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Specific Instructions

Table of Contents

Name(s) and Signature(s)

Enter the name of the filer on the first line of page 1 of Form 3115. In the case of an advance consent request, the Form 3115 and any attached statements required to be signed must be signed and dated by, or on behalf of, the filer. In the case of an automatic consent request, the copy of the Form 3115 that is sent to the IRS National Office must be signed and dated by, or on behalf of, the filer; the Form 3115 attached to the income tax return (including any additional statements) does not need to be signed. The name and signature requirements are discussed below.

In general, the filer of the Form 3115 is the applicant. However, for certain corporations discussed in the following paragraphs, Form 3115 is filed on behalf of the applicant. If such an exception applies, enter the filer name and identification number on the first line of Form 3115 and enter the applicant's name and identification number on the fourth line. If Form 3115 is filed for multiple applicants in a consolidated group of corporations, attach a schedule listing each applicant, its identification number, and principal business activity code (see Principal Business Activity Code on page 3). This schedule may be combined with the information requested for Part III, line 23a (regarding the user fee) and Part IV (section 481(a) adjustment). If multiple names and signatures are required (e.g., as in the case of controlled foreign corporations (CFCs)—see instructions below), attach a schedule labeled “SIGNATURE ATTACHMENT” to the Form 3115, signed under penalties of perjury using the same language as in the declaration on page 1 of Form 3115. Receivers, trustees, or assignees must sign the Form 3115 they are required to file.

Individuals.   If Form 3115 is filed for a husband and wife who file a joint income tax return, enter the names of both on the first line and the signatures of both on the signature line.

Partnerships.   Enter the name of the partnership on the first line of Form 3115. In the signature section of Form 3115, enter the signature of one of the general partners or limited liability company members authorized to sign and that person's name and title below the signature.

Corporations, personal service corporations, S corporations, cooperatives, and insurance companies.   Enter the name of the filer on the first line of Form 3115. In the signature section of Form 3115, enter the signature of the officer authorized to sign and the officer's name and title below the signature.

Consolidated group of corporations.   Enter the name of the parent corporation on the first line of Form 3115. Also enter the name(s) of the applicant(s) on the fourth line of Form 3115 if a member of the consolidated group other than, or in addition to, the parent corporation is requesting an accounting method change. Only an officer authorized to sign for the parent corporation may sign Form 3115.

Controlled foreign corporations (CFCs).   For a CFC with a U.S. trade or business, use the same rules as other corporations. For a CFC that does not have a U.S. trade or business, enter the name(s) of the controlling U.S. shareholder(s) of the CFC on the first line of Form 3115 and the name of the CFC on the fourth line. All of the controlling U.S. shareholders must sign Form 3115.

  However, if any controlling U.S. shareholder is a member of a consolidated group, enter the name of the shareholder's parent corporation rather than the shareholder's name on the first line of Form 3115. A person authorized to sign for the shareholder's parent corporation must sign Form 3115.

10/50 corporations.   For a 10/50 corporation with a U.S. trade or business, use the same rules as other corporations. For a 10/50 corporation that does not have a U.S. trade or business, enter the name(s) of the majority domestic corporate shareholder(s) on the first line of Form 3115 and the name of the 10/50 corporation on the fourth line. A person authorized to sign for each of the majority domestic corporate shareholders must sign Form 3115.

  However, if any majority domestic corporate shareholder is a member of a consolidated group, enter the name of the shareholder's parent corporation rather than the shareholder's name on the first line of Form 3115. A person authorized to sign for the shareholder's parent corporation must sign Form 3115.

Estates or trusts.   Enter the name of the estate or trust on the first line of Form 3115. In the signature section of Form 3115, enter the signature of the fiduciary, personal representative, executor, administrator, etc., having legal authority to sign and that person's name and official title below the signature.

Exempt organizations.   Enter the name of the organization on the first line of Form 3115. In the signature section of Form 3115 enter the signature of a principal officer or other person authorized to sign and that person's name and official title below the signature.

Preparer (other than filer/applicant).   If the individual preparing the Form 3115 is not the filer or applicant, the preparer also must sign. However, in the case of an automatic change request, the Form 3115 attached to the income tax return does not need to be signed.

Identification Number

Enter the filer's taxpayer identification number on the first line of Form 3115.

Individuals enter their social security number (SSN) (or individual taxpayer identification number (ITIN) for a resident or nonresident alien). If the Form 3115 is for a husband and wife who file a joint return, enter the identification number of both.

For all others, enter the employer identification number (EIN).

For a consolidated group of corporations enter the EIN of the parent corporation on the first line of Form 3115. Enter the EIN of the applicant on the fourth line if a member of the consolidated group other than, or in addition to, the parent corporation is requesting the accounting method change.

If Form 3115 is filed on behalf of a CFC or 10/50 corporation, and the foreign corporation does not have an EIN, it does not have to obtain one. Instead, enter “N/A” next to the CFC's or 10/50 corporation's name on the fourth line.

Principal Business Activity Code

For filer(s) that are businesses, enter the six-digit principal business activity (PBA) code of the filer. The principal business activity of the filer is the one generating the largest percentage of its total receipts. The PBA code is based on the North American Industry Classification System (NAICS) codes. See the instructions for the income tax return of the filer for the filer's PBA code and definition of “total receipts.”

Note:

An applicant requesting to change its accounting method under designated automatic accounting method change numbers 33 and/or 51 in the List of Automatic Accounting Method Changes beginning on page 8 must attach a schedule to the Form 3115 listing the detailed NAICS code associated with the applicant's principal business activity. See Rev. Proc. 2002-28, 2002-18 I.R.B. 815, for further guidance.

Address

Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the filer has a P.O. box, show the box number instead of the street address.

Contact Person

The contact person must be an individual authorized to sign Form 3115, or the filer's authorized representative. If this person is someone other than an individual authorized to sign Form 3115, you must attach Form 2848, Power of Attorney and Declaration of Representative.

An individual authorized to represent the filer before the IRS, to receive a copy of the requested letter ruling, or to perform any other act(s), must properly reflect the authorization on Form 2848. For further details for an authorized representative and a power of attorney, see section 9.03(8) and (9) of Rev. Proc. 2004-1.

Note:

A filer that wants to receive correspondence regarding its Form 3115 (e.g., additional information letters or the letter ruling) by fax must attach to the Form 3115 a statement requesting this service. The attachment must also list the authorized name(s) and fax number(s) of the person(s) who are to receive the fax. The person(s) must be authorized to sign Form 3115 or an authorized representative of the filer that is included on Form 2848. For further details on the fax procedures, see section 9.04(3) of Rev. Proc. 2004-1.

Type of Accounting Method Change Requested

Check the appropriate box described below indicating the type of change being requested.

  • Depreciation or amortization. Check this box for a change in the (a) computation of depreciation or amortization (e.g., the depreciation method or recovery period), (b) treatment of salvage proceeds or costs of removal, (c) method of accounting for retirements of depreciable property, or (d) treatment of depreciable property from a single asset account to a multiple asset account (pooling), or vice versa.

  • Financial products and/or financial activities of financial institutions. Check this box for a change in the treatment of a financial product (e.g., accounting for debt instruments, derivatives, mark-to-market accounting, etc.), or in the financial activities of a financial institution (e.g., a lending institution, a regulated investment company, a real estate investment trust, a real estate mortgage investment conduit, a financial asset securitization investment trust, etc.).

  • Other. For advance consent requests, check this box if neither of the above boxes applies to the requested change. State the type of method change being requested and, in the space provided, enter a short description of the change (e.g., LIFO to FIFO, change within section 263A costs, deduction of warranty expenses, changes to the completed contract method for long-term contracts, etc.). For automatic change requests, this informational requirement is satisfied by properly completing Part I, line 1 of Form 3115.

Tip
Follow the instructions below to correctly complete Form 3115.

  • Applicants requesting to change an accounting method using the automatic change request procedures must complete Parts I, II, and IV.

  • Applicants requesting a change to an accounting method using the advance consent request procedures must complete Parts II, III, and IV.

  • All applicants must complete Schedules A, B, C, D, and E, as applicable, for the change in accounting method requested.

  • Attachments submitted with Form 3115 must show the filer's name and identification number. Also, indicate that the information is an attachment to Form 3115.

  • Report amounts in U.S. dollars, translated, if necessary, from functional currency with a statement of exchange rates used.

  • If more room is needed to respond to any line, attach a schedule labeled with the line number providing the applicable information.

Part I—Information For Automatic Change Request

Automatic Change Request Scope Limitations

An applicant may not be eligible to use the automatic change request procedures with respect to an automatic change provided by Rev. Proc. 2002-9 (either in the Appendix or included by reference in other published guidance) if any of the following six scope limitations (section 4.02 of Rev. Proc. 2002-9 as modified by Rev. Proc. 2002-19) apply at the time the copy of the Form 3115 would be filed with the IRS National Office and if the scope limitation(s) is applicable to the requested automatic accounting method change as described in the applicable section of the Appendix of Rev. Proc. 2002-9 or other published guidance.

  1. The applicant is under examination, except as provided in section 4.02(1) of Rev. Proc. 2002-9.

  2. The applicant is (or was formerly) a member of a consolidated group that is under examination, or before Appeals, or before a Federal court for the tax year(s) the applicant was a member of the group. For more information, see section 4.02(4) of Rev. Proc. 2002-9.

  3. In the case of a partnership or S corporation, the accounting method the applicant is requesting to change is an issue under consideration in an examination, or by an Appeals office, or before a Federal court with respect to a partner, member, or shareholder of the applicant. For more information, see section 4.02(5) of Rev. Proc. 2002-9.

  4. The applicant made or applied to make the same change in accounting method within the last 5 tax years, including the year of change. For more information, see section 4.02(6) of Rev. Proc. 2002-9.

  5. The applicant engages in a transaction to which section 381(a) applies within the proposed tax year of change. For more information, including exceptions to this limitation, see section 4.02(7) of Rev. Proc. 2002-9.

  6. The applicant is in the final tax year of its trade or business as described in sections 4.02(8) and 5.04(3) of Rev. Proc. 2002-9.

Line 1.   Enter the designated automatic accounting method change number on line 1(a). These numbers may be found in the List of Automatic Accounting Method Changes beginning on page 8, or in subsequently published guidance. In general, enter a number for only one change. However, in certain limited circumstances, the numbers for two changes may be entered on line 1(a). The List of Automatic Accounting Method Changes specifies which requests for change in accounting method may be made with another request for change.

  If the accounting method change is not included in the List of Automatic Accounting Method Changes or assigned a number in subsequently published guidance, the filer should check the box for line 1(b) and identify the revenue procedure or other published guidance under which the accounting method change is being requested.

  Filers who properly complete line 1 have fulfilled the label requirements of section 6.02(4)(a) of Rev. Proc. 2002-9 and any similar requirements in other guidance.

Line 2.   An applicant filing under the automatic change request procedures should review the applicable accounting method change section in the Appendix of Rev. Proc. 2002-9, or the procedures in other published guidance, if applicable, to determine if the scope limitations of section 4.02 of Rev. Proc. 2002-9, as modified by Rev. Proc. 2002-19, are inapplicable to the specific change in accounting method requested.

  Line 2 is asking whether the scope limitations do not apply to the accounting method change being requested. By answering “Yes” on line 2, the applicant is stating that the Appendix of Rev. Proc. 2002-9 or the procedures in other published guidance specifically state that the scope limitations are not applicable to the requested accounting method change. However, the applicant must complete all the lines in Part II, Information For All Requests. If any of the scope limitations apply to the requested accounting method change and apply to the applicant, the applicant may not request an automatic accounting method change. However, the applicant may be eligible to request its change under the advance consent request procedures. See Part III—Information For Advance Consent Request on page 5 of these instructions to determine if these procedures apply to the applicant. The descriptions of the automatic changes in the List of Automatic Accounting Method Changes indicate whether, with respect to a particular change, scope limitations may not apply. Refer to section 4 of Rev. Proc. 2002-9, as modified by Rev. Proc. 2002-19, for specific requirements regarding scope limitations.

Line 3.   If the applicant would be required by section 5.04(3)(c) of Rev. Proc. 2002-9 to take the entire amount of the section 481(a) adjustment into account in computing taxable income for the year of change, and if section 4.02(8) of Rev. Proc. 2002-9 applies to the applicant's accounting method change request, the applicant is not eligible to make the change under automatic change request procedures.

Part II—Information For All Requests

Note:

For lines 4a, 4b, 4c, 5a, 5c, and 6, the reference to “applicant” includes the applicant and any present or former consolidated group in which the applicant was a member during the applicable tax year(s). A reference to “applicable tax year(s)” includes any tax years for which the applicant's present or former consolidated group is under examination, before Appeals, and/or before a Federal court if the applicant was a member of the group in those tax years. For each of the applicable lines (4a, 4b, 4c, 5a, 5c, and/or 6), attach to the Form 3115 a list of the beginning and ending dates of the tax year(s) that the applicant (including its present and former consolidated group) is under examination, before Appeals,
and/or before a Federal court. If the method of accounting the applicant is requesting to change is an issue either under consideration, placed in suspense, or pending for any tax year under examination, or if the method of accounting the applicant is requesting to change is an issue under consideration by an Appeals office or by a Federal court, indicate the applicable tax year(s).

Line 4a.   The applicant is under examination if it has a Federal income tax return under examination on the date the Form 3115 is filed. For the definition of “under examination,” see section 3.07 of Rev. Proc. 97-27 or section 3.08 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.

Line 4b.   The applicant's method of accounting is an issue under consideration if the applicant receives written notification from the examining agent specifically citing the treatment of the item as an issue under consideration. For further details, see section 3.08 of Rev. Proc. 97-27 or section 3.09 of Rev. Proc. 2002-9, as applicable. The applicant's method of accounting is an issue placed in suspense if the examining agent has given the applicant written notification that the issue is placed in suspense.

Line 4c.   The applicant's method of accounting is an issue pending if the IRS has given the applicant written notification indicating that an adjustment is being made or will be proposed with respect to the applicant's method of accounting for the tax year(s) under examination. Attach a copy of this written notification to Form 3115. For further details, see section 6.01(5) of Rev. Proc. 97-27 or section 6.03(6) of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.

Line 4d.   A taxpayer under examination may request to change an accounting method if the operating division director consents to the filing of the Form 3115. The operating division director will consent to the filing of the Form 3115 unless, in the opinion of the operating division director, the method of accounting to be changed would ordinarily be included as an item of adjustment in the year(s) for which the applicant is under examination. The applicant should submit its request for the consent of the operating division director to the examining agent. If the operating division director consents to the filing of the Form 3115, the consent must be attached to the Form 3115 filed with the IRS National Office. Also, the applicant must submit the operating division director copy of Form 3115 to the examining agent at the same time the Form 3115 is filed with the IRS National Office. For applicants filing under the automatic change request procedures, attach to the Form 3115 submitted with the filer's income tax return a written statement certifying that (a) the written consent was obtained from the director and (b) the applicant will retain a copy of the consent for inspection by the IRS. For further details, see section 6.01(4) of Rev. Proc. 97-27 or section 6.03(4) of Rev. Proc. 2002-9, as applicable.

Line 4e.   The following exceptions apply to the under examination scope limitations:

  • 90-day window period. This exception applies during the first 90 days of any tax year if the applicant has been under examination for at least 12 consecutive months as of the first day of the tax year. The 90-day window period exception does not apply if the method the applicant is requesting to change is an issue under consideration or placed in suspense by the examining agent. For further details, including the required statement, see section 6.01(2) of Rev. Proc. 97-27 or 6.03(2) of Rev. Proc. 2002-9, as applicable.

  • 120-day window period. This exception applies during the 120-day period following the date an examination ends regardless of whether a subsequent examination has commenced. For the definition of when an examination ends, see section 3.07 of Rev. Proc. 97-27 or section 3.08 of Rev. Proc. 2002-9, as applicable. The 120-day window period exception does not apply if the method the applicant is requesting to change is an issue under consideration or placed in suspense by the examining agent. Applicants should include the ending date of the examination that qualifies the applicant to file under the 120-day window. For further details, including the required statement, see section 6.01(3) of Rev. Proc. 97-27 or section 6.03(3) of Rev. Proc. 2002-9, as applicable.

Line 5a.   If the applicant has any Federal income tax return before Appeals and/or a Federal court, refer to sections 6.02 and 6.03 of Rev. Proc. 97-27 or sections 6.04 and 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.

Line 5c.   Except as otherwise provided in published guidance, an applicant that is requesting to change a method of accounting that is an issue under consideration by Appeals
and/or a Federal court will not receive audit protection for the requested change. For further details, see sections 6.02 and 6.03 of Rev. Proc. 97-27 or 6.04 and 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19, as applicable.

Line 6.   The information requested on line 6 may be provided in an attachment that includes the information requested on line 4f and/or line 5a, as applicable.

Line 8.   Indicate the lack of audit protection by checking the “Yes” box. An applicant filing under the automatic change request procedures should review the applicable accounting method change section in the Appendix of Rev. Proc. 2002-9, or the procedures in other published guidance, if applicable, to determine if, under the specific change in accounting method requested, the applicant will not receive audit protection in connection with the change. Applicants filing under either the automatic change or advance consent request procedures must also indicate lack of audit protection for their change if audit protection does not apply under the provisions of sections 6.01(5), 6.02 or 6.03 of Rev. Proc. 97-27, or under sections 6.03(6), 6.04 or 6.05 of Rev. Proc. 2002-9, both as modified by Rev. Proc. 2002-19.

Line 13.   Each applicant, including each applicant that is a member of a consolidated group filing a single Form 3115 requesting the identical accounting method change, must attach a schedule describing its trade(s) or business(es) for each separate trade or business of the applicant. For guidance regarding the phrase “separate trade or business,” see Regulations section 1.446-1(d).

Line 14.    Insurance companies must also state whether the proposed method of accounting will be used for annual statement accounting purposes.

Line 16.   For details on requesting and scheduling a conference of right, see sections 9.05(4) and 10 of Rev. Proc. 2004-1.

Line 17.   For an applicant changing to or from the cash method or changing its method of accounting under sections 263A, 448, 460, or 471, enter the gross receipts, as determined under the applicable Code section, of the applicant and other taxpayers, as applicable.

Part III—Information For Advance Consent Request

Advance Consent Request Scope Limitations

An applicant may not use the advance consent request procedures if any of the following four scope limitations apply at the time the Form 3115 would be filed with the IRS National Office. See Rev. Proc. 97-27 as modified by Rev. Proc. 2002-19.

  1. The change in accounting method is required to be made pursuant to a published automatic change procedure. For more information, see section 4.02(1) of Rev. Proc. 97-27.

  2. The applicant is under examination, except as provided in section 4.02(2) of Rev. Proc. 97-27.

  3. The applicant is (or was formerly) a member of a consolidated group that is under examination, or before Appeals, or before a Federal court for the tax year(s) the applicant was a member of the group. For more information, see section 4.02(5) of Rev. Proc. 97-27.

  4. In the case of a partnership or S corporation, the accounting method the applicant is requesting to change is an issue under consideration in an examination, or by an Appeals office, or before a Federal court with respect to a partner, member, or shareholder of the applicant. For more information, see section 4.02(6) of Rev. Proc. 97-27.

Line 18.   If the requested change is covered by an automatic change request procedure, and the procedure applies to the applicant for the requested year of change, the applicant is not eligible to file an advance consent request. If the requested change is covered by an automatic change request procedure, explain why the applicant is requesting to make the change under advance consent request procedures.

Line 19.   For further details on what is to be included in the attachment, see sections 9.03(1) (facts and other information), 9.03(4) (analysis of material facts), 7.01(8) and 9.03(1) (statement of supporting authorities), 9.03(2) (statement of contrary authorities), and 9.03(7) (statement identifying pending legislation) of Rev. Proc. 2004-1.

Line 20.   True copies of all contracts, agreements, and other documents directly related to the proposed accounting method change must be submitted with the request. See section 9.03(3) of Rev. Proc. 2004-1.

Line 21.   For further details on what is to be included in the attachment, see section 7.01(1)(d) of Rev. Proc. 2004-1.

Line 23.   Taxpayers filing under the advance consent request procedures must pay a user fee for each Form 3115. See Appendix A of Rev. Proc. 2004-1. (Taxpayers filing under an automatic change request procedure do not pay a user fee.)

  A separate user fee must be paid for each member of an affiliated group that files a Form 3115. However, a parent corporation requesting an identical accounting method change for more than one member of a consolidated group qualifies for a reduced user fee (see (A)(5) in Appendix A of Rev. Proc. 2004-1). If a filer qualifies for a reduced user fee under this provision, the filer must submit the additional information required by section 15.07 of Rev. Proc. 2004-1. Only the members of the consolidated group requesting the accounting method change are required to pay a user fee.

  Filers whose gross income is less than the amount specified in (A)(4) in Appendix A of Rev. Proc. 2004-1 qualify for a reduced user fee. For the definition of gross income, see (B)(2) and (3) in Appendix A of Rev. Proc. 2004-1. If the filer qualifies for the reduced user fee under this provision, the filer must attach to the Form 3115 the representation required by (B)(1) in Appendix A of Rev. Proc. 2004-1.

  For information on user fees for tax-exempt organizations, see Rev. Proc. 2004-8, 2004-1 I.R.B. 240 (or its successor).

  The user fee (check or money order payable to the Internal Revenue Service) must be attached to the Form 3115 that is filed with the IRS National Office.

Part IV—Section 481(a) Adjustment

Line 24.   Certain accounting method changes require the use of the cut-off method. In those cases there is no section 481(a) adjustment.

Line 25.   Attach a schedule showing the section 481(a) adjustment for each applicant included in the Form 3115. This schedule may be combined with the information requested on the fourth line on page 1 (list of applicants, their identification numbers, and their principal business activity codes) and on line 23 (user fee). Include a summary of the computation of the section 481(a) adjustment and an explanation of the methodology used to determine it. If the section 481(a) adjustment is based on more than one component of the accounting method being changed, include a summary of the computation for each component. The summary of the computation and explanation of the section 481(a) adjustment need not be extensive but should be sufficient to demonstrate that the section 481(a) adjustment is being computed correctly.

Example.   Under its present method, XYZ Corporation is deducting certain costs that are required to be capitalized into inventory under section 263A. XYZ Corporation is proposing to change its method of accounting to properly capitalize such costs. The computation of the section 481(a) adjustment with respect to the change in method of accounting may be demonstrated as follows:
Beginning inventory for year of change under
proposed method 		$120,000
Beginning inventory for year of change under
present method 		100,000
Difference (positive section 481(a) adjustment) +$ 20,000

Schedule A—Change in Overall Method of Accounting

Part I—Change in Overall Method

All applicants filing to change their overall method of accounting must complete Part I, including applicants filing under designated automatic accounting method change numbers 30, 32, 33, and 34 in the List of Automatic Accounting Method Changes.

Lines 1a through 1g.   Enter the amounts requested on lines 1a through 1g, even though the calculation of some amounts may not have been required in determining taxable income due to the applicant's present method of accounting.

Note:

Do not include amounts that are not attributable to the change in method of accounting, such as amounts that correct a math or posting error or errors in calculating tax liability.

Line 1b.   Enter amounts received or reported as income in a prior year that were not earned as of the beginning of the year of change. Examples include:

  1. An advance payment received in a prior year for goods that were not delivered by the beginning of the year of change may be reported upon delivery if the taxpayer qualifies under Regulations section 1.451-5. If any amounts entered on line 1b are for advance payments, complete Schedule B.

  2. A discount on installment loans is reported as income in the year the loans were made instead of in the year(s) the income was received or earned.

Line 1h.   The following example illustrates how an applicant calculates the section 481(a) adjustment when changing to an accrual method, a nonaccrual-experience method, and the recurring item exception.

Example.   ABC corporation, a calendar year taxpayer using the cash method of accounting, has the following items of unreported income and expense on December 31, 2003:
Accrued income $250,000
Uncollectible amounts based on  
the nonaccrual-experience method 50,000
Accrued amounts properly  
deductible (economic performance has occurred) 75,000
Expenses eligible for recurring item  
exception 5,000

  ABC corporation changes to an overall accrual method, a nonaccrual-experience method, and the recurring item exception for calendar year 2004. The section 481(a) adjustment is calculated as follows:
Accrued income $250,000  
Less:    
Uncollectible amount 50,000  
Net income accrued but not received   $200,000
Less:    
Accrued expenses 75,000  
Expenses deducted as recurring item 5,000  
Total expenses accrued but not paid   80,000
Section 481(a) adjustment   $120,000

Line 2.   If an applicant is requesting to use the recurring item exception (section 461(h)(3)), the section 481(a) adjustment must include the amount of the additional deduction that results from using the recurring item exception.

Part II—Change to the Cash Method For Advance Consent Request

Limits on cash method use.   Except as provided below, C corporations and partnerships with a C corporation as a partner may not use the cash method of accounting. Tax shelters, also, are precluded from using the cash method. For this purpose, a trust subject to tax on unrelated business income under section 511(b) is treated as a C corporation with respect to its unrelated trade or business activities.

  The limit on the use of the cash method under section 448 does not apply to:

  1. Farming businesses as defined in section 448(d)(1).

  2. Qualified personal service corporations as defined in section 448(d)(2).

  3. C corporations and partnerships with a C corporation as a partner if the corporation or partnership has gross receipts of $5 million or less. See section 448(b)(3) and (c) to determine if the applicant qualifies for this exception.

  For farming corporations and partnerships with a C corporation as a partner, see section 447 for limits on the use of the cash method.

  Use of the cash method is also limited under Regulations sections 1.471-1 and 1.446-1(c)(2)(i) if the applicant purchases, produces, or sells merchandise that is an income-producing factor in its business. However, for exceptions to this limitation, see section 5.05 in the Appendix of Rev. Proc. 2002-9 and Rev. Proc. 2002-28.

Schedule B—Change in Reporting Advance Payments

Line 1.   In general, payments received for services to be performed in the future must be included in gross income in the tax year of receipt. However, Rev. Proc. 71-21, 1971-2 C.B. 549, allows applicants on the accrual method, in certain circumstances, to defer for Federal income tax purposes, payments received (or amounts due and payable) in one tax year, if the services are to be performed by the end of the succeeding tax year.

Line 2.   Advance payments received from a contract for the sale of goods generally may be deferred for Federal income tax purposes until the second year following the receipt of substantial advance payments on the contract. See Regulations section 1.451-5 for requirements that must be met and for the definition of “substantial advance payments.”

Schedule C—Changes Within the LIFO Inventory Method

Use this schedule to request a change from one LIFO inventory method or submethod to another LIFO inventory method or submethod. All applicants changing within the LIFO inventory method or submethods must complete Part I. Complete Part II only if applicable.

Part I—General LIFO Information

Line 6.    Applicants changing to the IPIC method must use this method for all LIFO inventories. This includes applicants requesting designated automatic accounting method change numbers 61 or 62 in the List of Automatic Accounting Method Changes.

Schedule D—Change in the Treatment of Long-Term Contracts Under Section 460, Inventories, or Other Section 263A Assets

Part I—Change in Reporting Income From Long-Term Contracts

Line 2a.   Under section 460(f), the term “long-term contract” means any contract for the manufacture, building, installation, or construction of property that is not completed in the tax year in which it is entered into. However, a manufacturing contract will not qualify as long-term unless the contract involves the manufacture of (a) a unique item not normally included in finished goods inventory or (b) any item that normally requires more than 12 calendar months to complete.

  Generally, all long-term contracts entered into after July 10, 1989, that do not meet the exceptions under section 460(e) must be accounted for using the percentage of completion method. See section 460 and the related regulations.

Line 2b.   To qualify for the contract exceptions under section 460(e), the contract must be:

  1. A home construction contract entered into after June 20, 1988, involving dwelling units in buildings containing four or fewer units or

  2. Any other construction contract entered into by the applicant if, at the time the contract is entered into, it is expected to be completed within 2 years and the applicant's average annual gross receipts determined under section 460(e)(2) for the 3-year period preceding the tax year the contract was entered into did not exceed $10 million.

Line 4b.   Under the simplified cost-to-cost method, only certain costs are used in determining both (a) costs allocated to the contract and incurred before the close of the tax year and
(b) estimated contract costs. These costs are: (1) direct material costs; (2) direct labor costs; and (3) allowable deductions for depreciation, amortization, and cost recovery allowances on equipment and facilities directly used to construct or produce the subject matter of the long-term contract. See Regulations section 1.460-5(c).

Part II—Change in Valuing Inventories Including Cost Allocation Changes

If the applicant is currently using a LIFO inventory method or submethod and is changing to another LIFO inventory method or submethod, Part II is not applicable. Use Schedule C, Changes Within the LIFO Inventory Method.

Line 3.   If an applicant is subject to, but not in compliance with, section 263A, generally on the same Form 3115 the applicant must first comply with section 263A before changing an inventory valuation method. The applicant must complete Schedule D, Part III, Method of Cost Allocation. For exceptions, see Regulations section 1.263A-7(b)(2).

Line 5a.   If the applicant properly elected the LIFO inventory method but is unable to furnish a copy of Form(s) 970, attach the following statement to Form 3115:

  “I certify that to the best of my knowledge and belief (name of applicant) properly elected the LIFO inventory method by filing Form 970 with its return for the tax year(s) ended (insert date(s)) and otherwise complied with the provisions of section 472(d) and Regulations section 1.472-3.”

Line 5c.   Attach the three statements required by section 10.01(4) in the Appendix of Rev. Proc. 2002-9.

Part III—Method of Cost Allocation

Applicants requesting to change their method of accounting for any property (produced or acquired for resale) subject to section 263A or any long-term contracts as described in section 460 must complete this schedule.

If the change is for noninventory property that is subject to section 263A, attach a detailed description of the types of property involved and an explanation detailing how that property was accounted for prior to January 1, 1987.

There are several methods available for allocating and capitalizing costs under section 263A, and for allocating and, where appropriate, capitalizing costs properly allocable to long-term contracts. A change to or from any of these methods is a change in accounting method that requires IRS consent. Using the applicable regulations and notice listed below, the applicant should verify which methods are presently being used and the proposed methods that will be used before completing Schedule D, Part III. These methods are as follows:

1. Allocating Direct and Indirect Costs

  • Specific identification method—Regulations sections 1.263A-1(f)(2) and 1.460-5.

  • Burden rate method—Regulations sections 1.263A-1(f)(3)(i) and 1.460-5.

  • Standard cost method—Regulations sections 1.263A-1(f)(3)(ii) and 1.460-5.

  • Any other reasonable allocation method—Regulations sections 1.263A-1(f)(4) and 1.460-5.

2. Allocating Mixed Service Costs

  • Direct reallocation method—Regulations section 1.263A-1(g)(4)(iii)(A).

  • Step-allocation method—Regulations section 1.263A-1(g)(4)(iii)(B).

  • Simplified service cost method:

    Using the labor-based allocation ratio—Regulations section 1.263A-1(h)(4).
    Using the production cost allocation ratio—Regulations section 1.263A-1(h)(5).

  • Any other reasonable allocation method—Regulations section 1.263A-1(f)(4).

3. Capitalizing Additional Section 263A Costs

  • Simplified production method:

    Without historic absorption ratio election—Regulations section 1.263A-2(b)(3).
    With historic absorption ratio election—Regulations section 1.263A-2(b)(4).

  • Simplified resale method:

    Without historic absorption ratio election—Regulations section 1.263A-3(d)(3).
    With historic absorption ratio election—Regulations section 1.263A-3(d)(4).

  • U.S. ratio method—Notice 88-104, 1988-2 C.B. 443.

  • Any other reasonable allocation method—Regulations section 1.263A-1(f)(4) (including the methods listed above under Allocating Direct and Indirect Costs).

Schedule E—Change in Depreciation or Amortization

Automatic change for depreciable property.   All applicants requesting to change their method of depreciation or amortization must complete Schedule E of Form 3115. Applicants changing their method of accounting for depreciation or amortization under the automatic change request procedures should see the depreciation changes in the List of Automatic Accounting Method Changes.

  Do not file Form 3115:

  1. To make an election under sections 167, 168, 1400I, 1400L(b), or 1400L(c), or former section 168,

  2. To revoke an election made under one of those sections,

  3. To make or revoke an election under section 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (relating to section 197 intangibles),

  4. To change the placed-in-service date,

  5. To change the salvage value (except for a change in salvage value to zero when the salvage value is expressly treated as zero by the Code, the regulations, or other published guidance), or

  6. To change a useful life under section 167 (except for a change to or from a useful life, recovery period, or amortization period that is specifically assigned by the Code, the regulations, or other published guidance).

List of Automatic Accounting Method Changes

Listed below are automatic accounting method changes providing for the filing of Form 3115. The List of Automatic Accounting Method Changes includes regulatory automatic changes, changes provided for in the Appendix of Rev. Proc. 2002-9, and automatic changes provided for in other guidance. These automatic changes may be modified or supplemented with additional automatic changes by subsequently published guidance.

Note:

The list provides a brief description of each automatic accounting method change that is included in the list. A
filer/applicant may not rely on the list or the descriptions of accounting method changes in the list as authority for making an accounting method change. A filer/applicant that is within the scope of, and complies with, all the applicable provisions of the published guidance that authorizes each listed change may rely on the applicable published guidance as authority for its automatic accounting method change. If any information in the List of Automatic Accounting Method Changes conflicts with published guidance, the published guidance applies.

Each item in the list below:

  • Designates an automatic accounting method change number for each change for entry on line 1a of Form 3115.

  • Briefly describes the accounting method change.

  • Indicates if scope limitation rules may not apply.

  • Indicates if audit protection may not apply.

  • Indicates in some cases which schedules of Form 3115 to complete.

  • Indicates in some cases any additional reporting requirements.

  • Indicates in some cases if the change is made on a cut-off basis.

  • Provides a reference to the basic published guidance (e.g., revenue procedure) that provides for the automatic change which filers should review prior to completing Part I, Information For Automatic Change Request, on page 1 of Form 3115.

  1. Commodity Credit Corporation loans (section 77)—for loans received from the Commodity Credit Corporation, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. Scope limitations do not apply to this change. This change is made on a cut-off basis. See section 1.01 in the Appendix of Rev. Proc. 2002-9.

  2. Lawyers handling cases on a contingent fee basis (section 162)—from treating advances of money to their clients for litigation costs as deductible business expenses to treating those advances as loans. See section 1A.01 in the Appendix of Rev. Proc. 2002-9.

  3. ISO 9000 costs (section 162)—to treating the costs as deductible, except to the extent they result in the creation or acquisition of an asset having a useful life substantially beyond the tax year. Scope limitations do not apply to this change. See section 1A.04 in the Appendix of Rev. Proc. 2002-9.

  4. Restaurant smallwares costs (section 162)—to the smallwares method described in Rev. Proc. 2002-12, 2002-3 I.R.B. 374 (i.e., as materials and supplies that are not incidental under Regulations section 1.162-3). Scope limitations do not apply to this change. The entire section 481(a) adjustment must be taken into account in the year of change. See section 1A.06 in the Appendix of Rev. Proc. 2002-9.

  5. Bad debts (section 166)—for an applicant other than a bank, from accounting for bad debts using a reserve or other improper method to a specific charge-off method that complies with section 166. See section 1B.01 in the Appendix of Rev. Proc. 2002-9.

  6. Bad debt conformity for banks (section 166)—for banks other than new banks, to the method that conforms to Regulations section 1.166-2(d)(3) for the first time the bank makes this change, or to involuntarily revoke this method. This change does not fall under the procedures of Rev. Proc. 2002-9. Instead, see Regulations section 1.166-2(d)(3).

  7. Depreciation or amortization (impermissible) (sections 56, 167, 168, 197, 1400I, 1400L, and former section 168)—from an impermissible method to a permissible method. Complete Schedule E of Form 3115. Attach the statements required by section 2.01(2)(b) in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2004-11, 2004-3 I.R.B. 311. Certain scope limitations do not apply. See section 2.01 in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2003-50, 2003-29 I.R.B. 119, and Rev. Proc. 2004-11.

  8. Depreciation (permissible) (sections 56 and 167)—from a permissible method to another permissible method. Complete Schedule E of Form 3115. For public utility property, attach the statement required by section 2.02(4)(d) in the Appendix of Rev. Proc. 2002-9. Certain scope limitations do not apply. See section 2.02 in the Appendix of Rev. Proc. 2002-9, as modified by Rev. Proc. 2004-11, 2004-3 I.R.B. 311.

  9. Post-disposition depreciation or amortization (sections 56, 167, 168, 197, 1400I and 1400L, and former section 168)—for an item of depreciable or amortizable property disposed of by the taxpayer during the year of change for which the taxpayer deducted less than the depreciation allowable, from an impermissible method of accounting for depreciation or amortization to a permissible method of accounting for depreciation or amortization. Complete Schedule E of Form 3115. Scope limitations do not apply. Attach the original Form 3115 to the filer's timely filed amended income tax return for the year of change and file the IRS National Office copy no later than when the original Form 3115 is filed with that amended return. The amended income tax return must include the adjustments to taxable income and any collateral adjustments to taxable income or tax liability (e.g., adjustments to the amount or character of the gain or loss) resulting from this change in method of accounting. See Rev. Proc. 2004-11, 2004-3 I.R.B. 311.

  10. Sale or lease transactions (sections 61, 162, 167, 168, and 1012)—from treating property as sold to treating property as leased, and vice versa, and from treating property as purchased to treating property as leased, and vice versa. Audit protection does not apply to this change. This change is made on a cut-off basis. See section 2.03 in the Appendix of Rev. Proc. 2002-9.

  11. Modern golf course greens (sections 167, 168, and former section 168)—either to capitalization of land preparation costs undertaken in the construction of modern greens that are closely associated with depreciable assets or to the addition to basis of land for earthmoving costs inextricably associated with the land. Complete Schedule E of Form 3115. See section 2.04 in the Appendix of Rev. Proc. 2002-9.

  12. Original and replacement tire costs (section 168)—for qualifying vehicles, to the original tire capitalization method. Complete Schedule E of Form 3115. Audit protection and scope limitations do not apply in certain cases. This change is made on a cut-off basis. See Rev. Proc. 2002-27, 2002-17 I.R.B. 802.

  13. Depreciation of gas pump canopies (sections 167, 168, and former section 168)—for depreciation of certain stand-alone gasoline pump canopies and their supporting concrete footings, to classifying the gasoline pump canopies in asset class 57.0 of Rev. Proc. 87-56, 1987-2 C.B. 674, and to classifying the supporting concrete footings in asset class 00.3 of Rev. Proc. 87-56. Complete Schedule E of Form 3115. Scope limitations do not apply in certain cases. See Rev. Rul. 2003-54, 2003-23 I.R.B. 982.

  14. Depreciation of utility assets (sections 167, 168, and former section 168)—for depreciation of assets owned by a utility used in general business operations, from classifying assets under the present method to classifying assets under Rev. Proc. 87-56,1987-2 C.B. 674. Complete Schedule E of Form 3115. Scope limitations do not apply in certain cases. See Rev. Rul. 2003-81, 2003-30 I.R.B. 126.

  15. Depreciation of cable TV fiber optics (section 168)— for depreciation of fiber optic node and trunk line of a cable television distribution system, to classifying the unit of property either as providing one-way communication services or two-way communication services. Scope limitations do not apply in certain cases. See Rev. Proc. 2003-63, 2003-32 I.R.B. 304.

  16. Amortizable bond premium (section 171)—from amortizing bond premium to not amortizing the premium (revoking the section 171(c) election). Attach the statement required by section 1C.01(4) in the Appendix of Rev. Proc. 2002-9. This change is made on a cut-off basis. See section 1C.01 in the Appendix of Rev. Proc. 2002-9.

  17. Research and experimental expenditures (section 174)—from the capitalization method to another permissible method, from the expense method to another permissible method, from the deferred expense method to another permissible method, or from the current period of amortization to a different period of amortization under the deferred expense method. Attach the statement required by section 2A.01(4) in the Appendix of Rev. Proc. 2002-9. Audit protection does not apply to this change. This change is made on a cut-off basis. See section 2A in the Appendix of Rev. Proc. 2002-9.

  18. Compute