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The adjustments made to implement the new accounting method
are applied in the "year of change", defined by section 1.481-
1(a)(1), Income Tax Regs, as "the taxable year for which the
taxable income of the taxpayer is computed under a method of
accounting different from that used for the preceding taxable
year." Neither section 481 nor the accompanying regulations
explain how the year of change is chosen. When the taxpayer
requests a change in accounting method, the IRS uses Rev. Proc.
92-20, 1992-1 C.B. 685, to determine the year of change. When
the taxpayer makes no request, the changes required by
examination are applied by default to the earliest open year for
which the limitations period has not expired.
Here, the year of change is the earliest open year.
Petitioner has stipulated that before the examination began,
petitioner made no application to the IRS with respect to
changing its method of accounting. At no time during the
examination did petitioner submit a Form 3115, formally
requesting to change its accounting method. Since petitioner did
not initiate a change in its accounting method, Rev. Proc. 92-20,
supra, does not apply. The IRS was free to apply the accounting
method changes to the earliest open year under examination.
Consequently, the year of change is 1990.
Petitioner's sole contention is that the year of change
should be 1993 instead of 1990. Petitioner makes two main
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