Rev. Rul. 64-278

Under the "liquidation method" of accounting a bank or similar taxpayer, using the cash receipts and disbursements method of accounting, determines the amount of interest received from loans made at a discount by applying the percentage that the amount of loan principal liquidated during each month bears to the total loan principal outstanding at the beginning of the month to the unearned interest applicable to such loans. This method is illustrated by the following example:

Example: At the beginning of the month Y had outstanding loans of 500x dollars and unearned discount of 50x dollars. During the month, 100x dollars of the loans which were outstanding at the beginning of the month were liquidated, making the percentage of liquidation 20 percent. This percentage, applied to the unearned interest of 50x dollars, results in 10x dollars of earned interest being realized for the month.

Held, permission will ordinarily be granted to a taxpayer of the type described above to change to the "liquidation method" of reporting interest on loans made at a discount, provided it agrees to the terms, conditions and adjustments under which the change will be effected. Such a taxpayer must file an application for change in accounting method on Form 3115, Application For Change in Accounting Method. The application must be filed with the Commissioner of Internal Revenue within 90 days after the beginning of the taxable year in which it is desired to make the change.