fund accounts would have substantially larger balances. See 25 C.F.R. §§ 115.002 and 115.702 (which define the trust fund accounts maintained and held by the Secretary of the Interior for federally recognized tribes and the types of payments that must be accepted into the trust account, which include those resulting from use of trust lands or restricted fee lands or trust resources when paid directly to the Secretary of the Interior on behalf of the tribal account holder). The settlement proceeds from the Tribal Trust cases must be viewed as being in lieu of amounts that would have been held in a trust fund account for the tribe that is maintained by the Secretary of the Interior. Consequently, for federal income tax purposes, per capita payments that an Indian tribe makes from the tribe’s Tribal Trust case settlement proceeds are treated the same as per capita payments from funds held in trust by the Secretary of the Interior under 25 U.S.C. § 117a. See Raytheon Production Corp. at 113-114; see also 25 U.S.C. § 1407 and H.R. Rep. No. 98-230 at 3 (1983).

Under 25 U.S.C. § 117b(a), per capita payments made from the proceeds of an agreement between the United States and an Indian tribe settling the tribe’s claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior are excluded from the gross income of the members of the tribe receiving the per capita payments. Per capita payments that exceed the amount of the Tribal Trust case settlement proceeds and that are made from an Indian tribe’s private bank account in which the tribe has deposited the settlement proceeds are included in the gross income of the members of the tribe receiving the per capita payments under § 61. For example, if an Indian tribe receives proceeds under a settlement agreement, invests the proceeds in a private bank account that earns interest, and subsequently distributes the entire amount of the bank account as per capita payments, then a member of the tribe excludes from gross income that portion of the member’s per capita payment attributable to the settlement proceeds and must include the remaining portion of the per capita payment in gross income.

This notice applies only to per capita payments from proceeds of the Tribal Trust case settlements that are described in this notice and that the United States has entered into with the Indian tribes listed in the Appendix to this notice or to proceeds of Tribal Trust case settlements that are subsequently identified as being subject to this notice on the Indian Tribal Governments page on the Internal Revenue Service website, www.irs.gov. The federal income tax treatment of other per capita payments made by the Secretary of the Interior or Indian tribes to members of Indian tribes is outside the scope of this notice and may be addressed in future guidance.

The principal author of this notice is Sheldon Iskow of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information, please contact Mr. Iskow at (202) 622-4920 (not a toll-free call).

This revenue procedure clarifies and modifies (i) Rev. Proc. 2011-14, 2011-4 I.R.B. 330; and (ii) Rev. Proc. 97-27, 1997-1 C.B. 680, as amplified and modified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by Rev. Proc. 2002-54, 2002-2 C.B. 432, as modified by Rev. Proc. 2007-67, 2007-2 C.B. 1072, as clarified and modified by Rev. Proc. 2009-39, 2009-38 I.R.B. 371, and as clarified and modified by Rev. Proc. 2011-14. It modifies certain rules applicable to a taxpayer that engages in a corporate reorganization or tax-free liquidation described in § 381(a) of the Internal Revenue Code that occurs on or after August 31, 2011. It also modifies section 3.09 of the APPENDIX of Rev. Proc. 2011-14 regarding a change to the method of accounting described in Rev. Proc. 2011-43, 2011-37 I.R.B. 326, for taxpayers in the business of transporting, delivering, or selling electricity. Finally, it clarifies and modifies section 8.04 of the APPENDIX of Rev. Proc. 2011-14 regarding a change in method of accounting for amounts paid or incurred for the installation of energy efficient commercial building property under § 179D.

.01 Rev. Proc. 97-27 provides the general procedures for a taxpayer to obtain non-automatic consent from the Commissioner of Internal Revenue (Commissioner) to change a method of accounting under § 446(e).

.02 Rev. Proc. 2011-14, issued in January 2011, provides the procedures for a taxpayer to obtain automatic consent from the Commissioner for a change in method of accounting that is described in the APPENDIX of Rev. Proc. 2011-14. A taxpayer complying with all the applicable provisions of Rev. Proc. 2011-14 obtains the consent of the Commissioner to change its method of accounting under § 446(e).

.03 Section 4.02 of Rev. Proc. 2011-14 describes seven scope limitations that preclude a taxpayer from obtaining automatic consent to change a method of accounting under Rev. Proc. 2011-14. Except to the extent the scope limitations are waived for a particular change in the APPENDIX of Rev. Proc. 2011-14, these scope limitations apply even when the change in method of accounting is described in the APPENDIX of Rev. Proc. 2011-14. Two of these scope limitations preclude a taxpayer from using the automatic consent procedures in Rev. Proc. 2011-14 to change its method of accounting for a taxable year (year of change) in which (i) it engages in a transaction to which § 381(a) applies (§ 381(a) transaction), or (ii) it ceases to engage in the trade or business to which the change in method of accounting relates or terminates its existence. See sections 4.02(4) and (5) of Rev. Proc. 2011-14. A taxpayer that is precluded from using the automatic consent procedures in Rev. Proc. 2011-14 to change its method of accounting may request permission to change the method of accounting using the provisions of Rev. Proc. 97-27 if the taxpayer is within the scope of Rev. Proc. 97-27. See section 4.03 of Rev. Proc. 2011-14.

.04 Section 6.03 of Rev. Proc. 2011-14 and section 6.01 of Rev. Proc. 97-27 provide the rules for when a taxpayer under examination may use the automatic change procedures in Rev. Proc. 2011-14 or the non-automatic change procedures in Rev. Proc. 97-27, respectively, to request consent to change a method of accounting.

.05 On August 1, 2011, the Treasury Department and the Internal Revenue Service (Service) issued final regulations under §§ 381(c)(4) and 381(c)(5) in T.D. 9534, 76 Fed. Reg. 45673 (2011). These regulations provide guidance regarding the method of accounting or combination of methods of accounting an acquiring corporation must use following a distribution or transfer to which § 381(a) and § 381(c)(4) or § 381(c)(5) apply and how to implement any associated change in method of accounting. These regulations permit any party to a § 381(a) transaction to request permission from the Commissioner under § 446(e) to change a method of accounting for the taxable year in which the transaction occurs or is expected to occur. However, the regulations state that, for the taxable year that includes the date of the § 381(a) transaction, the Commissioner will not grant permission to change a method of accounting for any separate and distinct trade or business of either party if the acquiring corporation will not operate that trade or business as a separate and distinct trade or business after the date of the § 381(a) transaction, unless the requested method is the method that the acquiring corporation must use for the transferred or distributed items of that trade or business after the date of distribution or transfer. See §§ 1.381(c)(4)-1(a)(5) and 1.381(c)(5)-1(a)(5). Sections 1.381(c)(4)-1(d)(2) and 1.381(c)(5)-1(d)(2) provide the procedures for requesting permission under § 446(e) to change a method of accounting for a year of change in which a § 381(a) transaction occurs or is expected to occur. Those procedures state, in part, that the scope limitation relating to the final year of a trade or business will not apply to a taxpayer that changes its method of accounting in the final year of a trade or business that is terminated as the result of a § 381(a) transaction. The regulations issued under §§ 1.381(c)(4) and 1.381(c)(5) in T.D. 9534 apply to corporate reorganizations or tax-free liquidations described in § 381(a) that occur on or after August 31, 2011.

.06 The Service has decided to waive the scope limitation in Rev. Proc. 2011-14 that precludes a taxpayer from making an automatic accounting method change for a taxable year in which the taxpayer engages in a § 381(a) transaction. This revenue procedure modifies section 4.02(4) of Rev. Proc. 2011-14 to permit taxpayers to make otherwise qualifying automatic accounting method changes in the year of the § 381(a) transaction. This revenue procedure also modifies both Rev. Proc. 2011-14 and Rev. Proc. 97-27 to waive the scope limitation that precludes taxpayers who are under examination from seeking consent to change to an accounting method other than the principal or carryover method.

.07 Section 3.09 of the APPENDIX of Rev. Proc. 2011-14 allows taxpayers in the business of transporting, delivering, or selling electricity to change their method of accounting to the safe harbor method of accounting described in Rev. Proc. 2011-43. The scope limitations of section 4.02 of Rev. Proc. 2011-14 do not apply to an electric transmission or distribution company that changes to the method of accounting provided in Rev. Proc. 2011-43 for its first or second taxable year ending after December 30, 2010.

.08 The Service is aware that many electric transmission or distribution companies have not had time to change their method of accounting to the safe harbor method of accounting described in Rev. Proc. 2011-43. Accordingly, this revenue procedure modifies section 3.09 of the APPENDIX of Rev. Proc. 2011-14 to extend the waiver of scope limitations to the third taxable year ending after December 30, 2010.

.09 Section 179D(a) allows a deduction to a taxpayer for part or all of the cost of energy efficient commercial building property that the taxpayer places in service in a taxable year. The amount of the deduction may not exceed the excess (if any) of (i) the product of $1.80 and the square footage of the building, over (ii) the aggregate amount of the § 179D deductions allowed with respect to the building for all prior taxable years. If the energy efficient commercial building property is installed on or in property owned by a Federal, State, or local government or political subdivision thereof, § 179D permits the owner to allocate this deduction to the designer of the commercial building property. In Notice 2008-40, the Service provided procedures for owners of government buildings to allocate the § 179D deduction to the designer.

.10 Section 8.04 of the APPENDIX of Rev. Proc. 2011-14 allows taxpayers to change their method of accounting to deduct under § 179D amounts paid or incurred for the installation of energy efficient commercial building property, as defined in § 179D(c)(1). Section 8.04(4) of the APPENDIX requires a taxpayer making this change to attach a certification to demonstrate the energy efficient commercial building property has achieved the reduction in energy and power costs necessary to qualify for the § 179D deduction. The additional filing requirement also contains a provision that, in the case of a government-owned building for which a designer has been allocated a deduction under § 179D, the designer becomes the taxpayer for purposes of the deduction and must attach a certification and an allocation from the owner of the building to the designer.

.11 Some taxpayers have interpreted section 8.04(4) of the APPENDIX of Rev. Proc. 2011-14 to mean that designers may file a Form 3115 for a change in method of accounting and make a § 481(a) adjustment for a § 179D deduction allocated to the designer. However, a designer who takes a § 179D deduction is making a permanent change in its income because, unlike the owner of the property, the designer is not otherwise entitled to deduct the amount of the § 179D deduction by another method, for example, through depreciation. Taxpayers may not use a change in method of accounting to make a permanent change in income. Accordingly, this revenue procedure clarifies and modifies section 8.04 of the APPENDIX of Rev. Proc. 2011-14 to make clear that designers may not use the automatic change in method of accounting provisions of Rev. Proc. 2011-14 for § 179D deductions that are allocated to them. Designers allocated a § 179D deduction for commercial building property placed in service in a prior taxable year may file an amended return for the taxable year in which the property was placed in service (if that taxable year is open) to claim such § 179D deduction. This revenue procedure also modifies the filing requirements in section 8.04 of the APPENDIX for the duplicate copy of the Form 3115.

.01 Modification of Rev. Proc. 2011-14.

(1) Modification of sections 4.02(1), (4) and (5). Sections 4.02(1), 4.02(4) and 4.02(5) of Rev. Proc. 2011-14 are modified to read as follows:

(1) Under examination. If, on the date the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) would otherwise file a copy of the application with the national office, or if applicable, with the Ogden office, (see section 6.02(3) of this revenue procedure), the taxpayer is under examination (see section 3.08 of this revenue procedure), except as provided in sections 6.03(2) (90-day window), 6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), 6.03(6) (issue pending or change to use other than the principal or carryover method), 6.04 (issue under consideration by an appeals office), and 6.05 (issue under consideration by a federal court) of this revenue procedure.

(4) Section 381(a) transaction. Except as otherwise provided in this section 4.02(4), if the taxpayer engages in a transaction to which § 381(a) applies (§ 381(a) transaction) within the proposed taxable year of change (determined without regard to any potential closing of the year under § 381(b)(1)). All references to the regulations in sections 4.02(4)(a)(i) and 4.02(4)(a)(ii) refer to the regulations under §§ 381(c)(4) and 381(c)(5) that were in effect prior to August 31, 2011, the effective date of T.D. 9534. All references to the regulations in section 4.02(4)(b) refer to the regulations under §§ 381(c)(4) and 381(c)(5) that are in effect as of August 31, 2011.

(a) Section 381(a) transaction occurring before August 31, 2011.

(i) No differences in methods. An acquiring corporation in a § 381(a) transaction that occurred before August 31, 2011, may change its method of accounting pursuant to this revenue procedure if the acquiring corporation would be permitted to continue to use its prior method of accounting under the rules of §§ 1.381(c)(4)-1(b)(1) and (3)(i) (taking into account the third sentence of § 1.381(c)(4)-1(b)(4) relating to no prior method established by a party to the transaction) or §§ 1.381(c)(5)-1(b)(1) and (3)(i) (taking into account the second sentence of § 1.381(c)(5)-1(b)(4)(i) relating to no prior inventory method established by a party to the transaction) because all of the parties to the transaction used the same method of accounting on the date of distribution or transfer. The change pursuant to this revenue procedure is ignored for purposes of determining whether on the date of distribution or transfer the parties to the transaction used the same methods of accounting under § 1.381(c)(4)-1(b) or § 1.381(c)(5)-1(b), and thus §§ 1.381(c)(4)-1(b)(3)(ii) and (c) and §§ 1.381(c)(5)-1(b)(3)(ii) and (c) will not apply.

(ii) Separate trades or businesses. An acquiring corporation in a § 381(a) transaction that occurred before August 31, 2011, may change pursuant to this revenue procedure a method of accounting used by a trade or business operated by such corporation if the trade or business would be permitted to continue to use its prior method of accounting under the rules of § 1.381(c)(4)-1(b)(2) or § 1.381(c)(5)-1(b)(2). The change pursuant to this revenue procedure is ignored for purposes of determining whether on the date of distribution or transfer the parties to the transaction used the same methods of accounting under § 1.381(c)(4)-1(b) or § 1.381(c)(5)-1(b), and, thus §§ 1.381(c)(4)-1(b)(3) and (c) and §§ 1.381(c)(5)-1(b)(3) and (c) will not apply.

(b) Section 381(a) transactions occurring on or after August 31, 2011. Any party to a § 381(a) transaction that occurs on or after August 31, 2011, may change its method of accounting for the taxable year in which the § 381(a) transaction occurs pursuant to this revenue procedure if the taxpayer is requesting a change in method of accounting described in § 1.381(c)(4)-1(a)(4) or (5) or § 1.381(c)(5)-1(a)(4) or (5).

(5) Final year of trade or business. Except as otherwise provided in this section 4.02(5), if, in the proposed year of change, a taxpayer requesting a change in method of accounting ceases to engage in the trade or business to which the change in method of accounting relates, as described in section 5.04(3)(c) of this revenue procedure, or terminates its existence. For purposes of this section 4.02(5), a taxpayer is treated as ceasing to engage in the trade or business or terminating its existence without regard to whether the taxpayer’s change in method of accounting request would result in either a positive or negative § 481(a) adjustment or be made on a cut-off basis.

This section 4.02(5) does not apply to a taxpayer that changes its method of accounting in the final year of its trade or business that is terminated as the result of a transaction to which § 381(a) applies that occurs on or after August 31, 2011.

(2) Modification of sections 6.03(1) and 6.03(6). Sections 6.03(1) and 6.03(6) of Rev. Proc. 2011-14 are modified to read as follows:

(1) In general. Except as otherwise provided in the APPENDIX of this revenue procedure (see, for example, section 2.01 of the APPENDIX of this revenue procedure), a taxpayer that is under examination (as provided in section 3.08 of this revenue procedure) may file an application to change a method of accounting under this revenue procedure only if the taxpayer is within the provisions of section 6.03(2) (90-day window), 6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), 6.03(6) (issue pending or change to use other than the principal or carryover method), 6.04 (issue under consideration by an appeals office), or 6.05 (issue under consideration by a federal court) of this revenue procedure. A taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) that files an application beyond the time periods provided in the 90-day window and 120-day window is not eligible for the automatic extension of time and will not be granted an extension of time under § 301.9100, except in unusual and compelling circumstances.

(6) Issue pending or change to use other than the principal or carryover method.

(a) Issue pending. A taxpayer that is under examination with respect to any income tax issue may request to change a method of accounting if the method of accounting to be changed is an issue pending for any taxable year under examination. However, the audit protection provisions of section 7 of this revenue procedure do not apply to a taxpayer changing its method of accounting pursuant to this section 6.03(6)(a). For purposes of this section 6.03(6)(a), an issue is pending for a taxable year under examination if the Service has given the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, any controlling domestic shareholder of a CFC or 10/50 corporation) written notification indicating an adjustment is being made or will be proposed with respect to the taxpayer’s method of accounting. This notification by the Service may result from an inquiry by the Joint Committee on Taxation. This notification normally will occur after the Service or the Joint Committee on Taxation has gathered information sufficient to determine that an adjustment is appropriate and justified, although the exact amount of the adjustment may not yet be determined. See section 6.02(3)(c) of this revenue procedure for more information regarding the requirement to file a copy of the application with the examining agent.

(b) Change to use other than the principal or carryover method. Any party to a transaction to which § 381(a) applies that is under examination with respect to any income tax issue may request to change to a method of accounting described in § 1.381(c)(4)-1(a)(4) or (5) or § 1.381(c)(5)-1(a)(4) or (5) (as in effect as of August 31, 2011) and the APPENDIX of this revenue procedure for the taxable year (year of change) in which the § 381(a) transaction occurs or is expected to occur. However, if, on the date the party (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) files a copy of the application, the method of accounting to be changed is an issue under consideration (see section 3.09(1) of this revenue procedure) or an issue the examining agent(s) has placed in suspense, the audit protection provisions of section 7 of this revenue procedure do not apply to the party’s change in method of accounting requested pursuant to this section 6.03(6)(b). See section 6.02(3)(c) of this revenue procedure for more information regarding the requirement to file a copy of the application with the examining agent.

(3) Change to section 3.09 of the APPENDIX, Method of Accounting under Rev. Proc. 2011-43 for taxpayers in the business of transporting, delivering, or selling electricity. Section 3.09(2) of the APPENDIX of Rev. Proc. 2011-14 is modified to read as follows:

(2) Waiver of scope limitations. The scope limitations in section 4.02 of this revenue procedure do not apply to an electric transmission or distribution company that changes to the method of accounting provided in Rev. Proc. 2011-43 for its first, second, or third taxable year ending after December 30, 2010.

(4) Change to section 8.04 of the APPENDIX, Elective expensing provisions (§ 179D). Section 8.04 of the APPENDIX of Rev. Proc. 2011-14 is clarified and modified to read as follows:

.04 Deduction for Energy Efficient Commercial Buildings (§ 179D).

(1) Description of change. This change applies to taxpayers that want to change their method of accounting to deduct under § 179D amounts paid or incurred for the installation of energy efficient commercial building property as defined in § 179D(c)(1). The deduction for energy efficient commercial building property is subject to the limits of § 179D(b) and must be claimed in the taxable year in which the property is placed in service. The basis of the energy efficient commercial building property is reduced by the amount of the § 179D deduction taken and the remaining basis of the energy efficient commercial building property is depreciated over its recovery period.

(2) Applicability. This change applies to taxpayers that place in service property for which a deduction is allowed under § 179D(a).

(3) Inapplicability. This change does not apply to a designer to whom the owner of a government building allocates the § 179D deduction.

(4) Manner of making change. A taxpayer making this change must attach to its Form 3115 a statement with a detailed description of the tax treatment of the property under the taxpayer’s present and proposed methods of accounting.

(5) Certification requirement. In addition to the statement required by section 8.04(4) of the APPENDIX of this revenue procedure (Rev. Proc. 2011-14), a taxpayer making this change must attach a certification as required by section 4 of Notice 2006-52, 2006-1 C.B. 1175, or section 5 of Notice 2008-40, 2008-1 C.B. 725, to demonstrate the energy efficient commercial building property has achieved the reduction in energy and power costs or in lighting power density necessary to qualify for the § 179D deduction.

(6) Ogden copy of Form 3115 required in lieu of national office copy. A taxpayer changing its method of accounting under section 8.04 of this APPENDIX must file a signed copy of its completed Form 3115 with the IRS in Ogden, UT (Ogden copy), in lieu of filing the national office copy, no earlier than the first day of the year of change and no later than the date the taxpayer files the original Form 3115 with its federal income tax return for the year of change. See section 6.02(3)(a)(ii)(B) (providing the general rules) and section 6.02(7)(b) (providing the mailing address) of this revenue procedure.

(7) No ruling on qualification. The consent granted under this revenue procedure for this change is not a determination by the Commissioner that the taxpayer qualifies for a deduction under section 179D. The director will ascertain whether the taxpayer qualifies for a deduction under section 179D (including a review of the required certifications).

(8) Designated automatic accounting method change number. The designated automatic accounting method change number for a change in method of accounting under section 8.04 of this APPENDIX is “152.” See section 6.02(4) of this revenue procedure.

(9) Contact information. For further information regarding a change under this section, contact Jennifer Bernardini at 202-622-3110 (not a toll-free call).

.02 Modification of Rev. Proc. 97-27. Sections 6.01(1) and 6.01(5) of Rev. Proc. 97-27 are modified to read as follows:

(1) In general. A taxpayer that is under examination may not file a Form 3115 to request a change in accounting method under this revenue procedure, except as provided in sections 6.01(2) (90-day window), 6.01(3) (120-day window), 6.01(4) (director consent), and 6.01(5) (issue pending or change to use other than the principal or carryover method). A taxpayer that files a Form 3115 beyond the time periods provided in the 90-day window and 120-day window will not be granted an extension of time to file under § 301.9100, except in unusual and compelling circumstances.

(5) Issue pending or change to use other than the principal or carryover method.

(a) Issue pending. A taxpayer that is under examination with respect to any income tax issue may request to change a method of accounting if the method of accounting to be changed is an issue pending for any taxable year under examination. However, the audit protection provisions of section 9.01 of this revenue procedure do not apply to a taxpayer changing its method of accounting pursuant to this section 6.01(5)(a). For purposes of this section 6.01(5)(a), an issue is pending for a taxable year under examination if the Service has given the taxpayer (or if section 3.02 of Rev. Proc. 2009-39 applies, any controlling domestic shareholder of a CFC or 10/50 corporation) written notification indicating an adjustment is being made or will be proposed with respect to the taxpayer’s method of accounting. This notification by the Service may result from an inquiry by the Joint Committee on Taxation. This notification normally will occur after the Service or the Joint Committee on Taxation has gathered information sufficient to determine that an adjustment is appropriate and justified, although the exact amount of the adjustment may not yet be determined. The taxpayer requesting to change a method of accounting under this section 6.01(5)(a) must provide a copy of the Form 3115 to the examining agent(s) at the same time it files the original Form 3115 with the national office.

(b) Change to use other than the principal or carryover method.

Any party to a transaction to which § 381(a) applies that is under examination with respect to any income tax issue may request to change to a method of accounting described in § 1.381(c)(4)-1(a)(4) or (5) or § 1.381(c)(5)-1(a)(4) or (5) (as in effect as of August 31, 2011) for the taxable year (year of change) in which the § 381(a) transaction occurs or is expected to occur. However, if, on the date the party (or if section 3.02 of Rev. Proc. 2009-39 applies, the designated shareholder) files the Form 3115, the method of accounting to be changed is an issue under consideration (see section 3.08 of this revenue procedure) or an issue the examining agent(s) has placed in suspense, the audit protection provisions of section 9.01 of this revenue procedure do not apply to the party’s request to change its method of accounting pursuant to this section 6.01(5)(b). The party requesting to change a method of accounting under this section 6.01(5)(b) must provide a copy of the Form 3115 to the examining agent(s) at the same time it files the original Form 3115 with the national office.

This revenue procedure does not modify, amend, or in any other way alter, any change to the principal method to which § 1.381(c)(4)-1(d)(1) or 1.381(c)(5)-1(d)(1) applies.

Rev. Proc. 2011-14 is clarified and modified. Rev. Proc. 97-27 is modified.

This revenue procedure is effective for Forms 3115 filed on or after September 4, 2012. Further, a taxpayer that, on or after August 31, 2011, engaged in a transaction to which § 381(a) applies within the proposed year of change may choose to apply sections 3.01(1), 3.01(2) and 3.02 of this revenue procedure (modifying sections 4.02(1), 4.02(4), 4.02(5), 6.03(1), and 6.03(6) of Rev. Proc. 2011-14 and sections 6.01(1) and 6.01(5) of Rev. Proc. 97-27) to a Form 3115 filed prior to, and pending with the national office on, September 4, 2012.

The principal author of this revenue procedure is Cheryl Oseekey, of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Oseekey at (202) 622-4970 (not a toll-free call).