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Should I File Form 3115 or Not?

When to File Form 3115

Tax season and the days leading up to tax season can be a hectic and stressful time. Every one of your clients is expected to file returns correctly and on time. Making your job more difficult this season is the new Tangible Property Regulations (TPRs) that require some businesses to file a form 3115, a form you have never even seen before.

Well, we’re here to simplify tax jargon so you don’t file a form that doesn’t need to be filed and help you plan ahead if a 3115 is required.

According to U.S. Tax Code, a Form 3115 is a “request to change in either an overall method of accounting or the accounting treatment of any item.” Generally, this form is typically filed by businesses. However, Forbes says that a 3115 form may also apply to individual taxpayers and estates.

Before the new TPRs, Forbes stated that most taxpayers only filed the form when there was a significant change, and that didn’t happen often. The new regulations changed everything.

With the new TPRs, “almost every federal tax return for businesses that own tangible property should have at least one Form 3115 or an election statement that the taxpayers will need to file to adopt the rules under the final regulations,” said Christian Wood in the Journal of Accountancy. Wood, quoted in Forbes, continued to say that this form is required in order to adopt the materials-and-supplies provision, the new Improvement Standards and many of the “Safe Harbors.” If taxpayers with over 10 million in annual receipts do not include this form, their change in accounting methods will not be unauthorized under the law.

The tax community is split on whether or not all businesses should file at least one 3115, but because there aren’t any fees for filing or risks involved to your client, it doesn’t hurt them if you file one on their behalf. So, if your client can benefit from any of the tax saving opportunities from the new TPRs, a 3115 should be filed in most cases.

Additionally, Form 3115 allows you some audit protection from previous years. By filing, you’re following tax code, and you are compliant with the new TPRs. If you are compliant, the “use it or lose it” regulation (1016-3) will not be imposed on you.

You might have to file more than one 3115 form, which can be time consuming. It would be smart to consult with CSSI so that you can prepare the form correctly the first time and allow us to review other depreciation schedules to ensure no additional opportunities exist.