On July 15, 2015, the IRS released a draft of a revised Form 3115, Application for Change in Accounting Method. Form 3115 is used for accounting method changes including those made to comply with the Tangible Property Regulations (“TPRs”) and those made for depreciation adjustments resulting from Cost Segregation studies. Prior to the current draft, the last revision to Form 3115 was made in December 2009.
The draft Form 3115 makes available revisions which incorporate modifications and additions to the accounting method change procedures provided in Rev. Proc. 2015-13 and Rev. Proc. 2015-14. The draft Form 3115 is expected to be finalized for use by December 2015; accompanying draft instructions have not been posted.
Prior Guidance. Rev. Proc. 2015-13 (released in January) specifies the procedures taxpayers must use to obtain automatic or advance consent to change an accounting method. Rev. Proc. 2015-13 generally replaces Rev. Proc. 2011-14, the previous revenue procedure governing automatic consent accounting method changes, and Rev. Proc. 97-27, the previous revenue procedure governing advance consent for accounting method changes.
Rev. Proc. 2015-13 added new procedural rules for filing accounting method changes, including significant changes in rules for taxpayers under examination. It also shortened the Sec. 481(a) adjustment periods and added a new requirement that Form 3115 be filed with the IRS office in Ogden, Utah, instead of with the IRS National Office in Washington, D.C.
Summary of Changes. The draft Form 3115 includes multiple revisions and updates; some noteworthy modifications include:
- The ability to list multiple automatic method change numbers on a single Form 3115 (for multiple method changes that are permitted to be requested on one Form 3115);
- Revised questions to take into account the new eligibility rules of Rev. Proc. 2015-13 (including the election to recognize a positive section 481(a) adjustment in full in the year of change for de minimis adjustments of less than $50,000 or where an eligible transaction occurs during the year of change or in the subsequent year);
- A requirement to provide the legal basis for any proposed method of accounting for both automatic and non-automatic method changes (replacing the current Form 3115’s requirement to provide a legal basis for only non-automatic method changes);
- A requirement to indicate whether property subject to a change in depreciation (for which Schedule E of the Form 3115 is required) will be included in a single, mass or general asset account;
- Removing some general questions about Code Sec. 381, and replacing them with questions that are specific to Reg. § 1.381(c)(4)-1(d)(1) and Reg. § 1.381(c)(5)-1(d)(1) (Question 5);
- Restating the questions with respect to the audit protection rules to reflect the changes made by Rev. Proc. 2015-13 and asking taxpayers who have audit protection to list the rule under which they qualify for that protection (Question 7);
- Restating the “recognize a Code Sec. 481(a) adjustment in the year of change” rule to reflect the abovementioned change in Rev. Proc. 2015-13 (Question 27); and
- Throughout the form, changing its terminology when referring to non-automatic change requests, from “advance consent requests” to “non-automatic change requests.”
Also worth noting is the revised Form requires a full description of the legal basis for automatic accounting method changes. Although the current form requires a “detailed and complete description”, the draft Form seems to go much further. Specifically, in the current Form, filers were not required to provide the full legal basis for automatic accounting method changes. However, question 16 now requests that information from all filers, including those applying under the automatic consent rules. Question 15 also requires more complete information about the taxpayer’s trades or businesses.
Planning. Until the IRS finalizes the draft Form 3115, taxpayers must continue to use the existing Form 3115. For taxpayers making changes under the TPRs, the IRS stated on a recent webinar that the current form can be used throughout the 2014 tax year. Thus, taxpayers do not need to rush to file Form 3115s for 2014 TPR changes over concerns that the 2009 form will be superseded.
Daniel L. Mellor is an associate with the form. He earned his J.D. at the George Mason University School of Law in Arlington, VA and his Masters of Laws (LL.M.) in Taxation from the Temple University School of Law in Philadelphia, PA. Mr. Mellor serves on the Executive Committee of the New Jersey State Bar Association, Young Lawyers Division, as the Liaison to the Tax Law Section. Mr. Mellor’s particular areas of expertise include business transactions, estate planning, and probate litigation.