This revenue procedure provides a safe harbor relating to the allocation of section 45Q credits for the sequestration of carbon oxide to partners in a partnership for purposes of section 704(b) of the Code. If taxpayers satisfy the requirements of the safe harbor, the revenue procedure provides that the Internal Revenue Service will treat partnerships as properly allocating the section 45Q credit in accordance with section 704(b) and the regulations thereunder.

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.

(Also: §§ 45Q, 704, 1.704-1)

This revenue procedure provides procedures applicable to a taxpayer in a farming business regarding the application of § 263A of the Internal Revenue Code (Code). Prior to the enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), a taxpayer in a farming business could elect under § 263A(d)(3) to have § 263A not apply to certain plants produced by the taxpayer’s farming business. Section 13102 of the TCJA added new § 263A(i) to the Code, which provides that § 263A does not apply to a taxpayer, other than a tax shelter (as defined in § 448(d)(3) of the Code), for a taxable year in which the taxpayer qualifies as a small business taxpayer by satisfying the gross receipts test in § 448(c) of the Code. This revenue procedure provides the exclusive procedures for a taxpayer that qualifies for the § 263A(i) small business taxpayer exemption to revoke its prior election under § 263A(d)(3) and apply the exemption under § 263A(i) in the same taxable year. In addition, this revenue procedure provides the exclusive procedures for a taxpayer that qualifies for and wishes to make an election under § 263A(d)(3) in the same taxable year that it no longer qualifies for the exemption under § 263A(i).

26 CFR 601.601: Rules and regulations.

(Also Part 1, §§ 168, 263A, 446, 448; 1.168(i)-4, 1.168(k)-1, 1.168(k)-2, 1.263A-1, 1.263A-4, 1.446-1, 1.448-1T.)

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for February 2020 used under § 417(e)(3)(D), the 24-month average segment rates applicable for February 2020, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)(iv).

Beginning of Construction for the Credit for Carbon Oxide Sequestration under Section 45Q. Notice 2020-12 provides guidance on the determination of when construction has begun on a qualified facility or on carbon capture equipment that may be eligible for the Section 45Q Credit. This notice provides two methods for taxpayers to establish the beginning of construction requirement (Physical Work Test and Five Percent Safe Harbor), a Continuity Requirement for both methods, guidance on transfers of ownership of a qualified facility or carbon capture equipment, and additional guidance applicable to the beginning of construction requirement.

Notice 2020-13 provides for adjustments to the limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for the 2020 tax year. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. If the limitation on housing expenses is higher for the 2020 tax year than the adjusted limitations on housing expenses provided in Notice 2019-24, qualified taxpayers may apply the adjusted limitations in this notice for the 2020 tax year to their 2019 tax year.

Federal rates; adjusted federal rates; adjusted federal long-term rate, the long-term exempt rate, and the blended annual rate. For purposes of sections 382, 1274, 1288, 7872 and other sections of the Code, tables set forth the rates for March 2020.

(Also Sections 42, 280G, 382, 467, 468, 482, 483, 1288, 7520, 7872.)

This revenue ruling provides various prescribed rates for federal income tax purposes for March 2020 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I).

This revenue procedure establishes a safe harbor (Safe Harbor) under which the Internal Revenue Service (IRS) will treat partnerships as properly allocating, in accordance with section 704(b) of the Internal Revenue Code (Code), the credit for carbon oxide sequestration under section 45Q of the Code (Section 45Q Credit). The Department of the Treasury (Treasury Department) and the IRS intend for the Safe Harbor to simplify the application of section 45Q to partnerships that are eligible to claim the Section 45Q Credit.

.01 Section 45Q generally allows a credit of an amount per metric ton of qualified carbon oxide captured by the taxpayer that is either: (i) disposed of in secure geological storage; (ii) used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project and disposed of in secure geological storage; or (iii) utilized in certain ways described in section 45Q(f)(5). The amount of the credit depends on the date the carbon capture equipment is placed in service and whether the qualified carbon oxide is disposed of in secure storage, used, or utilized.

.02 In the case of carbon oxide captured using carbon capture equipment that is originally placed in service at a qualified facility on or after February 9, 2018, the Section 45Q Credit is available during the 12-year period beginning on the date the equipment was originally placed in service. Although section 45Q does not define “placed in service,” the term has been defined for purposes of the investment tax credit and the deduction for depreciation. For these purposes, property is considered to be placed in service in the taxable year that the property is placed in a condition or state of readiness and availability for a specifically assigned function. See §§ 1.46-3(d)(1)(ii) and 1.167(a)-11(e)(1)(i) of the Income Tax Regulations.

.03 Section 704(a) provides that a partner’s distributive share of income, gain, loss, deduction, or credit is, except as otherwise provided in chapter 1 of subtitle A of the Code, determined by the partnership agreement. Section 704(b) provides that a partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof) is determined in accordance with the partner’s interest in the partnership (determined by taking into account all facts and circumstances), if: (i) the partnership agreement does not provide as to the partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof); or (ii) the allocation to a partner under the partnership agreement of income, gain, loss, deduction, or credit (or item thereof) does not have substantial economic effect.

.04 Section 1.704-1(b)(4)(ii) provides that allocations of tax credits and tax credit recapture are not reflected by adjustments to the partners’ capital accounts (except with respect to certain investment tax credit property under section 38 of the Code). Thus, these allocations cannot have economic effect under § 1.704-1(b)(2)(ii)(b)(1), and the tax credits and tax credit recapture must be allocated in accordance with the partners’ interests in the partnership as of the time the tax credit or credit recapture arises. With respect to tax credits other than the investment tax credit provided by section 38, if a partnership expenditure (whether or not deductible) that gives rise to a tax credit in a partnership taxable year also gives rise to valid allocations of partnership loss or deduction (or other downward capital account adjustments) for the year, then the partners’ interests in the partnership with respect to the credit (or the cost giving rise to it) are in the same proportion as the partners’ respective distributive shares of the loss or deduction (and adjustments). See § 1.704-1(b)(5), Example 11. Section 1.704-1(b)(4)(ii) further provides that identical principles apply in determining the partners’ interests in the partnership regarding tax credits that arise from receipts of the partnership (whether or not taxable).

.05 A partnership exists when two or more “parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise.” Commissioner v. Culbertson, 337 U.S. 733, 742 (1949). In making this determination, courts “look not so much at the labels used by the partnership but at true facts and circumstances” to determine whether a partner has a “meaningful stake in the success or failure” of the enterprise. TIFD III-E, Inc. v. United States, 459 F.3d 220, 231 and 241 (2d Cir. 2006). A purported partner in a partnership may in substance be more properly viewed as a lender to the partnership or purchaser of partnership assets if the purported partner lacks “any meaningful downside risk or any meaningful upside potential in” the partnership. Historic Boardwalk Hall, LLC v. Commissioner, 694 F.3d 425, 455 (3d Cir. 2012).

.01 The Safe Harbor provided in section 4 of this revenue procedure applies to any partnership (Project Company) that validly claims the Section 45Q Credit. Partners in a Project Company may include a project developer (Developer) and one or more investors, as defined in section 4.01 of this revenue procedure (Investors). The Project Company typically owns the carbon capture equipment (Equipment). In addition to the Project Company, the Developer, and the Investors, carbon oxide capture and sequestration transactions may involve lenders, one or more carbon oxide emitters (Emitters), one or more construction contractors, one or more qualified carbon oxide purchasers (Offtakers), and one or more project operators.

.02 If a Project Company, Developer, and Investor(s) satisfy all of the requirements of the Safe Harbor provided in section 4 of this revenue procedure, the IRS will treat the Investor as a partner in the Project Company and will treat the Project Company as properly allocating the Section 45Q Credit in accordance with section 704(b).

.03 The federal income tax treatment described in section 3.02 of this revenue procedure applies solely with respect to carbon oxide capture and sequestration transactions described in sections 3.01 and 3.02 of this revenue procedure and should not be viewed as precedent for any other federal tax credit transaction. Taxpayers should not infer that compliance with the Safe Harbor ensures that they are otherwise entitled to validly claim the Section 45Q Credit. A Project Company and its partners that do not satisfy each of the requirements in section 4 of this revenue procedure do not qualify for the Safe Harbor.

.04 This revenue procedure applies only to partnerships with a Section 45Q Credit and partners in such partnerships. This revenue procedure does not apply to any other tax credits and may not be cited as precedent for any other federal tax credit allocation.

.05 The Safe Harbor in this revenue procedure provides guidance on partnership allocations of the Section 45Q Credit to taxpayers establishing or participating in carbon capture partnerships in lieu of such taxpayers requesting letter rulings. Therefore, the IRS will not issue letter rulings on any issues under subchapter K of chapter 1 of subtitle A of the Code for partnerships claiming or seeking to claim the Section 45Q Credit.

This section 4 sets forth the Safe Harbor under which the IRS will treat partnerships as properly allocating the Section 45Q Credit in accordance with section 704(b). If a Project Company and its partners do not satisfy each of the requirements in this section 4, the Project Company and its partners do not qualify for the Safe Harbor.

.01 Investors Defined. Investors hold an interest in the Project Company (Partnership Interest) as described in section 4.02(2) of this revenue procedure. An Investor may be an initial partner in the Project Company or may later become an Investor by acquiring an interest in the Project Company either directly from the Project Company by contribution or from another partner by purchase.

.02 Partners’ Partnership Interests.

(1) Developer’s Minimum Partnership Interest. The Developer must have a minimum one percent Partnership Interest in each material item of partnership income, gain, loss, deduction, and credit at all times during the existence of the Project Company.

(2) Investor’s Partnership Interest.

(a) Investor’s Minimum Partnership Interest. Each Investor must have, at all times during the period it owns a Partnership Interest, a minimum interest in each material item of partnership income, gain, loss, deduction, and credit equal to at least five percent of the Investor’s percentage interest in each such item for the taxable year for which the Investor’s percentage share of that item is the largest (as adjusted for sales, redemptions, or dilutions of its interest).

(b) Requirements Regarding the Investor’s Partnership Interest. The Investor’s Partnership Interest must constitute a bona fide equity investment with a reasonably anticipated value commensurate with the Investor’s overall percentage interest in the Project Company, separate from any federal, state, and local tax deductions, allowances, credits, and other tax attributes to be allocated by the Project Company to the Investor. An Investor’s Partnership Interest is a bona fide equity investment only if that reasonably anticipated value is contingent upon the Project Company’s net income, gain, and loss, and is not substantially fixed in amount. Likewise, the Investor must not be substantially protected from losses from the Project Company’s activities. The Investor’s return from its investment in the Project Company must not be limited in a manner comparable to a preferred return representing a payment for capital.

(c) Arrangements to Reduce the Value of the Investor’s Partnership Interest or the Investor’s Economic Return. The value of the Investor’s Partnership Interest may not be reduced through fees (including developer, management, and incentive fees), or other arrangements, that are unreasonable compared with fees or other arrangements for a carbon oxide capture and utilization or sequestration project that does not qualify for the Section 45Q Credit, and may not be reduced by disproportionate rights to distributions or by issuances of interests in the Project Company (or rights to acquire interests in the Project Company) for less than fair market value consideration.

.03 Investor’s Minimum Unconditional Investment. On the date the Investor acquires a Partnership Interest, the Investor must make a minimum unconditional investment with respect to the Project Company (Investor Minimum Investment). The Investor must maintain the Investor Minimum Investment throughout the duration of its ownership of its Partnership Interest, except that the Investor Minimum Investment may be reduced as a result of distributions of cash flow from the Project Company’s operation of the Equipment. Investments required to be made by the Investor in the future will not be included in the Investor Minimum Investment until the investment is actually made with respect to the partnership. The Investor Minimum Investment must be equal to at least 20 percent of the sum of the fixed capital investment plus any reasonably anticipated contingent investment required to be made by the Investor under the partnership agreement. The Investor must not be protected against loss of any portion of the Investor Minimum Investment through any arrangement, directly or indirectly, with: the Developer; any other Investor; an Emitter; an Offtaker; or any person related to the Developer, other Investors, an Emitter, or an Offtaker.

.04 Contingent Consideration. More than 50 percent of the sum of the fixed investment plus reasonably anticipated contingent investment to be made by an Investor with respect to a Partnership Interest must be fixed and determinable obligations that are not contingent in amount or certainty of payment. Contributions to the Project Company to pay ongoing operating expenses will not be treated as part of the Investor’s contingent investment for purposes of this requirement.

.05 Purchase Rights. Neither the Developer, the Investors, nor any related person may have a call option or other contractual right or agreement to purchase, at any time, the Equipment, any property included in the Equipment, or a Partnership Interest at a future date (other than a contractual right or agreement for a present sale).

.06 Sale Rights. An Investor may not have a contractual right or other agreement to require any person involved in any part of the carbon capture transaction to purchase or liquidate the Investor’s Partnership Interest at a future date at a price that is more than its fair market value determined at the time of exercise of the contractual right to sell.

.07 Determination of Fair Market Value. Solely for the purposes of this revenue procedure, any determination of the fair market value of the Equipment or a Partnership Interest may take into account contracts or other arrangements creating rights or obligations only if such contracts or other arrangements creating rights or obligations are entered into in the ordinary course of the Project Company’s business and are negotiated at arm’s length.

.08 Guarantees and Loans.

(1) No person involved in any part of the Project Company may directly or indirectly guarantee or otherwise insure the Investor’s ability to claim the Section 45Q Credit, the cash equivalent of the credits, or the repayment of any portion of the Investor’s contribution due to inability to claim the Section 45Q Credit, in the event that the IRS challenges all or a portion of the transactional structure of the partnership. Further, no person involved in any part of the Project Company (or any related person) may guarantee that the Investor will receive distributions from the Project Company or consideration in exchange for its interest in the Project Company (except for a fair market value sale right described in section 4.06 of this revenue procedure). This requirement does not prohibit the Investor from procuring insurance, including recapture insurance, from persons not related to the Developer, any other Investor, an Emitter, or an Offtaker.

(2) The following guarantees may be provided to the Investor or the Project Company: (i) guarantees for the performance of any acts necessary to claim the Section 45Q Credit (including ensuring proper secure geological storage of the qualified carbon oxide through disposal, or use as a tertiary injectant, or utilization); and (ii) guarantees for the avoidance of any act (or omissions) that would cause the Project Company to fail to qualify for the Section 45Q Credit or that would result in a recapture of the Section 45Q Credit. Examples of guarantees permitted under this section include completion guarantees, operating deficit guarantees, environmental indemnities, and financial covenants.

(3) A long-term carbon oxide purchase agreement entered into on arm’s-length terms between the Project Company and an Emitter, between the Project Company and an Offtaker, or between an Emitter and an Offtaker, does not constitute a guarantee even if the Emitter or the Offtaker is related to the Project Company, and even if such contracts contain “supply all,” “supply-or-pay,” “take all,” “take-or-pay,” or “securely-store-or-pay” provisions. A long-term contract between the Project Company and the Emitter or the Offtaker pursuant to which the Project Company leases the equipment to the Emitter or the Offtaker or agrees to use the Equipment to perform services for the Emitter or the Offtaker also does not constitute a guarantee even if the Emitter or the Offtaker is related to the Project Company.

(4) The Developer (or a person related to the Developer) may not lend any Investor the funds to acquire any part of the Investor’s interest in the Project Company or guarantee any indebtedness incurred or created in connection with the acquisition of such Investor’s interest in the Project Company.

.09 Allocation of the Section 45Q Credit. Allocations under the Project Company’s partnership agreement must satisfy the requirements of section 704(b) and the regulations thereunder. The Section 45Q Credit and any recapture of the Section 45Q Credit must be allocated in accordance with § 1.704-1(b)(4)(ii). If the Project Company generates receipts from its activities relating to carbon oxide sequestration (such as payments for capturing qualified carbon oxide or for the sale of qualified carbon oxide), and those receipts give rise to valid allocations of partnership income, an allocation of the Section 45Q Credit in the same proportion as the partners’ respective distributive shares of such income will be treated as in accordance with the partners’ interests in the partnership for this purpose. If the Project Company does not receive payments for its activities relating to carbon oxide sequestration, an allocation of the Section 45Q Credit in the same proportion as the partners’ respective distributive shares of the loss or deduction (or other downward capital account adjustments) associated with the cost of the capture and disposal, use as a tertiary injectant, or utilization of the qualified carbon oxide will be treated as in accordance with the partners’ interests in the partnership for this purpose.

This section 5 provides an example of a valid allocation of the Section 45Q Credit by a limited liability company (LLC) that is classified as a partnership for federal income tax purposes.

.01 Facts.

(1) The Developer is a C corporation for federal income tax purposes that owns and operates carbon capture projects. The Developer may also use carbon oxide for enhanced oil recovery. The Project Company is an LLC classified as a partnership for federal income tax purposes that has been formed by the Developer to own and manage a carbon capture project that: (i) owns Equipment; (ii) has rights to capture carbon oxide from an Emitter; and (iii) sells the carbon oxide to an Offtaker (which may be the Developer and may be a partner). The Investor is a C corporation for federal income tax purposes that invests in carbon capture projects primarily to benefit from the Section 45Q Credit. The Developer will assign to the Project Company a number of contracts or agreements relating to the development of the carbon capture project.

(2) The Developer will cause the Equipment to be constructed and placed in service. Construction of the Equipment will be financed with $100x of construction financing. At some point before the Equipment is placed in service, the Developer will contribute the Equipment to the Project Company. The Investor will contribute $10x to the Project Company in exchange for an interest in the Project Company. The Investor’s contribution of $10x is 20 percent of the Investor’s total agreed investment of $50x.

(3) The Project Company will be a party to a long-term contract with the Emitter, pursuant to which the Project Company will install the carbon capture equipment on or adjacent to the Emitter’s facility and will have rights to capture carbon oxide emissions. The contract with the Emitter may provide for either a fixed or variable payment for the right to capture or purchase the carbon oxide emissions. The contract may also permit the Project Company to capture the Emitter’s entire emission stream or may specify a minimum amount of carbon oxide that the Emitter must supply to the Project Company. The Project Company will also be party to a long-term contract with the Offtaker, pursuant to which the Offtaker will undertake to purchase carbon oxide from the Project Company. That contract may be at a fixed or variable price and may provide a commitment from the Offtaker to purchase all of the Project Company’s carbon oxide. The Offtaker will also agree to use the carbon oxide as a tertiary injectant in enhanced oil recovery and store it in secure geological storage, and avoid any release of the stored carbon oxide. These agreements will provide for remedies for breach of contract. Neither the Developer nor any person involved in the Project Company will provide a guarantee or otherwise insure the Investor’s ability to claim the Section 45Q Credit, the cash equivalent of the credit, or the repayment of any portion of the Investor’s contribution due to inability to claim the Section 45Q Credit, or guarantee that the Investor will receive distributions from the Project Company or consideration in exchange for its interest in the Project Company (except for a sale right, described in section 4.06 of this revenue procedure, at fair market value, as described in section 4.07 of this revenue procedure).

(4) Pursuant to the Project Company operating agreement (Operating Agreement), the Developer will have the right to manage the Project Company, subject to the right of the Investor to consent to certain activities. The Operating Agreement also provides that all allocations must satisfy the requirements of section 704(b) and the regulations thereunder.

(5) Below are a chart and an explanation that describe the distribution and allocation provisions applicable to Developer and Investor over various time periods.

(a) During Period 1, 99 percent of the Project Company’s gross income or loss and the Section 45Q Credit will be allocated to the Investor, and the remainder will be allocated to the Developer, and 100 percent of the Project Company’s cash flows will be distributed to the Developer. Period 1 will continue until the earlier of: (i) the date that the Developer receives an agreed cash return, which may be an amount equal to the aggregate contributions made by the Developer; or (ii) a fixed outside date. When Period 1 ends, Period 2 begins.

(b) During Period 2, 99 percent of the Project Company’s gross income or loss and the Section 45Q Credit will be allocated to the Investor, the remainder will be allocated to the Developer, and 100 percent of the Project Company’s cash flows will be distributed to the Investor. Period 2 will continue until the Investor achieves an agreed after-tax internal rate of return (Flip Point). When Period 2 ends, Period 3 begins. If the Flip Point occurs before Period 1 ends, Period 1 ends at that time, and Period 3 begins.

(c) During Period 3, five percent of the Project Company’s gross income or loss and the Section 45Q Credit will be allocated to, and five percent of the Project Company’s cash flows will be distributed to, the Investor, and 95 percent of the Project Company’s gross income or loss and the Section 45Q Credit will be allocated to, and 95 percent of the Project Company’s cash flows will be distributed to, the Developer. Period 3 will continue for the remaining life of the project.

.02 Conclusion. Under the facts set forth in section 5.01 of this revenue procedure, the IRS will treat the Investor as a partner in the Project Company and will treat the Project Company as properly allocating the Section 45Q Credit in accordance with section 704(b) and the regulations thereunder.

The Treasury Department and the IRS request comments on the requirements of the Safe Harbor.

This revenue procedure is effective for transactions entered into on or after March 9, 2020. If a Project Company, Developer, and Investor satisfy all the requirements of the Safe Harbor provided in section 4 of this revenue procedure for transactions entered into before March 9, 2020, the IRS will treat the Investor as a partner in the Project Company and treat the Project Company as properly allocating the Section 45Q Credit in accordance with the Safe Harbor, and therefore section 704(b) and the regulations thereunder, for such taxable year(s). However, taxpayers should not infer that compliance with the Safe Harbor ensures that they are otherwise entitled to validly claim the Section 45Q Credit.

The principal author of this revenue procedure is Sonia K. Kothari of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Sonia K. Kothari at (202) 317-6850.

.01 This revenue procedure provides procedures applicable to a taxpayer in a farming business regarding the application of § 263A of the Internal Revenue Code (Code). Prior to the enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), a taxpayer in a farming business could elect under § 263A(d)(3) to have § 263A not apply to certain plants produced by the taxpayer’s farming business. Section 13102 of the TCJA added new § 263A(i) to the Code, which provides that § 263A does not apply to a taxpayer, other than a tax shelter (as defined in § 448(d)(3) of the Code), for a taxable year in which the taxpayer qualifies as a small business taxpayer by satisfying the gross receipts test in § 448(c) of the Code.

.02 Section 5 of this revenue procedure provides the exclusive procedures for a taxpayer that elected under § 263A(d)(3) to have § 263A not apply to certain plants produced by the taxpayer in a farming business if the taxpayer: (1) wants to revoke its election under § 263A(d)(3); (2) qualifies as a small business taxpayer within the meaning of § 263A(i); and (3) wants to apply the exemption from § 263A that is provided in § 263A(i) beginning with such revocation taxable year.

.03 Section 6 of this revenue procedure provides the exclusive procedures for a taxpayer in a farming business that uses the exemption from the application of § 263A provided under § 263A(i) if the taxpayer: (1) no longer qualifies as a small business taxpayer eligible to use the exemption under § 263A(i); and (2) wants to make an election under § 263A(d)(3) and the accompanying regulations for certain plants produced by the taxpayer in a farming business for the first taxable year in which the taxpayer is ineligible to use the exemption in § 263A(i).

.01 Section 263A generally requires direct costs and an allocable portion of indirect costs of certain property produced or acquired for resale by a taxpayer to be included in inventory costs, in the case of property that is inventory in the hands of the taxpayer, or to be capitalized, in the case of other property.

.02 Section 263A(d)(3) and its accompanying regulations allow certain taxpayers that are not required to use an accrual method of accounting under § 447 (relating to certain corporations engaged in farming) or § 448(a)(3) (relating to tax shelters) to make an election to have § 263A not apply to certain costs related to certain plants produced in any farming business carried on by such taxpayer. Section 263A(e)(4) and § 1.263A-4(a)(4) of the Income Tax Regulations generally define the term “farming business” as a trade or business involving the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity, including: the trade or business of operating a nursery or sod farm; the raising or harvesting of trees bearing fruit, nuts, or other crops; the raising of ornamental trees (other than evergreen trees that are more than 6 years old at the time they are severed from their roots); and the raising, shearing, feeding, caring for, training, and management of animals. See § 1.263A-4 for specific guidance on the application of § 263A and the accompanying regulations to farming businesses.

.03 If the election under § 263A(d)(3) is made, the taxpayer and any related person in a farming business are subject to special rules provided in § 263A(e)(1) and (2). Under these special rules, the plants produced by the taxpayer are treated as § 1245 property, if not otherwise § 1245 property, and any gain resulting from any disposition of a plant is recaptured to the extent of the total amount of the deductions that, but for the election, would have been required to be capitalized with respect to the plant. In addition, the special rules require that the alternative depreciation system (ADS), as described in § 168(g)(2), be applied to all property used predominantly in any farming business of the taxpayer or related person and placed in service in any taxable year during which the election is in effect.

.04 Section 263A(d)(3)(D) and § 1.263A-4(d)(1) provide that an election under § 263A(d)(3) not to capitalize costs under § 263A for certain plants produced in the taxpayer’s farming business is a method of accounting under § 446 and, once made, may be revoked only with the consent of the Secretary of the Treasury or his delegate. A taxpayer must file a change in method of accounting request using the non-automatic change procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, (or its successor) to revoke its election under § 263A(d)(3) before applying § 263A to such capitalizable costs.

.05 Section 13102 of the TCJA added § 263A(i), which provides that § 263A does not apply to a taxpayer, other than a tax shelter prohibited from using the cash receipts and disbursements method under § 448(a)(3), for a taxable year in which the taxpayer meets the gross receipts test of § 448(c). Section 263A(i) applies to taxable years beginning after December 31, 2017.

.06 The exemption provided in § 263A(i) does not require a taxpayer to apply the special rules provided in § 263A(e)(1) and (2) relating to the treatment of plants produced by the taxpayer as § 1245 property or, in the case of the taxpayer or related person, to use ADS for all property predominantly used in any farming business of the taxpayer or related person. However, any plant as defined in section 4.06 of this revenue procedure that is or has been treated as § 1245 property with respect to taxable years before the year in which the revocation is effective continues to be treated as § 1245 property. See §§ 263A(e)(1)(A)(ii), 1245(a)(3) and 1.1245-3(c).

.07 Some taxpayers have inquired whether they must file a Form 3115, Application for Change in Accounting Method, to revoke the election under § 263A(d)(3) and to apply the exemption under § 263A(i) for the same taxable year. A taxpayer that revokes its election under § 263A(d)(3) and applies the exemption under § 263A(i) for the same taxable year is not changing its treatment of plants produced in the taxpayer’s farming business under § 263A. Consequently, there is not a change in method of accounting under § 446(e). However, the consent of the Commissioner of Internal Revenue (Commissioner) is needed to revoke the election under § 263A(d)(3) pursuant to §§ 263A(d)(3)(D) and 1.263A-4(d)(1). Section 5 of this revenue procedure provides the exclusive procedures for obtaining the consent of the Commissioner to revoke the election under § 263A(d)(3) by a taxpayer in a farming business if the taxpayer: (1) meets the requirements of § 263A(i); (2) previously elected under § 263A(d)(3) to have § 263A not apply to certain plants produced by the taxpayer in a farming business; and (3) wants to apply the exemption from § 263A provided in § 263A(i) for the same taxable year as the taxable year it revokes its election under § 263A(d)(3).

.08 The Department of the Treasury and the Internal Revenue Service (IRS) also are aware that a taxpayer in a farming business may become ineligible for the exemption to capitalization under § 263A(i) because, for example, the taxpayer no longer satisfies the gross receipts test in § 448(c). Such a taxpayer might want to make an election under § 263A(d)(3) for the first taxable year the taxpayer is no longer eligible to apply § 263A(i). Section 6 of this revenue procedure provides the exclusive procedures for a taxpayer in a farming business if the taxpayer: (1) uses the exemption to capitalization under § 263A(i) with respect to a farming business; (2) is no longer eligible to use the exemption under § 263A(i) because the taxpayer no longer meets the requirements of § 263A(i); and (3) wants to make the election under § 263A(d)(3) and the accompanying regulations for the first taxable year the taxpayer is no longer eligible to apply § 263A(i).

This revenue procedure applies to a taxpayer that:

.01 Is an eligible small business taxpayer, as defined in section 4.01 of this revenue procedure, that wants to revoke its election made under § 263A(d)(3), and in the same taxable year, apply the exemption under § 263A(i); or

.02 Is a former eligible small business taxpayer, as defined in section 4.02 of this revenue procedure, that wants to make an election under § 263A(d)(3) in the first taxable year that the taxpayer no longer qualifies to use the exemption under § 263A(i); or

.03 Is a related person, as defined in section 4.03 of this revenue procedure, of either:

(1) An eligible small business taxpayer, as defined in section 4.01 of this revenue procedure, or

(2) A former eligible small business taxpayer, as defined in section 4.02 of this revenue procedure.

.01 Eligible small business taxpayer. An eligible 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, as defined in section 4.05 of this revenue procedure, and that:

(1) made a valid election under § 263A(d)(3) for plants produced in the taxpayer’s farming business for a taxable year prior to the taxable year for which the taxpayer wants to revoke such election; and

(2) properly implemented the election under § 263A(d)(3).

.02 Former eligible small business taxpayer. A former eligible small business taxpayer is a taxpayer whose method of accounting is not to capitalize costs under § 263A based on the exemption provided in § 263A(i), and for the taxable year:

(1) becomes ineligible to use the exemption under § 263A(i); and

(2) is eligible to and wants to elect under § 263A(d)(3) not to capitalize costs under § 263A for certain plants produced in the taxpayer’s farming business.

.03 Related person. A related person is as defined in § 1.263A-4(d)(4)(iii).

.04 Farming business. A farming business is as defined in § 263A(e)(4) and § 1.263A-4(a)(4).

.05 Gross receipts test. The gross receipts test is as defined § 448(c).

.06 Plant. A plant is as defined in § 1.263A-4(a)(4)(A).

.01 In general. An eligible small business taxpayer has the consent of the Commissioner to revoke its election made under § 263A(d)(3) and § 1.263A-4(d)(3) (§ 263A(d)(3) election) and apply the exemption under § 263A(i) for the same taxable year if the taxpayer complies with the procedures provided in this section 5. See section 5.03 of this revenue procedure for the effect of the revocation of the § 263A(d)(3) election on the depreciation of property used in a farming business of the eligible small business taxpayer or related person. A valid § 263A election revoked pursuant to this revenue procedure remains in effect with respect to taxable years before the year in which the revocation is effective. An eligible small business taxpayer that revokes its own § 263A(d)(3) election but also is a related person to a taxpayer that made a § 263A(d)(3) election that has not also been revoked must continue to apply § 1.263A-4(d)(4)(ii) for taxable years that the unrevoked § 263A(d)(3) election is in effect.

.02 Time and manner of revocation.

(1) In general. Except as provided in section 5.02(2) of this revenue procedure, an eligible small business taxpayer revokes its § 263A(d)(3) election under this section 5 on its original federal income tax return, including extensions, for the taxable year for which the taxpayer wants to revoke its § 263A(d)(3) election (revocation year), by:

(a) Continuing not to capitalize costs of plants produced in its farming business under § 263A;

(b) Applying section 5.03 of this revenue procedure for determining depreciation of property predominantly used in a farming business of the eligible small business taxpayer or related person; and

(c) Continuing to treat plants that are or have been treated as § 1245 property for prior taxable years as § 1245 property. See §§ 263A(e)(1)(A)(ii), 1245(a)(3) and 1.1245-3(c).

(2) Making a revocation of § 263A(d)(3) election for a taxable year beginning in 2018. If an eligible small business taxpayer timely filed its federal income tax return for its taxable year beginning in 2018 (2018 taxable year), wants to revoke its § 263A(d)(3) election for the 2018 taxable year, and did not revoke the § 263A(d)(3) election within the time and in the manner provided in section 5.02(1) of this revenue procedure, the taxpayer may revoke its § 263A(d)(3) election by using one of the options described in this section 5.02(2):

(a) Amended return or AAR. The taxpayer may file an amended federal income tax return, or in the case of a partnership subject to the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015, an administrative adjustment request (AAR), for the 2018 taxable year before the taxpayer files its federal income tax return for the first taxable year beginning after the 2018 taxable year. This amended return or AAR must include the adjustment to taxable income for the revocation of the § 263A(d)(3) election in the manner provided in section 5.02(1) of this revenue procedure and any collateral adjustments to taxable income or to tax liability. Such collateral adjustments also must be made on federal income tax returns or AARs for any affected succeeding taxable years, if applicable. If an eligible small business taxpayer uses the option under this section 5.02(2)(a), then all related persons affected by the taxpayer’s revocation of the § 263A(d)(3) election must also use this option to reflect the taxpayer’s revocation; or

(b) Form 3115. The taxpayer may file a Form 3115 with the eligible small business taxpayer’s timely filed federal income tax return for the first, second, or third taxable year beginning after the 2018 taxable year. Only during this limited period of time will the late revocation of the § 263A(d)(3) election under this section 5.02(2)(b) be treated as a change in method of accounting with a § 481(a) adjustment. No part of the § 481(a) adjustment shall be based on amounts that were, or which should have been, taken into account in computing taxable income for taxable years prior to the 2018 taxable year. The § 481(a) adjustment takes into account only the adjustments resulting from the change in the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the ADS to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the general depreciation system of § 168(a) (GDS) for all property used predominantly in any farming business of the eligible small business taxpayer. The time and manner of making this late revocation are described in the procedures for automatic method changes described in Rev. Proc. 2015-13 and section 7 of this revenue procedure. If an eligible small business taxpayer uses the option under this section 5.02(2)(b), then all related persons affected by the taxpayer’s revocation of the § 263A(d)(3) election must also use this option to reflect the taxpayer’s revocation.

.03 Changing depreciation of property to the GDS.

(1) In general. Beginning with the revocation year, an eligible small business taxpayer that revokes its § 263A(d)(3) election under this section 5, or a related person, is not required under § 263A(e)(2) and § 1.263A-4(d)(4)(ii) to depreciate all property used predominantly in any farming business of the taxpayer, or related person, in accordance with the ADS, unless such property is otherwise required to be depreciated in accordance with the ADS (for example, § 168(g)(1)(G) applies to such property). The preceding sentence applies to such property placed in service by the eligible small business taxpayer or related person in taxable years beginning before the revocation year (existing property) and to such property placed in service by the eligible small business taxpayer or related person in the revocation year and subsequent taxable years (newly-acquired property). If an eligible small business taxpayer revokes its own § 263A(d)(3) election but also is a related person to a taxpayer that made a § 263A(d)(3) election that has not been revoked, the eligible small business taxpayer must continue to apply § 263A(e)(2) and § 1.263A-4(d)(4)(ii) for taxable years that such § 263A(d)(3) election is in effect.

(2) Existing property. For all property used predominantly in any farming business of the eligible small business taxpayer or related person that was placed in service in a taxable year prior to the revocation year and that is not otherwise required to be depreciated in accordance with the ADS, a change in use occurs for such property under § 168(i)(5) and § 1.168(i)-4(d) for the revocation year as a result of its revocation of the § 263A(d)(3) election. Accordingly, depreciation for such property beginning for the revocation year is determined in accordance with § 1.168(i)-4(d). However, pursuant to § 1.168(i)-4(d)(3)(C)(ii), the eligible small business taxpayer or related person may elect to determine the depreciation for such property as though the change in use had not occurred. See § 1.168(i)-4(d)(3)(C)(ii) for the time and manner of making this election for the revocation year. Pursuant to § 1.168(i)-4(f), a change in computing depreciation for the revocation year for such property is not a change in method of accounting under § 446(e). The additional first year depreciation deduction under § 168(k) is not allowable for any such existing property. See §§ 1.168(k)-1(f)(6)(iv)(B) and 1.168(k)-2(g)(6)(iv)(B).

(3) Newly-acquired property. For all property used predominantly in any farming business of the eligible small business taxpayer or related person that was placed in service in the revocation year and subsequent taxable years and that is not otherwise required to be depreciated in accordance with the ADS, the eligible small business taxpayer or related person determines the depreciation in accordance with the GDS. Because such newly-acquired property is not required to be depreciated under the ADS, the property may be qualified property for purposes of the additional first year depreciation deduction under § 168(k), if all requirements under § 168(k) and § 1.168(k)-1 or § 1.168(k)-2, as applicable, are satisfied.

(4) Failure to change to GDS.

(a) Existing property. If an eligible small business taxpayer or related person does not depreciate any existing property that is described in section 5.03(1) of this revenue procedure and that is not otherwise required to be depreciated in accordance with the ADS, under the GDS for the revocation year and the subsequent taxable year, then that taxpayer or related person has adopted an impermissible method of accounting for that item of MACRS property, as defined in § 1.168(b)-1(a)(2). A change from that impermissible method of accounting to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the GDS is a change in method of accounting under § 446(e). See § 1.446-1(e)(2)(ii)(d)(2)(i). The taxpayer requests to make such a method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015-13 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.05 of Rev. Proc. 2019-43, 2019-48 I.R.B. 1107 (or any successor). The § 481(a) adjustment as of the first day of the year of change is calculated as though the change in use occurred for the item of MACRS property in the revocation year.

(b) Newly-acquired property. If an eligible small business taxpayer or related person does not depreciate any newly-acquired property that is described in section 5.03(1) of this revenue procedure and that is not otherwise required to be depreciated under the ADS (including property described in § 168(g)(1)(E)), under the GDS for the property placed-in-service year and the subsequent taxable year, then that taxpayer or related person has adopted an impermissible method of accounting for that item of MACRS property. A change from that impermissible method of accounting to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the GDS for the item of MACRS property is a change in method of accounting under § 446(e). See § 1.446-1(e)(2)(ii)(d)(2)(i). The taxpayer requests to make such a method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015-13 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.01 of Rev. Proc. 2019-43 (or any successor).

.01 In general. A former eligible small business taxpayer may make a § 263A(d)(3) election for plants produced in its farming business in the first taxable year the former small business taxpayer no longer qualifies to use the exemption under § 263A(i), if the taxpayer complies with the procedures provided in this section 6. A § 263A(d)(3) election made under this section 6 is in effect for the taxable year the § 263A(d)(3) election is made (election year), and for any subsequent taxable year that the taxpayer has a valid § 263A(d)(3) election in effect. A former eligible small business taxpayer that follows the procedures under this section 6 to make the § 263A(d)(3) election for the first taxable year the taxpayer no longer qualifies as a small business taxpayer under § 263A(i) is not treated as making a change in method of accounting under § 446(e).

.02 Time and manner of making the § 263A(d)(3) election. A former eligible small business taxpayer makes its § 263A(d)(3) election under this section 6 on its original federal tax return, including extensions, for the first taxable year for which the taxpayer no longer qualifies to use the exemption under § 263A(i), by:

(1) Following the manner of making the § 263A(d)(3) election provided in § 1.263A-4(d)(3); and

(2) Continuing not to capitalize costs of plants produced in its farming business under § 263A.

.03 Depreciation of property.

(1) Newly-acquired property. A former eligible small business taxpayer that makes a § 263A(d)(3) election under this section 6 is required under § 1.263A-4(d)(4)(ii) to apply the ADS to depreciate all property used predominantly in any farming business of the taxpayer and placed in service by the taxpayer in the election year and in any subsequent taxable year during which the § 263A(d)(3) election is in effect. A related person of such former eligible small business taxpayer also is required under § 1.263A-4(d)(4)(ii) to apply the ADS to depreciate all property used predominantly in any farming business of the related person and placed in service by the related person in the election year and in any subsequent taxable year during which the § 263A(d)(3) election is in effect for the former eligible small business taxpayer, even if the related person qualifies for the exemption under § 263A(i). The additional first year depreciation deduction under § 168(k) is not allowable for any property described in this section 6.03(1). See §§ 1.168(k)-1(b)(2)(ii)(A)(2), 1.168(k)-1(b)(2)(ii)(B)(1), and 1.168(k)-2(b)(2)(ii)(B).

(2) Existing property. A former eligible small business taxpayer that makes a § 263A(d)(3) election under this section 6, or related person, is not required under § 1.263A-4(d)(4)(ii) to apply the ADS to depreciate all property used predominantly in any farming business of the taxpayer or related person and placed in service by the taxpayer or related person in a taxable year prior to the election year.

(3) Failure to use the ADS for newly-acquired property.

(a) Former eligible small business taxpayer. If a former eligible small business taxpayer that makes a § 263A(d)(3) election under this section 6 does not determine its depreciation under the ADS for any property described in section 6.03(1) of this revenue procedure for its placed-in-service year and the subsequent taxable year, then that taxpayer has not made a valid § 263A(d)(3) election under § 1.263A-4(d)(3)(i) and this section 6. To make such election valid, the taxpayer must obtain the consent of the Commissioner by filing a Form 3115 in accordance with the non-automatic change procedures in Rev. Proc. 2015-13 (or any successor). See § 1.263A-4(d)(3)(ii).

(b) Related person. If a related person of a former eligible small business taxpayer that makes the § 263A(d)(3) election under this section 6 does not determine its depreciation under the ADS for any property described in section 6.03(1) of this revenue procedure, then the related person has adopted an impermissible method of accounting for that item of MACRS property. A change from that impermissible method of accounting to the applicable depreciation method, recovery period, applicable convention under the ADS for the item of MACRS property is a change in method of accounting under § 446(e). See § 1.446-1(e)(2)(ii)(d)(2)(i). A related person that wants to change its method of accounting from that impermissible method of accounting must make the method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015-13 (or any successor). If the related person is eligible to make this method change under the automatic change procedures, the method change is described in section 6.01 of Rev. Proc. 2019-43 (or any successor). Section 6.03(3)(a) of this revenue procedure, and not this section 6.03(3)(b), applies to a related person if the related person itself is a former eligible small business taxpayer and makes the § 263A(d)(3) election under this section 6.

.01 In general. The making of a late revocation of the eligible small business taxpayer’s § 263A(d)(3) election for the 2018 taxable year, under section 5.02(2)(b) of this revenue procedure, is treated for a limited period of time as a change in method of accounting to which §§ 446(e) and 481, and the corresponding regulations, apply. An eligible small business taxpayer that wants to revoke its § 263A(d)(3) election for the 2018 taxable year, as described in section 5.02(2)(b) of this revenue procedure, must use the automatic change procedures in Rev. Proc. 2015-13 or its successor.

.02 Automatic change. Rev. Proc. 2019-43 is modified to add new section 12.19 to read as follows:

.19 Late revocation of elections under § 263A(d)(3).

(1) Description of change.

(a) Applicability. This change applies to an eligible small business taxpayer within the scope of Rev. Proc. 2020-13, 2020-11 I.R.B. 515, that wants to make a late revocation of the election under § 263A(d)(3) provided in section 5.02(2)(b) of Rev. Proc. 2020-13.

(b) Inapplicability. The IRS will treat the late revocation of an election under § 263A(d)(3) that is provided in section 5.02(2)(b) of Rev. Proc. 2020-13 as a change in method of accounting with a § 481(a) adjustment only for the taxable years specified in section 12.19(2) of this revenue procedure. This treatment does not apply to a taxpayer that makes a late revocation under § 263A(d)(3) provided in section 5.02(2)(b) of Rev. Proc. 2020-13 before or after the time specified in section 12.19(2) of this revenue procedure, and any such late revocation is not a change in method of accounting.

(2) Time for making the change. The change under this section 12.19 must be made for the taxpayer’s first, second, or third taxable year beginning after the taxpayer’s first taxable year beginning in 2018 (2018 taxable year).

(3) Certain eligibility rules inapplicable. The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B 419, do not apply to this change for the taxpayer’s first, second, or third taxable year succeeding the 2018 taxable year.

(4) Concurrent automatic change. A taxpayer making this change for more than one property used predominantly in any farming business of the taxpayer under section 5.02(2)(b) of Rev. Proc. 2020-13 for the same year of change should file a single Form 3115 for all such farming property. The single Form 3115 must provide a single net § 481(a) adjustment for all such changes.

(5) Designated automatic accounting method change number. The designated automatic accounting method change number for a change to the method of accounting under this section 12.19 is “243.”

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

.01 In general. This revenue procedure is effective on February 21, 2020.

.02 Transition rule. If on or before February 21, 2020, a taxpayer properly filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13 requesting the Commissioner’s consent to revoke its § 263A(d)(3) election, and the Form 3115 is pending with the national office on February 21, 2020, the taxpayer may choose to revoke its § 263A(d)(3) election using the procedures provided in this revenue procedure, if the taxpayer is otherwise eligible to use this revenue procedure. The taxpayer must notify the national office contact person for the Form 3115 (if unknown, see section 9.08(6) of Rev. Proc. 2020-1, 2020-1 I.R.B. 1, 51 (or any successor)) of the taxpayer’s intent to make the § 263A(d)(3) revocation under this revenue procedure before the later of (a) March 22, 2020, or (b) the issuance of a letter ruling granting or denying consent for the revocation. The notification should indicate that the taxpayer chooses to apply the revocation procedures contained in this revenue procedure. If the taxpayer timely notifies the national office that it chooses to convert the Form 3115 to the procedures contained in this revenue procedure, the national office will send a letter to the taxpayer acknowledging its request and will return the user fee submitted with the Form 3115.

Rev. Proc. 2019-43 is modified to include the accounting method change provided in section 7.02 of this revenue procedure in section 12 of Rev. Proc. 2019-43.

This revenue procedure does not impose any additional information collection requirements in the form of reporting, recordkeeping requirements or third-party disclosure requirements. However, because this revenue procedure provides a method change option for taxpayers to revoke their § 263A(d)(3) election for the 2018 taxable year in section 5.02(2)(b) of this revenue procedure, the consent of the Commissioner under § 446(e) is required before the taxpayer or related person can use the exemption in § 263A(i). The IRS expects that these taxpayers will request this consent by filing Form 3115, Application for Change in Accounting Method. This revenue procedure alternatively provides an option for taxpayers to revoke their § 263A(d)(3) election for the 2018 taxable year in section 5.02(2)(a) of this revenue procedure by filing an amended return. For purposes of the Paperwork Reduction Act, the reporting burden associated with any collection of information using the method of accounting option in sections 5.02(2)(a) and (b) of this revenue procedure will be reflected in OMB control number 1545-0074 for individual income tax returns; OMB control number 1545-0123 for business taxpayers; or OMB control number 1545-2070 for other taxpayers in the case of a Form 3115.

The principal author of this revenue procedure is Anna Gleysteen of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Gleysteen or Evan Hewitt at (202) 317-7007 (not a toll-free number).

Pursuant to § 433(h)(3)(A), the 3^rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under § 433(c)(7)(C)).