These regulations finalize the removal of the 30-day automatic extension of time to file information returns that report wages and tax (the Form W-2 series), and also remove the 30-day automatic extension of time to file forms that report nonemployee compensation (currently Forms 1099–MISC with information in box 7). Businesses that compensate employees or third parties for services may be affected by these regulations.

These regulations finalize the removal of the 30-day automatic extension of time to file information returns that report wages and tax (the Form W-2 series), and also remove the 30-day automatic extension of time to file forms that report nonemployee compensation (currently Forms 1099–MISC with information in box 7). Businesses that compensate employees or third parties for services may be affected by these regulations.

Special Use Value: Farms: Interest Rates.

The 2018 interest rates to be used in computing the special use value of farm real property for which an election is made under section 2032A of the Code are listed for estate of decedents.

This notice announces that the Treasury Department and the IRS intend to issue proposed regulations providing clarification regarding the new rules increasing the contribution limits to ABLE accounts from certain designated beneficiaries. In addition to the annual gift tax exclusion amount, a designated beneficiary who works may also contribute up to the lesser of these amounts: (1) the designated beneficiary’s compensation for the tax year, or (2) the poverty line for a one-person household in the state in which the designated beneficiary lives. An employed designated beneficiary is not eligible for the increased contribution limit for the taxable year if any contribution is made on behalf of the employee to a 401(a) defined contribution plan or 403(a) annuity contract, a 403(b) annuity contract, or a 457(b) eligible deferred compensation plan.

These regulations finalize the removal of the 30-day automatic extension of time to file information returns that report wages and tax (the Form W-2 series), and also remove the 30-day automatic extension of time to file forms that report nonemployee compensation (currently Forms 1099–MISC with information in box 7). Businesses that compensate employees or third parties for services may be affected by these regulations.

This notice amplifies and modifies Notice 2017–40, 2017–32 I.R.B. 190, to extend the application of the safe harbor method in that notice to homeowners participating in the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund) who may be affected by the new limitation in § 164(b)(6)(B) on the amount of deductible real property taxes. The safe harbor is modified to permit a participating taxpayer to allocate mortgage payments actually made during a taxable year first to deductible mortgage interest.

This revenue procedure extends relief provided in Rev. Proc. 2015–57, 2015–51 I.R.B. 863 and Rev. Proc. 2017–24, 2017–7 I.R.B. 916, to taxpayers who took out private student loans to finance attendance at a school owned by Corinthian College, Inc. (CCI) or American Career Institutes, Inc. (ACI), and whose private student loans were discharged based on a settlement of a legal cause of action against CCI, ACI and certain private lenders. This revenue procedure also provides that the Internal Revenue Service will not assert that the creditor must file information returns and furnish payee statements as a result of discharging these loans.

Section 13102 of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” P.L. 115-97 (the “Act”), amended § 448 of the Internal Revenue Code to expand the number of small business taxpayers eligible to use the cash receipts and disbursements method of accounting. Section 13102 of the Act also amended the Code to exempt small business taxpayers from the requirements to capitalize costs, including for certain home construction contracts, under § 263A, to account for certain long-term contracts under § 460, and to account for inventories under § 471. This revenue procedure provides the procedures by which a small business taxpayer may obtain automatic consent to change its methods of accounting to reflect these statutory changes and requests comments containing suggestions for future guidance under §§ 263A, 447, 448, 460, and 471 to implement section 13102 of the Act.

This revenue ruling contains a list of the average annual effective interest rates on new loans under the Farm Credit System. This revenue ruling also contains a list of the states within each Farm Credit System Bank Territory.

Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election is made under § 2032A. The rates in Table 1 of this revenue ruling may be used by estates that value farmland under § 2032A as of a date in 2018.

Average annual effective interest rates, calculated in accordance with § 2032A(e)(7)(A) and § 20.2032A–4(e) of the Estate Tax Regulations, to be used under § 2032A(e)(7)(A)(ii), are set forth in the accompanying Table of Interest Rates (Table 1). The states within each Farm Credit System Bank Territory are set forth in the accompanying Table of Farm Credit System Bank Territories (Table 2).

Rev. Rul. 81–170, 1981–1 C.B. 454, contains an illustrative computation of an average annual effective interest rate. The rates applicable for valuation in 2017 are in Rev. Rul. 2017–16, 2017–35 I.R.B. 215. For rate information for years prior to 2017, see Rev. Rul. 2016–19, 2016–35 I.R.B. 273, and other revenue rulings that are referenced therein.

The principal author of this revenue ruling is Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Lane Damazo at (202) 317-4628 (not a toll-free number).

Internal Revenue Service (IRS), Treasury.

Final regulations and removal of temporary regulations.

This document contains final regulations providing rules regarding the automatic and non-automatic extension of time to file certain information returns. These changes are being implemented to accelerate the filing of the Form W–2 series (except Form W–2G) and forms that report nonemployee compensation (currently Form 1099–MISC with information in box 7) so they are available earlier in the filing season for use in the IRS’s identity theft and refund fraud detection processes. In addition, these final regulations update the list of information returns subject to the rules regarding extensions of time to file. These regulations affect filers requesting an extension of time to file the affected information returns.

Effective date: These regulations are effective on August 3, 2018.

Applicability date: For dates of applicability, see § 1.6081–8(g).

Jonathan R. Black, (202) 317-6845 (not a toll-free number).

The principal author of these regulations is Jonathan R. Black of the Office of the Associate Chief Counsel (Procedure and Administration).

This notice announces that the Department of the Treasury (the Treasury Department) and the Internal Revenue Service (the IRS) intend to issue proposed regulations providing clarification regarding the contribution limits provided in § 529A(b)(2) of the Internal Revenue Code (Code).

The Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (the “ABLE Act”) was enacted on December 19, 2014, as part of The Tax Increase Prevention Amendments (P.L. 113–295). The ABLE Act added § 529A to the Code. Section 529A allows a State (or its agency or instrumentality) to establish and maintain a tax-advantaged savings program under which contributions may be made to an ABLE account for the purpose of paying for the qualified disability expenses of the designated beneficiary of the account. Section 529A was amended by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” P.L. 115–97 (2017 Act), signed into law on December 22, 2017.

Prior to amendment by the 2017 Act, § 529A(b)(2) stated that a program shall not be treated as a qualified ABLE program unless it provides that no contribution will be accepted unless it is in cash and if the contribution (other than a rollover contribution described in § 529A(c)(1)(C)) would not result in aggregate contributions from all contributors in excess of the amount of the § 2503(b) gift tax exclusion for the calendar year in which the designated beneficiary’s taxable year begins. Under § 529A(b)(2), rules similar to the rules of § 408(d)(4) apply to permit the return of excess contributions (with any attributable net income) on or before the due date (including extensions) of the designated beneficiary’s income tax return. In addition, under § 529A(b)(6), a qualified ABLE program must provide adequate safeguards to ensure that total contributions do not exceed the State’s limit for aggregate contributions under its qualified tuition program as described in § 529(b)(6). A qualified tuition program under § 529 is a program established by a State or its agency or instrumentality that permits a person to prepay or contribute to a tax-favored savings account for a designated beneficiary’s qualified higher education expenses (QHEEs) or a program established by an eligible educational institution that permits a person to prepay a designated beneficiary’s QHEEs.

The Treasury Department and the IRS issued proposed regulations concerning qualified ABLE programs. These proposed regulations were released on June 19, 2015 and published in the Federal Register on June 22, 2015 (80 Fed. Reg. 35602). The proposed regulations provide rules by which states or state agencies or instrumentalities may establish and maintain a qualified ABLE program. Prop. Treas. Reg. § 1.529A–2(g)(4) would require a qualified ABLE program to return any excess contribution or excess aggregate contribution, including all net income attributable to that excess contribution or excess aggregate contribution, to the person or persons who made that contribution. The qualified ABLE program must use the rules set forth in § 1.408–11 for this purpose, treating an ABLE account the same way that an IRA is treated, and must return excess contributions or excess aggregate contributions in accordance with § 408(d)(4). To facilitate the proper tax treatment of returned excess contributions, Prop. Treas. Reg. § 1.529A–6(d) would require ABLE programs to collect the taxpayer identification number (TIN) of all contributors to an ABLE account.

The Treasury Department and the IRS issued Notice 2015–81, 2015–49 IRB 784 (Dec. 7, 2015), which, in response to comments on the proposed regulations, describes how the Treasury Department and the IRS intend to revise certain provisions of the proposed regulations under § 529A when those regulations are finalized. One of the provisions is the requirement under Prop. Treas. Reg. § 1.529A–6(d) to collect the TIN of each contributor to the ABLE account (if the program does not already have a record of the person’s correct TIN). Notice 2015–81 states that it is anticipated that the final regulations will not require ABLE programs to request the TIN of ABLE contributors if the program has a system in place to identify and reject contributions that exceed the annual or cumulative limits. However, if an excess contribution is deposited into a designated beneficiary’s ABLE account, the program must request the TIN of the contributor that made the excess contribution. Final regulations under § 529A are included on the 2017–2018 Priority Guidance Plan.

The contribution limits and other provisions of § 529A were modified by the 2017 Act. Specifically, the 2017 Act amended § 529A(b)(2)(B) to allow a designated beneficiary described in § 529A(b)(7) to contribute, prior to January 1, 2026, an additional amount in excess of the limit in § 529A(b)(2)(B)(i) (the annual gift tax exclusion amount in § 2503(b), formerly set forth in § 529A(b)(2)(B)). This additional amount is set forth in § 529A(b)(2)(B)(ii) and is equal to the lesser of (I) the designated beneficiary’s compensation as defined by § 219(f)(1) for the taxable year, or (II) an amount equal to the poverty line for a one-person household for the calendar year preceding the calendar year in which the taxable year begins. The 2017 Act also amended the § 529A(b)(2) flush language by adding that the designated beneficiary, or a person acting on behalf of the designated beneficiary, is required to maintain adequate records to ensure, and is responsible for ensuring, that the requirements of § 529A(b)(2)(B)(ii) are met.

The 2017 Act added § 529A(b)(7)(A) to identify a designated beneficiary eligible to make such an additional contribution as one who is an employee (including a self-employed individual) with respect to whom there has been no contribution made for the taxable year to the following: a defined contribution plan meeting the requirements of §§ 401(a) or 403(a); an annuity contract described in § 403(b); or an eligible deferred contribution plan under § 457(b). The 2017 Act also added § 529A(b)(7)(B) to the Code, which states that the term poverty line has the meaning given in section 673 of the Community Services Block Grant Act (42 U.S.C. 9902).

Finally, the 2017 Act amended § 529(c)(3)(C)(i)(III) (related to qualified tuition programs) to permit, before January 1, 2026, a limited rollover from a qualified tuition program to an ABLE account. Notice 2018–58, 2018–33 I.R.B. 305, addresses, among other things, the new rule under § 529(c)(3)(C)(i)(III).

As amended by the 2017 Act, § 529A(b)(2) generally provides that a program is not treated as a qualified ABLE program unless it provides that contributions will not be accepted in excess of the sum of the contribution limits set forth in § 529A(b)(2)(B)(i) and (ii). Section 529A(b)(2)(B)(ii) allows an employed or self-employed designated beneficiary described in § 529A(b)(7) to contribute the lesser of his or her compensation for the taxable year or an amount equal to the poverty line for a one-person household for the calendar year preceding the calendar year in which the taxable year begins. Consistent with § 529A(b)(2), as amended by the 2017 Act, the Treasury Department and the IRS intend to issue proposed regulations that confirm that the employed designated beneficiary, or the person acting on his or her behalf, is solely responsible for ensuring that the requirements in § 529A(b)(2)(B)(ii) are met and for maintaining adequate records for that purpose. In addition, to minimize burdens for the designated beneficiary and the qualified ABLE program, the proposed regulations are expected to provide that ABLE programs may allow a designated beneficiary to certify under penalties of perjury that he or she is a designated beneficiary described in § 529A(b)(7) and that his or her contributions do not exceed the limit set forth in § 529A(b)(2)(B)(ii).

Section 529A(b)(2)(B)(ii) bases the employed designated beneficiary’s contribution limit, in part, on an amount equal to the poverty line for a one-person household for the preceding calendar year. Section 529A(b)(7)(B) provides that the term poverty line has the same meaning given such term by section 673 of the Community Services Block Grant Act (42 U.S.C. 9902). The Treasury Department and the IRS intend to issue proposed regulations to clarify that this reference to the poverty line means the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. 9902(2). In addition, the poverty guidelines differ by geography; there are separate guidelines for (1) the 48 contiguous states and the District of Columbia, (2) Alaska, and (3) Hawaii. Because the poverty guideline that most closely relates to the designated beneficiary’s cost of living appears to be the most relevant for the purpose of determining the contribution limit, the Treasury Department and the IRS anticipate that the proposed regulations will provide that a designated beneficiary’s contribution limit should be determined using the poverty guideline applicable in the state of the designated beneficiary’s residence, rather than the guideline applicable in the state in which the designated beneficiary’s ABLE account is established, or elsewhere.

SECTION 5. EXCESS CONTRIBUTIONS FROM THE DESIGNATED BENEFICIARY

Section 529A(b)(2) provides that a program will not be treated as a qualified ABLE program if it accepts contributions that are not in cash or that exceed the contribution limits in § 529A(b)(2)(B). Because § 529A(b)(2) also provides that rules similar to § 408(d)(4) will apply to excess contributions to ABLE accounts, Prop. Treas. Reg. § 1.529A–2(g)(4) includes a requirement that a qualified ABLE program must return any excess contribution, including all net income attributable to that excess contribution, to the person or persons who made that contribution.

With the addition by the 2017 Act to allow certain contributions of the designated beneficiary’s compensation income, the Treasury Department and the IRS intend to issue proposed regulations to also apply the proposed required return of excess contributions to any excess contributions of the designated beneficiary’s compensation income. Specifically, the proposed regulations are expected to provide that the qualified ABLE program should use the rules set forth in § 1.408–11 to return any excess contribution, including any contributions in excess of the limit in § 529A(b)(2)(B)(ii). However, because § 529A(b)(2), as amended by the Act, imposes on the designated beneficiary (rather than on the qualified ABLE program) the responsibility for ensuring compliance with the limitation on the amount of the designated beneficiary’s contributions of compensation income under § 529A(b)(2)(B)(ii), the proposed regulations are expected to provide that: (i) it will be the sole responsibility of the designated beneficiary (or the person acting on the designated beneficiary’s behalf) to identify and request the return of any excess contribution of such compensation income; and (ii) for purposes of determining the limit on contributions made under § 529A(b)(2)(B)(ii), the qualified ABLE program may rely on self-certifications, made under penalties of perjury, of the designated beneficiary or the person acting on his or her behalf.

The Treasury Department and the IRS are aware that, once final regulations are issued, qualified ABLE programs may need to adjust their systems and account documents to be in compliance with regulatory requirements. The Treasury Department and the IRS also are aware that, in some cases, a necessary change may require state legislative action. Therefore, the regulations are expected to provide transition relief with respect to any necessary changes to ensure that the state programs and accounts meet the requirements in the regulations, including providing sufficient time after issuance of the final regulations in order for changes to be implemented.

Before the issuance of the proposed regulations described in this notice, taxpayers, beneficiaries, and administrators of ABLE programs may rely on the rules described in sections 3, 4, and 5 of this notice.

The Treasury Department and the IRS request comments on the issues addressed in this notice, including any necessary transition relief.

Written comments may be submitted by November 1, 2018 to Internal Revenue Service, CC:PA:LPD:PR (Notice 2018–62), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, or electronically to Notice.Comments@irscounsel.treas.gov (please include “Notice 2018–62” in the subject line). Alternatively, comments may be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2018–62), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC Comments will be available for public inspection and copying.

The principal author of this notice is Julia E. Parnell of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Ms. Parnell at (202) 317-4086 (not a toll-free number).

This notice amplifies and modifies Notice 2017–40, 2017–32 I.R.B. 190, which applies to homeowners participating in the Treasury Department’s Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund). Notice 2017–40 provides that a participating homeowner may use a safe harbor method for computing the amount of mortgage interest deductible under § 163 of the Internal Revenue Code (Code) and real property taxes deductible under § 164(a)(1) relating to the homeowner’s principal residence. This notice extends application of a modified version of that safe harbor method to homeowners who may be affected by the new limitation in § 164(b)(6)(B) on the amount of deductible real property taxes. The modified safe harbor permits a participating homeowner to allocate mortgage payments actually made during a taxable year first to deductible mortgage interest.

Notice 2017–40 provides a safe harbor method for computing the deductions under §§ 163 and 164 on a principal residence for homeowners participating in a program designated by state housing finance agency (State HFA) using funds allocated from the HFA Hardest Hit Fund (State Program). Under Notice 2017–40, the safe harbor is available for the taxable year if the homeowner (1) meets the requirements to deduct all of the mortgage interest and real property taxes relating to the principal residence under §§ 163 and 164, respectively; and (2) participates in a State Program in which the program payments can be used to pay interest on the home mortgage. Notice 2017–40 provides that the safe harbor method is available for taxable years 2010 through 2021.

Section 164(b)(6)(B) provides that, in the case of an individual, for taxable years beginning after December 31, 2017, and before January 1, 2026, the aggregate amount of taxes taken into account under § 164(a)(1), (2), and (3) and § 164(b)(5) for any taxable year shall not exceed $10,000 ($5,000 in the case of an individual filing a separate return).

This notice amplifies Notice 2017–40 to provide that the safe harbor, as modified, is available even if the limitation in § 164(b)(6)(B) precludes a homeowner from deducting all of the real property taxes imposed on the principal residence. The amplification thus preserves the availability of the safe harbor computation for most homeowners who participate in a State Program in which program payments can be used to pay interest on a home mortgage. This notice also assists homeowners by modifying the safe harbor method for taxable years 2018 through 2021 to permit a homeowner to allocate home mortgage payments that the homeowner actually makes during a taxable year first to deductible mortgage interest. This allocation will assist homeowners using the safe harbor in determining what portion, if any, of payments actually made is allocable to state and local property taxes and therefore subject to the limitation in § 164(b)(6)(B).

For taxable years 2010 through 2021, a homeowner may deduct on his or her federal income tax return (subject to the limitation in § 164(b)(6)(B) for taxable years 2018 through 2021) the lesser of—

This safe harbor method of computing a homeowner’s deduction applies for a taxable year if (1) the homeowner meets the requirements of § 163 to deduct all of the mortgage interest relating to the principal residence, (2) the homeowner meets the requirements of § 164(a)(1) for deducting all the real property taxes (determined without regard to § 164(b)(6)(B)), and (3) the homeowner participates in a State Program in which the program payments can be used to pay interest on the home mortgage.

If the homeowner’s deduction, as provided above, is the sum of all payments made by the homeowner during a taxable year, then the homeowner may first allocate amounts paid to mortgage interest up to the amount shown on Form 1098. The homeowner may then use any reasonable method to allocate the remaining balance of the payments to real property taxes, mortgage insurance premiums, home insurance premiums, and principal.

Regardless of how a homeowner determines the deductible amount under this safe harbor, any part of such amount that is allocated to state or local property taxes is subject to the limitation in § 164(b)(6)(B).

Notice 2017–40 is amplified and modified.

The principal author of this notice is Lisa Mojiri-Azad of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Ms. Mojiri-Azad (202) 317-4718 (not a toll-free number).

This revenue procedure amplifies Rev. Proc. 2015–57, 2015–51 I.R.B. 863, and Rev. Proc. 2017–24, 2017–7 I.R.B. 916, to extend relief to taxpayers who took out private student loans to finance attendance at a school owned by Corinthian College, Inc. (CCI) or American Career Institutes, Inc. (ACI).

.01 Rev. Proc. 2015–57 and Rev. Proc. 2017–24 provide relief for taxpayers who took out Federal student loans to finance attendance at a school owned by CCI and ACI, respectively, and whose loans were discharged by the Department of Education under the “Defense to Repayment” or “Closed School” discharge process.

.02 Specifically, Rev. Proc. 2015–57 and Rev. Proc. 2017–24 provide the following relief: First, the Internal Revenue Service (“IRS”) will not assert that these taxpayers must recognize gross income resulting from the discharge of these Federal student loans. Second, the IRS will not assert that these taxpayers must increase their gross income by the amount of certain tax credits or deductions related to the discharged Federal student loans. Third, the IRS will not assert that the creditors of these discharged loans must file information returns and furnish payee statements under section 6050P of the Internal Revenue Code as a result of discharging these Federal student loans.

.03 The Treasury Department and the IRS are aware that Federal and state governmental agencies have brought legal causes of action that have resulted in settlements resolving various allegations of unlawful business practices, including unfair, deceptive, and abusive acts and practices by CCI, ACI, and certain private lenders that made student loans to finance attendance at schools owned by CCI and ACI.

.04 Neither Rev. Proc. 2015–57 nor Rev. Proc. 2017–24 address the discharge of private student loans taken out to attend a school owned by CCI or ACI.

.05 The Treasury Department and the IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015–57 and Rev. Proc. 2017–24 to taxpayers who took out private student loans to finance attendance at a school owned by CCI or ACI where the private loans are discharged based on a settlement of a legal cause of action against CCI, ACI, and certain private lenders. As in Rev. Proc. 2015–57 and Rev. Proc. 2017–24, the Treasury Department and the IRS conclude that most private student loan borrowers would be able to exclude from gross income all or substantially all of the discharged amounts based on the insolvency exclusion; fraudulent or material misrepresentations made by CCI, ACI, or certain private lenders to the students; or another tax law authority.

The treatment provided in section 4 of this revenue procedure applies to any taxpayer who took out private student loans to finance attendance at a school owned by CCI or ACI and whose private student loans are discharged based on a settlement of a legal cause of action against CCI, ACI and certain private lenders. This revenue procedure also applies to any applicable entity (as defined in section 6050P and the regulations thereunder) that discharges these loans.

Rev. Proc. 2015–57 and Rev. Proc. 2017–24 are amplified to provide as follows:

.01 Discharge of indebtedness income. The IRS will not assert that a taxpayer within the scope of this revenue procedure must recognize gross income as a result of the discharge of a private student loan taken out to finance attendance at a school owned by CCI or ACI.

.02 Recapture of tax credits and tax benefit rule. The IRS will not assert that a taxpayer within the scope of this revenue procedure must increase his or her taxes owed in the year of a discharge, or in a prior year, if he or she received an education credit under section 25A attributable to payments made with proceeds of the discharged loans, or claimed a deduction for the payment of interest under section 221 attributable to interest paid on a discharged loan, or claimed a deduction for the payment of qualified tuition and related expenses under section 222 attributable to payments made with proceeds of the discharged loan.

.03 Information reporting. The IRS will not assert that a creditor that is an applicable entity must file information returns and furnish payee statements pursuant to section 6050P for the discharge of any indebtedness within the scope of this revenue procedure.

Rev. Proc. 2015–57 and Rev. Proc. 2017–24 are amplified.

For private student loans taken out to finance attendance at schools owned by CCI, this revenue procedure will be treated as in effect as of the effective date of Rev. Proc. 2015–57 (taxable years beginning on or after January 1, 2015). For private student loans taken out to finance attendance at schools owned by ACI, this revenue procedure will be treated as in effect as of the effective date of Rev. Proc. 2017–24 (taxable years beginning on or after January 1, 2016). Taxpayers may apply this revenue procedure in taxable years for which the period of limitation on claims for a credit or refund under section 6511 has not expired.

The principal author of this revenue procedure is Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding discharge of indebtedness income and exclusions, contact Mr. Wojay at (202) 317-4718 (not a toll-free call), and for further information regarding information reporting, contact Elizer Mishory at (202) 317-6844.

Section 13102 of “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” P.L. 115–97 (the “Act”), amended § 448 of the Internal Revenue Code (Code) to expand the number of small business taxpayers eligible to use the cash receipts and disbursements method of accounting (cash method). Section 13102 of the Act also amended the Code to exempt small business taxpayers from the requirements to capitalize costs, including for certain home construction contracts, under § 263A, to account for certain long-term contracts under § 460, and to account for inventories under § 471. This revenue procedure provides the procedures by which a small business taxpayer may obtain automatic consent to change its methods of accounting to reflect these statutory changes and requests comments containing suggestions for future guidance under §§ 263A, 447, 448, 460, and 471 to implement section 13102 of the Act.

.01 Section 13102 of the Act amended §§ 263A, 447, 448, 460, and 471 for small business taxpayers, increasing the gross receipts test amount for eligibility to use the cash method and providing an exemption from the requirements to apply certain method of accounting rules for inventories, cost capitalization, and long-term contracts. These amendments generally apply to taxable years beginning after December 31, 2017. The amendments to § 460 apply to contracts entered into after December 31, 2017, in taxable years ending after December 31, 2017.

.02 Except as otherwise expressly provided by the Code or the regulations, § 446(e) and § 1.446–1(e)(2) require a taxpayer to secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures that provide the terms and conditions necessary for a taxpayer to obtain consent to a change in method of accounting. Rev. Proc. 2015–13, 2015–5 I.R.B. 419, as clarified and modified by Rev. Proc. 2015–33, 2015–24 I.R.B. 1067, as modified by Rev. Proc. 2016–1, 2016–1 I.R.B. 1, and as modified by Rev. Proc. 2017–59, 2017–48 I.R.B. 543, provides the general procedures by which a taxpayer may obtain automatic consent of the Commissioner to a change in method of accounting described in the List of Automatic Changes. Rev. Proc. 2018–31, 2018–22 I.R.B. 637, contains the List of Automatic Changes. Section 3 of this revenue procedure modifies Rev. Proc. 2018–31 to provide additional automatic changes in method of accounting and to modify existing automatic changes in method of accounting to assist taxpayers in conforming to the legislative changes to §§ 263A, 447, 448, 460, and 471.

.03 The Department of the Treasury (Treasury Department) and the Internal Revenue Service (the Service) also expect to publish future guidance to implement the legislative changes to §§ 263A, 447, 448, 460, and 471. Section 5 of this revenue procedure requests public comments for future guidance in this area.

.01 In general. A taxpayer that wants to change to one or more of the methods of accounting described in this revenue procedure must, if eligible, use the automatic change procedures in Rev. Proc. 2015–13 and Rev. Proc. 2018–31 (or any successors), as modified by this revenue procedure.

.02 Modifications to add new sections in Rev. Proc. 2018–31.

(1) Section 15 of Rev. Proc. 2018–31 is modified to add a new section 15.18 to read as follows:

.18 Small business taxpayer changing to overall cash method.

(1) Description of change. This change applies to a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, that wants to change its overall method of accounting from an overall accrual method of accounting to the overall cash method of accounting for a trade or business, and is otherwise not prohibited from using the overall cash method or required to use another overall method of accounting. A small business taxpayer may be required to use a method of accounting (other than the cash method) for one or more items of income or expense under certain provisions of the Code or regulations, including, for example §§ 475 and 1272.

(2) Applicability. This section 15.18 is effective for taxable years beginning after December 31, 2017.

(3) Inapplicability. This change does not apply to the following:

(a) Banks changing to overall cash/hybrid method. This change does not apply to a bank described in section 15.12(2)(a) of this revenue procedure. However, such a bank may be eligible to change to the overall cash/hybrid method under section 15.12 of this revenue procedure if it meets the requirements of that section.

(b) Farmers changing to overall cash method. This change does not apply to a farming business changing to the overall cash method. See, however, section 15.13 of this revenue procedure.

(4) Special rules for open accounts receivables. Notwithstanding § 1001 and the accompanying regulations, a small business taxpayer that uses the overall cash method for a trade or business includes amounts attributable to open accounts receivable (as defined in section 15.18(5)(c) of this revenue procedure) in income as the amounts are actually or constructively received on the receivables.

(5) Definitions.

(a) Small business taxpayer. A small business taxpayer is a taxpayer, other than a tax shelter (as defined in § 448(d)(3)), that meets the § 448(c) gross receipts test.

(b) Section 448(c) gross receipts test. The § 448(c) gross receipts test is met if a taxpayer has average annual gross receipts for the three prior taxable years of $25,000,000 or less (adjusted for inflation).

(c) Open accounts receivable. For purposes of this section 15.18, an open accounts receivable is any receivable that is due in full in 120 days or less and that is not subject to § 475.

(6) Certain eligibility rule temporarily inapplicable. The eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015–13 does not apply to this change for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017.

(7) Reduced filing requirement. A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2015) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16;

(e) Part IV, all lines except line 25; and

(f) Schedule A, Part I, all lines except lines 3, 4, and 5.

(8) Concurrent automatic changes. A taxpayer making a change to the overall cash method under this section 15.18 and a change under sections 12.16 and/or 22.19 of this revenue procedure for the same year of change may file a single Form 3115 for all changes, provided the taxpayer enters the designated automatic accounting method change numbers for the changes on the appropriate line of Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.

(9) Designated automatic accounting method change number. The designated automatic accounting method change number for a change under this section 15.18 is “233.”

(10) Contact information. For further information regarding a change under this section, contact Anna Gleysteen at (202) 317-7007 (not a toll-free call).

(2) Section 12 of Rev. Proc. 2018–31 is modified to add a new section 12.16 to read as follows:

.16 Small business taxpayer exception from requirement to capitalize costs under § 263A.

(1) Description of change. This change applies to a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, that capitalizes costs under § 263A and wants to change to a method of accounting that no longer capitalizes costs under § 263A, including to self-constructed assets, pursuant to § 263A(i).

(2) Applicability. This change is effective for taxable years beginning after December 31, 2017.

(3) Inapplicability. This change does not apply to a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, that chooses to no longer capitalize costs under § 263A for home construction contracts, as defined in § 460(e)(1)(A). See, however, section 19.01 of this revenue procedure.

(4) Certain eligibility rule temporarily inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13 does not apply for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017.

(5) Reduced filing requirement. A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2015) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16; and

(e) Part IV, all lines except line 25.

(6) Concurrent automatic changes. A taxpayer making a change under this section 12.16 and a change under sections 15.18 and/or 22.19 of this revenue procedure for the same year of change may file a single Form 3115 for all changes, provided the taxpayer enters the designated automatic accounting method change numbers for the changes on the appropriate line of Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.

(7) Designated automatic accounting method change number. The designated automatic accounting method change number for a change under this section 12.16 is “234.”

(8) Contact information. For further information regarding a change under this section, contact Natasha Mulleneaux at (202) 317-7007 (not a toll-free call).

(3) Section 22 of Rev. Proc. 2018–31 is modified to add a new section 22.19 to read as follows:

.19 Small business taxpayer exception from requirement to account for inventories under § 471.

(1) Description of change. This change applies to a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, that wants to change its § 471 method of accounting for inventory items to one of the following:

(a) treating inventory as non-incidental materials and supplies under § 1.162–3; or

(b) conforming to the taxpayer’s method of accounting reflected in its applicable financial statements, as defined in § 451(b)(3), with respect to the taxable year, or if the taxpayer does not have an applicable financial statement for the taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.

(2) Applicability. This change is effective for taxable years beginning after December 31, 2017.

(3) Certain eligibility rule temporarily inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13 does not apply to this change for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017.

(4) Reduced filing requirement. A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2015) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16; and

(e) Part IV, all lines except line 25.

(5) No ruling on method of accounting used. The consent granted under section 9 of Rev. Proc. 2015–13 for a change made under section 22.19(1)(b) of this revenue procedure is not a determination by the Commissioner that the proposed inventory method of accounting is permissible, and does not create any presumption that the proposed method is a permissible method of accounting under a provision of the Code. The director will ascertain whether the proposed method is permissible under the Code.

(6) Concurrent automatic changes. A taxpayer making a change under this section 22.19 and a change under sections 15.18 and/or 12.16 of this revenue procedure for the same year of change may file a single Form 3115 for all changes, provided the taxpayer enters the designated automatic accounting method change numbers for the changes on the appropriate line of Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015–13 for information on making concurrent changes.

(7) Designated automatic accounting method change number. The designated automatic accounting method change number for a change under this section 22.19 is “235.”

(8) Contact information. For further information regarding a change under this section, contact Andrew Braden at (202) 317-7007 (not a toll-free call).

(4) Section 19 of Rev. Proc. 2018–31 is modified to add a new section 19.01 to read as follows:

.01 Small business taxpayer exceptions from requirement to account for certain long-term contracts under § 460 or to capitalize costs under § 263A for certain home construction contracts.

(1) Description of Change. This change applies to a taxpayer that, beginning in the year of change, qualifies as a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, and (a) wants to change its method of accounting for exempt long-term construction contracts described in § 460(e)(1)(B) from the percentage-of-completion method of accounting described in § 1.460–4(b) to an exempt contract method of accounting described in § 1.460–4(c), or (b) chooses to stop capitalizing costs under § 263A for home construction contracts defined in § 460(e)(1)(A).

(2) Applicability. This change applies to exempt long-term contracts described in § 460(e)(1) that are entered into after December 31, 2017, in taxable years ending after December 31, 2017.

(3) Inapplicability. A taxpayer can use a method of accounting for its exempt long-term contracts that is different from the method used for contracts that are not exempt. Thus, a taxpayer must use the percentage-of-completion method of accounting for nonresidential long-term construction contracts entered into in the first taxable year that the taxpayer fails the § 448(c) gross receipts test, but must continue to use its exempt contract method of accounting for its existing exempt long-term construction contracts. Similarly, in the taxable year that a taxpayer first meets the § 448(c) gross receipts test, the taxpayer can use a permissible exempt contract method of accounting for long-term construction contracts it expects to complete within two years. Rev. Rul. 92–28, 1992–1 C.B. 153. Accordingly, only a taxpayer who previously adopted the percentage-of-completion method of accounting for exempt long-term construction contracts and wants to change to another permissible exempt contract method of accounting is required to request consent to change under this section 19.01. Similarly, a taxpayer that meets the § 448(c) gross receipts test and enters into a home construction contract that it expects to complete within two years requires consent to change its method of accounting to not capitalize costs under § 263A only if the taxpayer has previously applied § 263A to home construction contracts exempt from the capitalization requirement under § 460(e)(1).

(4) Manner of making change. This change is made on a cut-off basis and applies only to long-term construction contracts entered into after December 31, 2017, in taxable years ending after December 31, 2017. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(5) Certain eligibility rule temporarily inapplicable. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13 does not apply to this change for a taxpayer’s first, second, or third taxable year ending after December 31, 2017.

(6) Reduced filing requirement. A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2015) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16;

(e) Part IV, line 25; and

(e) Schedule D, Part I.

(7) Designated automatic accounting method change number. The designated automatic accounting method change number for a change under this section 19.01 is “236.”

(8) Contact information. For further information regarding changes under this section, contact Innessa Glazman at (202) 317-7006 (not a toll-free call).

.03 Modifications to existing sections in Rev. Proc. 2018–31.

(1) Section 12.01(1)(b)(v) of Rev. Proc. 2018–31 is modified to read as follows:

(v) Certain change with limited applicability. A small reseller, as defined in section 12.01(3)(b) of this revenue procedure, is not permitted to make a change in method of accounting described in section 12.01(1)(a)(i) of this revenue procedure for a taxable year beginning after December 31, 2017. See, however, section 12.16 of this revenue procedure for making a change in method of accounting not to apply § 263A and section 22.19 of this revenue procedure for making a change in method of accounting for inventories for taxable years beginning after December 31, 2017.

(2) Section 15.03(1)(b) of Rev. Proc. 2018–31 is modified to read as follows:

(b) Inapplicability. This change does not apply for any taxable year beginning after December 31, 2017. See, however, section 15.18 of this revenue procedure for making a change in method of accounting to the overall cash method for taxable years beginning after December 31, 2017.

(3) Section 15.13 of Rev. Proc. 2018–31 is modified to renumber existing paragraphs (3) through (5) as paragraphs (4) through (6), and add new paragraph (3) to read as follows:

(3) Certain eligibility rule temporarily inapplicable. The eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015–13 does not apply to this change for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017.

(4) Section 22.03(1)(b) of Rev. Proc. 2018–31 is modified to read as follows:

(b) Inapplicability. This change does not apply for taxable years beginning after December 31, 2017. See, however, section 22.19 of this revenue procedure for making a change in method of accounting for inventories for taxable years beginning after December 31, 2017.

.04 Existing § 481(a) adjustment.

If a taxpayer is taking into account a § 481(a) adjustment resulting from a prior, but related, change in method of accounting at the time it changes its method of accounting described in section 3 of this revenue procedure, the taxpayer may account for the prior § 481(a) adjustment separately from the § 481(a) adjustment required by a change in method of accounting described in section 3 of this revenue procedure. For example, a taxpayer that changed from the cash method to an overall accrual method in a prior year and was required to take the relevant § 481(a) adjustment into account over four years could continue to take into account any remaining adjustment over the appropriate number of years even if the taxpayer changes to the cash method in the current year under section 3 of this revenue procedure. However, the taxpayer may also choose to combine or net the remaining portion of the prior § 481(a) adjustment with the § 481(a) adjustment required by the change in method of accounting made under section 3 of this revenue procedure. Any taxpayer choosing to combine or net the § 481(a) adjustments indicates this choice in the statement required on Line 26 on the Form 3115, Application for Change in Accounting Method, (Rev. December 2015) required to be filed to make the change(s) in method of accounting under section 3 of this revenue procedure.

If before August 3, 2018, a taxpayer properly filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015–13 requesting the Commissioner’s consent for a change in method of accounting described in section 3 of this revenue procedure, and the Form 3115 is pending with the national office on August 3, 2018, the taxpayer may choose to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015–13 if the taxpayer is otherwise eligible to use this revenue procedure and the automatic change procedures in Rev. Proc. 2015–13. The taxpayer must notify the national office contact person for the Form 3115 (if unknown, see section 9.08(6) of Rev. Proc. 2018–1, 2018–1 I.R.B. 1, 50 (or any successor)) of the taxpayer’s intent to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015–13 before the later of (a) September 4, 2018, or (b) the issuance of a letter ruling granting or denying consent for the change. The notification should indicate that the taxpayer chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 2015–13. If the taxpayer timely notifies the national office that it chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 2015–13, the national office will send a letter to the taxpayer acknowledging its request and will return the user fee submitted with the Form 3115.

A taxpayer converting a Form 3115 to the automatic change procedures in Rev. Proc. 2015–13 for a change in method of accounting described in this revenue procedure must resubmit a Form 3115 that conforms to the automatic change procedures, with a copy of the national office letter sent acknowledging the taxpayer’s request attached, to the Service in Covington, KY by the earlier of (a) the 30^th calendar day after the date of the national office’s letter acknowledging the taxpayer’s request, or (b) the date the taxpayer is required to file the duplicate copy of the Form 3115 under section 6.03(1)(a)(i)(B) of Rev. Proc. 2015–13. See section 6.03(3) of Rev. Proc. 2015–13 regarding additional required copies of Form 3115.

For purposes of the eligibility rules in section 5 of Rev. Proc. 2015–13, the duplicate copy of the timely resubmitted Form 3115 will be considered filed as of the date the taxpayer originally filed the converted Form 3115 under the non-automatic change procedures in Rev. Proc. 2015–13. This section 4 does not extend the date the taxpayer must file the original (converted) Form 3115 under section 6.03(1)(a)(i)(A) of Rev. Proc. 2015–13.

The Treasury Department and the Service invite comments containing suggestions for future guidance under §§ 263A, 447, 448, 460, and 471 to implement section 13102 of the Act. In particular, comments are requested concerning the following issues: (1) how the § 448(c) gross receipts test applies to each trade or business of a taxpayer that is not a corporation or partnership; (2) how “books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures” should be interpreted in § 471(c)(1)(B); and (3) how to interpret § 460(e)(2)(B) in the context of Rev. Rul. 92–28, 1992–1 C.B. 153.

Comments may be submitted using one of the following methods:

All submissions will be available for public inspection and copying.

Rev. Proc. 2018–31 is modified and amplified. Rev. Proc. 2002–28, 2002–18 I.R.B. 815, and Rev. Proc. 2001–10, 2001–2 I.R.B. 272, are obsoleted for taxable years beginning after December 31, 2017.

Except as otherwise provided in this section, this revenue procedure is effective for taxable years beginning after December 31, 2017. For method changes described in section 3.02(4) of this revenue procedure, this revenue procedure is effective for exempt long-term contracts entered into after December 31, 2017, in taxable years ending after December 31, 2017.

The principal authors of this revenue procedure are Kari Fisher and Anna Gleysteen of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Fisher at (202) 317-7007. For further information regarding the request for comments contained in this revenue procedure, contact Ms. Gleysteen at (202) 317-7007 (not a toll-free number).