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IRS to release updated Form 3115, "Application for Change in Accounting Method"

IRS plans changes to Form 3115

Drafts of an updated Form 3115, "Application for Change in Accounting Method," and Instructions—both of which show a December 2018 revision date—have been posted to the IRS website. Both the Form 3115 and the Instructions are watermarked as "draft" and cannot be used yet.

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Read the draft version of Form 3115 [PDF 215 KB] and the draft version of the Instructions [PDF 428 KB].

 

The current version of the Form 3115 [PDF 315 KB] and the Instructions [PDF 332 KB] were revised as of December 2015 and were released in January of 2016.  

  • Forms 3115 filed under the automatic consent procedure must be filed in duplicate (with the tax return and IRS Covington Office) no later than the date the taxpayer files its federal income tax return for the requested year of change.
  • Forms 3115 filed under the advance consent procedures must be filed no later than the last day of the requested year of change.  

Possible transition period

At a recent AICPA meeting, representatives from the IRS National Office were agreeable to providing a transition period permitting taxpayers to continue use of the current version of the Form 3115 for an as-yet undetermined period. This would be consistent with the approach taken in 2016 when the Form 3115 was updated to the current version (see Announcement 2016-14 [PDF 14 KB]). 

Although specific terms of any transition guidance were not discussed—and there is no guarantee such terms would follow the prior transition period guidance—the prior transition guidance provided several months for taxpayers to transition to the new form. Further, if the copy of an automatic accounting method change was filed with the IRS in Covington, KY, on the older version of the Form 3115 prior to the transition cut-off date, the taxpayer was permitted to file the original Form 3115 on the older version of the Form 3115 with its federal income tax return (even though the federal income tax return would be filed after the cut-off date).

KPMG observation

Tax professionals expect that any transition guidance issued by IRS for the updated Form 3115 would be similar to that provided under Announcement 2016-14, but note that the changes to Form 3115 are less substantial than in 2015, so perhaps a shorter transition period may be provided. 

Therefore, taxpayers wishing to file the copy of a Form 3115 with the IRS in Covington, KY, for an automatic method change in the next couple of months need to consider using the current version of the Form 3115. If a taxpayer is not planning on filing the copy of a Form 3115 with the IRS in Covington, KY, in the next couple of months, the taxpayer needs to consider waiting to prepare the Form 3115 until the updated version is issued. 

Any non-automatic accounting method changes that need to be filed by the calendar year-end would need to be prepared on the current version of the Form 3115. 

The draft versions of Form 3115 and Instructions have been updated to incorporate changes made by Pub. L. No. 115-97 (enacted December 22, 2017), commonly referred to as the "Tax Cuts and Jobs Act." The biggest change in the draft version of Form 3115 is to Schedule B, which had covered accounting method changes to the deferral method for advance payments under Rev. Proc. 2004-34 and Reg. section 1.451-5.  Schedule B still covers accounting method changes for advance payments, but now only references the deferral method because the deferral provided under Reg. section 1.451-5 is no longer available for tax years beginning after December 31, 2017.   

Future guidance

Representatives from the IRS National Office also confirmed at the AICPA meeting that they are working on both proposed regulations under new sections 451(b) and 451(c) and procedural guidance for accounting method changes under those sections.

However, the IRS National Office representatives indicated it is probable that procedural guidance under section 451(b) will be issued prior to the proposed regulations and likely very soon, so that calendar year taxpayers are not in a position of having to file a non-automatic accounting method change before December 31.

The procedural guidance is not expected to address section 451(c) (advance payments) because the IRS had earlier issued Notice 2018-35, which  permits taxpayers to continue to rely on Rev. Proc. 2004-34 to make advance payment changes until the IRS issues future guidance.  

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