When and how do you change a method of accounting to use the final tangibles regulations?
Under the Internal Revenue Code, a change in the method of accounting is usually a change in the handling of an expenditure. Meaning in the case of the tangible property regulations, the expenditure must be expensed or capitalized, or at the very least, the method change modifies the timing of an expense or capitalized asset.
For example, let’s say you are changing your method of accounting from capitalizing repairs to expensing them under the tangible property regulations. You must get the Commissioner’s consent to change the method from capitalizing repairs to expensing repairs. The Commissioner provides an AUTOMATIC consent change form for many basic accounting method changes. There is no fee for filing an automatic consent change.
Generally, you receive an automatic accounting change by completing, SIGNING, and filing an IRS Form 3115. A 3115 is an Application for Change in Accounting Method. You MUST include the form with your timely filed tax return (including extensions) for the year of change. You cannot file a 3115 retroactively, late, or with an amended return. You also MUST mail a duplicate copy of the Form 3115 to Internal Revenue Service Ogden, UT 84201 M/S 6111
The Form 3115 will identify the taxpayer, define the method(s) that are being changed, identify the property which will be changed, AND, MOST IMPORTANT, include a ยง481(a) adjustment, if applicable. The section 481(a) adjustment considers how you treated the expenditures in the years before the new changes’ effective date. This is to avoid duplication of amounts in your taxable income.
Please see Rev. Proc. 2015-13, 2015-5 I.R.B. 419, and sections 6.37-6.40 and 10.11 of Rev. Proc. 2015-14, 2015-5 I.R.B. 450.
Kevin Jerry is a nationally recognized expert in Tax Method Changes. He specializes in Cost Segregation, Tangible Property Regulations, and revenue recognition changes. Kevin graduated cum laude from the University of Cincinnati with a Master of Science in Real Estate Taxation. Over the last seven years, he has worked with Eric Wallace on the Tangible Property Regulations with some of the largest property owners in the country.