Form 3115–A must before you can file your Tax Returns
In plain language….as composed by Donna Cox, EA of T. Dennis Connally’s office.
In 2006 the IRS first proposed the so-called repair regulations. It is unlikely that the IRS would have spent nearly a decade focused on this area without the expectation that Form 3115 Application for Change in Accounting Method would be filed in a number of scenarios. These regulations were finalized September 2014. The IRS has stated outright that the final regulations affect all taxpayers that acquire, produce, or improve tangible property.
Once a business or rental property uses a method of depreciation, capitalization of assets, expensing of materials and supplies, and accounting for repairs and maintenance (old rules) it has adopted a method of accounting. September 2014 the IRS finalized new rules for what and how tangible assets you own and dispose of (computers, cars, and real estate) must be treated. In order to CHANGE YOUR METHOD OF ACCOUNTING from the old rules to the new rules, you MUST request permission from the Commissioner of the Internal Revenue Service by filing a Form 3115.
Whenever a business or rental property changes the method of accounting to arrive at the reportable income for tax purposes it is REQUIRED to seek consent from the Commissioner of the Internal Revenue Service. The user fee due to the IRS for this consent is $7,000.00. This fee has been waived for companies filing Form 3115 by the due date, including extensions, of their 2014 tax return through a pre-approved method referred to as: automatic consent.
Andrew Keyso, Jr. IRS Associate Chief Counsel (Income Tax and Accounting), stated on November 5, 2014 that barring a situation in which the taxpayer has taken aggressive positions in the past or has in no way applied a proper capitalization method, the IRS is unlikely to have much interest in examining a taxpayer’s zero Section 481(a) adjustment, but is most interested in ensuring that taxpayers are applying the regulations correctly from now on.
It has been noted that all companies that file a 2014 return, other than an initial return, and do not have a Form 3115 attached, will be audited.
Practitioners who prepare returns for clients that have not implemented the repair Regulations (e.g., filing Form 3115 or including certain election statements) may not willingly sign tax returns. Furthermore, failure to comply with Circular 230 could subject these tax practitioners to censure, suspension, or disbarment of practice before the IRS.