© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 0 Selected Current Developments in Tax Accounting Methods and Credits Presented by: Scott Vance, KPMG LLP Tax Executives Institute Omaha, NE October 13, 2015

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 Notice The information in this document is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials provided to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in the materials. The information in this document is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Tax accounting method changes: new procedural guidance

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 What has happened in 2015? Rev. Proc Combined procedures for automatic and non-automatic method changes Numerous modifications to rules under Rev. Procs and Rev. Proc Enumeration of automatic changes List may be supplemented, as under prior revenue procedures Subsequent updates Rev. Proc : streamlined procedures for tangible property regulation method changes for small businesses Rev. Proc : extended transition rules for Rev. Proc procedures Note also that some supplemental rules appear in Rev. Proc and successors

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 Completing the 3115 Generally, entire form must be completed Certain sections are applicable only to certain types of changes “Short form” where specified in automatic change procedures Generally, only one change per Form 3115 Unless automatic change procedures permit combined concurrent changes Substantially identical changes for multiple entities on one Form 3115 Separate trades or businesses; consolidated groups; CFCs; 10/50 corporations; partnerships wholly owned within a consolidated group Signatures

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Eligibility to file Automatic changes Not the final year of a trade or business (except under §381(a)) Prior five-year overall method change Prior five-year method change for a specific item Special rules for §381(a) transactions Non-automatic changes Not eligible for an automatic change Not the final year of a trade or business, unless: Compelling circumstances Interest of sound tax administration Section 381(a) transaction

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Specific types of entities More than one trade or business Including disregarded entities Consolidated groups Common parent files on behalf of group members Controlled foreign corporations (CFCs) Controlling domestic shareholder Foreign partnerships Partner files on its behalf Partnership return

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Taxpayers under IRS examination Copy of Form 3115 provided to examining agent, Appeals officer, and/or counsel to the government Issue under consideration Written notification Impact on audit protection Specific situations Partnerships or S corporations Consolidated groups CFCs or 10/50 corporations Appeals Federal court

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 Audit protection IRS will not generally require a method change for the item being changed for a year prior to the year of change Method change is still subject to review/validation Taxpayers not under examination receive audit protection unless otherwise specified Taxpayers under examination do not generally receive audit protection unless: 3115 filed in a three-month window 3115 filed in a 120-day window 3115 filed when the present method is not before the director New member of consolidated group in CAP Change resulting in a negative section 481(a) adjustment

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 Audit protection (continued) Note change in three-month window 90-day window formerly started with first day of taxable year Three-month window now starts with 15 th day of 7 th month “Springing” audit protection in certain cases Examination closes CFCs and 10/50 corporations Certain specified changes lack audit protection Special rules for CFCs and 10/50 corporations

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 Section 481(a) adjustment Must take into account all relevant accounts Net adjustment may result Negative adjustment recognized entirely in year of change Positive adjustment recognized generally over four taxable years Taxpayers under examination: two taxable years, unless Three-month window, 120-day window, present method not before director, or new member of consolidated group in CAP May elect to recognize entirely in year of change if <$50,000 Multiple taxpayers on a single Form 3115 Each has its own adjustment and adjustment period Eligible acquisition transactions May recognize section 481(a) adjustment entirely in year of change if specified acquisition occurs during the year of change or in the subsequent year on or before the extended return date for the year of change

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 Filing the 3115 User fees None for automatic changes $8600 for non-automatic changes, plus $180 per additional entity Dual filing requirement for automatic changes Original 3115 with timely filed return for year of change Duplicate 3115 with Ogden IRS office, no earlier than beginning of year of change, no later than timely filing of original 3115 Non-automatic changes generally due within year of change Special rules New member of consolidated group in CAP Party to a section 381(a) transaction

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 Other 3115 administrative issues Additional correspondence for automatic changes For example, revised section 481(a) adjustment or power of attorney Attach behind copy of previously filed page 1; copies to examining agent, Appeals officer, and/or counsel to the government as applicable Consent agreement for non-automatic changes Sign and date within 45 days of date on the letter Must implement via original or amended return for the year of change Rolling forward year of change Written request no earlier than first day of the fourth month following unextended return date for the year of change If 3115 filed by end of sixth month of full year of change, written request no earlier than first day of succeeding year Potential acceleration of section 481(a) adjustment New power of attorney

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Ratable service contracts

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14 Rev. Proc Ratable service contract defined: The contract provides for similar services to be provided on a regular basis, such as daily, weekly, or monthly Each occurrence of the service provides independent value, such that the benefits of receiving each occurrence of the service is not dependent on the receipt of any previous or subsequent occurrence of the service The term of the contract does not exceed 12 months (contract renewal provisions will not be considered in determining whether a contract exceeds 12 months)

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 Rev. Proc (continued) Safe harbor method: Taxpayer may treat economic performance as occurring on a ratable basis over the term of the service contract Impact on 3-1/2 month rule Impact on recurring item exception

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 New section 199 regulations

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17 Temporary regulations – T.D W-2 wage limit for short taxable years, acquisitions and dispositions Look to period of employment Effective currently and for open years

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18 Proposed regulations – REG Variety of topics, including: By the taxpayer (contract manufacturing) MPGE Allocation of COGS Item-by-item (multiple building projects, embedded services) Construction activities Qualified films Oil-related QPAI Hedging transactions Puerto Rico activities Agricultural/horticultural cooperatives Minor assembly (comments requested, no regulatory language) Not currently effective

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19 New research credit regulations

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20 Proposed internal use software regulations - REG Basic four part test Permitted purpose Technological in nature Elimination of uncertainty Process of experimentation Additional three tests for internal use software Innovative Significant economic risk Not commercially available

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21 Internal use software regulations (continued) IUS: Software developed for use in general and administrative (G&A) functions that facilitate or support the taxpayer's trade or business Non-IUS: Software developed with the intent to be commercially sold, leased, licensed or otherwise marketed to third parties Software developed with the intent to enable a taxpayer to interact with third parties or allow third parties to initiate functions or review data Software developed for use in an activity that constitutes qualified research (other than the development of the IUS itself) Software developed as part of a production process that meets the four- part test Software and hardware developed as a single product. Dual function software Effective date

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22 Other recent regulations TD 9717 Allocation of controlled group research credit Qualified research expenses as basis for allocation TD 9712 Alternative simplified credit Retroactive election

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23 Future developments

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 Revenue recognition Financial Accounting Standards Board (FASB) / International Accounting Standards Board (IASB) Joint project on revenue recognition for financial accounting purposes Revenue from Contracts with Customers Effective date and transition New guidance is on financial accounting treatment Tax treatment uses financial accounting treatment as a starting point; see generally Treas. Reg. § (a) Book-tax differences may arise What is to be done for tax purposes when the book treatment changes?

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25 Revenue recognition (continued) Notice identifies issues IRS is considering: New book standards vs. section 451; income deferral Industry and/or transaction-specific issues Types of changes in methods of accounting anticipated Changes in methods of accounting requested prior to the effective dates of the new standards Automatic consent vs. advance consent procedures Cut-off treatment vs. section 481(a) adjustment Modifications to existing procedural guidance Transition procedures Grouping of method changes on a single Form 3115

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26 Legislative matters Extenders Research credit Bonus depreciation “Innovation box” Proposed incentive for U.S.-based intellectual property Interaction with sections 41, 199?

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.