Editor: Mindy Tyson Weber, CPA, M.Tax.
While taxpayers generally must obtain the IRS’s consent to change an accounting method for federal income tax purposes (see Sec. 446(e) and Regs. Sec. 1.446-1(e)(3)), the IRS grants automatic consent for certain accounting method changes, provided the taxpayer complies with the procedures and meets the scope requirements set forth in Rev. Proc. 2011-14 (or its successor), as clarified and modified by Rev. Proc. 2012-39.
A taxpayer eligible for automatic consent under Rev. Proc. 2011-14 generally files a Form 3115, Application for Change in Accounting Method, by the due date (including extensions) of its federal income tax return for the tax year for which the method change is to be effective. In addition, the taxpayer files a duplicate (and in certain instances, triplicate) copy of the Form 3115 with the IRS National Office (and/or in some cases with the IRS’s Ogden, Utah, address) no later than the point at which it timely files the Form 3115 with its tax return for the year of change. For example, a calendar-year corporation that properly extended and timely files its 2012 income tax return on Sept. 16, 2013, may include a Form 3115 with its tax return to change a method of accounting eligible for automatic consent that is effective as of Jan. 1, 2012. A user fee is not required for filing an automatic method change. A taxpayer that properly files a Form 3115 generally receives prior-year audit protection for the item for which the method change is effected, unless otherwise indicated by the applicable appendix section of Rev. Proc. 2011-14.
Automatic Extension of Time to File an Automatic Form 3115
A taxpayer that timely filed but did not extend its 2012 tax return may still have time to file an automatic Form 3115. Pursuant to Rev. Proc. 2011-14, a taxpayer may do so by filing an amended return, along with the original Form 3115 for the method change and a statement that the Form 3115 is being filed pursuant to Regs. Sec. 301.9100-2(b), within six months from the due date of the return for the year of change (excluding extensions) (see Rev. Proc. 2011-14, §6.02(3)(d)(i)). In addition, the taxpayer must file with the IRS National Office and/or Ogden, Utah, office a copy of the Form 3115, as required, no later than when the original Form 3115 is filed with the amended return. The IRS will grant an extension of time to file an automatic Form 3115 (i.e., beyond six months from the due date of the return for the year of change, excluding extensions) only in unusual and compelling circumstances (see Regs. Sec. 301.9100-3(c)(2); Rev. Proc. 2011-14, §6.02(3)(d)(ii); and Rev. Proc. 2013-1 (or its successor)).
Filing an Automatic Form 3115 With a Superseding Return
A subsequent return filed within the filing period (including extensions) is considered a superseding return and takes the place of any other return previously filed during the filing period, including extensions (see Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-File Providers for Business Returns; see also Reaver, 42 T.C. 72 (1964); Haggar Co. v. Helvering, 308 U.S. 389 (1940); A.J. Crowhurst & Sons, Inc., 109 F.2d 131 (3d Cir. 1940); Rev. Rul. 78-256; Letter Ruling 200937013; Chief Counsel Advice 200645019; and Internal Revenue Manual §188.8.131.52.3). If a taxpayer files its tax return under extension prior to the extended due date and later discovers an automatic method change that it wants to effect with that return, it may file a superseding return by the extended due date and attach Form 3115. The IRS National Office and/or Ogden, Utah, office copy of the Form 3115 should also be filed no later than the time the original Form 3115 is filed.
A superseding return filed on or before the due date for filing (including extensions) is considered an original return. A superseding return is filed on an original return form, not an amended return form, and must be a complete filing of the entire return, with all required forms, schedules, and attachments. Furthermore, a superseding return does not revoke any remaining extension of time to file that was originally granted when the taxpayer properly filed a request for an automatic extension of time to file. Without an extension, a return filed after the original due date (assuming the original return was timely filed) represents an amended return with which an automatic Form 3115 may generally be filed only under the limited relief provisions discussed above.
The ability to file an automatic Form 3115, either with an amended return under the limited relief provisions of Rev. Proc. 2011-14 or with a superseding return prior to the extended due date, often provides a valuable opportunity for a taxpayer to change from recently discovered impermissible accounting methods or to incorporate last-minute, unexpected important facts.
Mindy Tyson Weber is a director, Washington National Tax in Atlanta for McGladrey LLP.
For additional information about these items, contact Ms. Weber at 404-373-9605 or firstname.lastname@example.org.
Unless otherwise noted, contributors are members of or associated with McGladrey LLP.