When and How to File a Form 3115
A Form 3115 is called the “Application for Change in Accounting Method.” It is for an automatic change in any method of accounting. A form 3115 is filed to change either an entity’s overall accounting method or the accounting treatment of any item, such as switching to the accrual method, accelerating depreciation, expensing a previously capitalized item under §263(a), or a change in the reporting of inventory.
On the first page of the form are several lines where the DCN is written. A DCN stands for Designated Change Number. If there is a DCN for the specific change, the change is an automatic change.
A list of Designated Change Numbers can be found at www.irs.gov/pub/irs-pdf/i3115.pdf.
If there is no Designated Change Number for a specific change, the change is non-automatic, and the taxpayer must petition the IRS (and pay $11,000) to gain permission to make the change. Once permission has been granted, the 3115 can now be filed. The IRS normally sends an acknowledgment of receipt within 60 days after receiving a Form 3115 filed under the non-automatic change. The deadline for filing a non-automatic change is the end of the current tax year.
In general, the filer of Form 3115 is the applicant. The applicant is an entity, a person, or a separate and distinct trade or business of an entity or a person whose method of accounting is being changed. For a consolidated group, the common parent must file the form for itself or any group member. Identical changes for two or more of the following in any combination may be included in a single Form 3115.
- Members of a consolidated group.
- Separate and distinct trades or businesses include Q-Subs and SMLLCs.
- Partnerships that are wholly owned within a consolidated group.
In general, a filer that neglects to file a timely 3115 will not be granted an extension except in unusual and compelling circumstances. See Rev. Proc. 2015-13 for the standards that must be met.
In circumstances where a 3115 is filed on behalf of the applicant, enter the filer’s name and identification number on the first line and enter the applicant’s name and identification number on the fourth line.
For partnerships, enter the name of the partnership on the first line. The signature section includes the signature of one of the general partners or LLC members who has personal knowledge of the facts and is authorized to sign.
If there is a change resulting from a -481a adjustment (§263(a), cost segregation, etc.), check the box in section 7a. Checking this box satisfies the statement requirement in section §8.02(1)(e)(iii) of Rev. Proc. 2015-13. Insert the calculations for the -481a in Section four.
The filer must file Form 3115 (automatic change) in duplicate. Attach the original 3115 to the filer’s timely filed (including extensions) return for the year of change. The original 3115 attachment does not need to be signed. Send a copy of the signed Form 3115 to the IRS in Ogden, UT, no earlier than the first day of the year of change and no later than the date the original is filed with the federal income tax return for the year of change.
Due to factors surrounding COVID-19, the IRS has implemented a temporary change to the duplicate filing guidelines for the automatic change procedure. Per the IRS, the duplicate can be faxed to 844-249-8134 instead of mailed.