26 CFR § 1.9002-2 - Election to have the provisions of section 481 of the Internal Revenue Code of 1954 apply.

---
identifier: "/us/cfr/t26/s1.9002-2"
source: "ecfr"
legal_status: "authoritative_unofficial"
title: "26 CFR § 1.9002-2 - Election to have the provisions of section 481 of the Internal Revenue Code of 1954 apply."
title_number: 26
title_name: "Internal Revenue"
section_number: "1.9002-2"
section_name: "Election to have the provisions of section 481 of the Internal Revenue Code of 1954 apply."
chapter_name: "INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY"
subchapter_number: "A"
subchapter_name: "INCOME TAX"
part_number: "1"
part_name: "INCOME TAXES"
positive_law: false
currency: "2026-04-05"
last_updated: "2026-04-05"
format_version: "1.1.0"
generator: "[email protected]"
authority: "26 U.S.C. 7805, unless otherwise noted."
regulatory_source: "T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted."
cfr_part: "1"
---


# 1.9002-2 Election to have the provisions of section 481 of the Internal Revenue Code of 1954 apply.

(a) *In general.* Section 3(a) of the Act provides that if the income tax treatment of dealer reserve income by the taxpayer is changed (whether or not such change is initiated by the taxpayer) to a proper method under the accrual method of accounting, then the taxpayer may elect to have such change treated as a change in method of accounting not initiated by the taxpayer to which the provisions of section 481 of the Code apply. This election may be made only when the alternative election under section 4(a) of the Act has not been exercised.

(b) *Year of change.* Where an election has been made under section 3(a) of the Act to have section 481 of the Code apply, then for purposes of applying section 481 of the Code the year of change shall be determined in accordance with the provisions of section 3(b) of the Act. Section 3(b) provides that the year of change is the earlier of (1) the first taxable year ending after June 22, 1959, or (2) the earliest taxable year for which, on or before June 22, 1959,

(i) There was issued a notice of deficiency or written notice of a proposed deficiency attributable to the erroneous treatment of dealer reserve income, or

(ii) The taxpayer filed a claim for refund or credit with respect to the treatment of such income,

and in respect of which the assessment of any deficiency, or the refund or credit of any overpayment, was not prevented on June 21, 1959, by the operation of any law or rule of law. The written notice of proposed deficiency includes a 15- or 30-day letter issued under established procedure or other similar written notification.

(c) *Application to pre-1954 Code years.* If the earliest year described in paragraph (b) of this section is a year subject to the Internal Revenue Code of 1939 in respect of which assessment of any deficiency or refund or credit of any overpayment was not prevented on June 21, 1959, by the operation of any law or rule of law, section 481 of the Internal Revenue Code of 1954 shall be treated as applying in the same manner it would have applied had it been enacted as part of the Internal Revenue Code of 1939.

(d) *Examples.* The operation of this section in determining the year of change may be illustrated by the following examples:

[T.D. 6490, 25 FR 8371, Sept. 1, 1960]