FROM THE OFFICE OF PUBLIC AFFAIRS

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Today the Treasury Department and the Internal Revenue Service issued interim guidance, pending final regulations, on the nonaccrual experience method of accounting (NAE). 

The nonaccrual experience method is a method of accounting under which certain service-providers are not required to accrue income earned for the performance of services if, based on the taxpayer's experience, the income will not be collected. For example, a hospital may know, based on its experience, that it will not collect a portion of an amount billed for hospital services.

The guidance provides two safe harbor NAE methods and a procedure for self-testing alternative NAE methods. In addition the guidance provides procedures for taxpayers to obtain automatic consent to change to a safe harbor or alternative NAE method. Finally, the guidance provides procedures to change from an NAE method if a taxpayer is no longer eligible to use an NAE method as a result of recent statutory changes.

Until final regulations are issued to implement the recent statutory changes related to  NAE methods, this interim guidance gives taxpayers the certainty they need to be able to determine the uncollectible amounts to be excluded from income under the nonaccrual experience method of accounting.

The text of Notice 2003-12 is attached.

Related Documents:

• Text of Notice 2003-12