Instructions for Form 3115 |
2003 Tax Year |
General Instructions
This is archived information that pertains only to the 2003 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
File Form 3115 to request a change in either an overall accounting
method or the accounting treatment of any item. A request for a change
in accounting method that includes several unrelated items or
submethods of accounting is treated as a separate request for each
unrelated item or submethod. Accordingly, file a separate Form 3115
for each unrelated item or submethod. See Rev. Proc. 97-27,1997-1 C.B.
680, and section 9.01 of Rev. Proc. 99-1*, 1999-1 I.R.B. 6, for rules
on changing an accounting method.
Note:
For items marked with an asterisk (*), Rev. Proc. 99-1 is updated
annually.
When filing Form 3115, applicants must determine if, since May 1999
(the current revision date of Form 3115), the IRS has published an
accounting method ruling, notice, or procedure relating to the
specific method being changed.
For more information, see Pub. 538, Accounting Periods
and Methods.
Automatic Change Procedures
Note:
All section references to Rev. Proc. 98-60, 1998-51 I.R.B. 16 refer
to its APPENDIX.
An applicant that timely files and complies with an automatic
change procedure obtains consent to change its accounting method.
No user fee is required if Form 3115 is filed under one of the
following published automatic change procedures.
- Trade or business expenses (section 162).
- For lawyers handling cases on a contingent fee basis, from
treating advances to their clients for litigation costs as deductible
business expenses to treating the advances as loans. See section 1.01
of Rev. Proc. 98-60.
- For taxpayers changing their method of accounting for year
2000 costs (costs incurred to ensure that computer systems are year
2000 compliant). See section 1.02 of Rev. Proc. 98-60.
- Depreciation or amortization (sections 167, 168, and
197).
- For taxpayers changing from an impermissible method for
depreciation, under which taxpayers claimed less depreciation than
allowable, to a permissible method of depreciation, under which the
taxpayers will claim the depreciation allowable. See section 2.01 of
Rev. Proc. 98-60.
- For taxpayers changing from one permissible method for
depreciation under section 167 to another permissible method for
depreciation under section 167. See section 2.02 of Rev. Proc.
98-60.
- For taxpayers changing their method of accounting from
treating property as sold to treating property as leased and vice
versa, and taxpayers changing their method of accounting from treating
property as purchased to treating property as leased and vice versa.
See section 2.03 of Rev. Proc. 98-60.
- Research and Experimental Expenditures (section 174).
For taxpayers changing their treatment of expenditures that qualify
as research and experimental expenditures under section 174 for a
particular project or projects (a) from treating such
expenditures as expenses to treating the expenditures as deferred
expenses or vise versa; (b) to a different period of
amortization for such expenditures that are being treated as deferred
expenses; or (c) from treating such expenditures as
expenses or deferred expenses to treating the expenditures as capital
expenditures under section 263(a) or vice versa. See section 2A.01 of
Rev. Proc. 98-60.
- Capital expenditures (section 263).
- For taxpayers changing to one of the three alternative
methods for package design costs described in Rev. Proc. 97-35, 1997-2
C.B. 448. See section 3.01 of Rev. Proc. 98-60.
- For taxpayers changing their method of accounting for line
pack gas or cushion gas to a method consistent with the holding in
Rev. Rul. 97-54, 1997-2 C.B. 23. See section 3.02 of Rev. Proc.
98-60.
- Uniform capitalization (section 263A).
For certain “small resellers,” “formerly small resellers,”
or “reseller-producers” changing their method for costs subject
to section 263A. See section 4.01 of Rev. Proc. 98-60.
- Plan contributions and deferred compensation (section
404).
For taxpayers changing their method of accounting to comply with
Regulations section 404(a)(11) regarding the payment of deferred
compensation. See Notice 99-16, 1999-13 I.R.B.10.
- Methods of accounting (section 446).
- For certain taxpayers changing to an overall accrual method
or to an overall accrual method in conjunction with the recurring item
exception under section 461(h)(3) in specified situations. See section
5.01 of Rev. Proc. 98-60.
- For accrual method manufacturers, wholesalers, and retailers
of motor vehicles or other durable consumer goods that sell multi-year
service warranty contracts changing to the service warranty income
method described in Rev. Proc. 97-38, 1997-2 C.B. 479. See section
5.02 of Rev. Proc. 98-60.
- For manufacturers, wholesalers, and retailers of motor
vehicles or other durable consumer goods that purchase multi-year
service warranty insurance policies in connection with the sale of
multi-year service warranty contracts to customers changing their
method of accounting for premiums paid in advance to capitalize the
amount paid or incurred and amortize the amount over the life of the
insurance policy. See section 5.03 of Rev. Proc. 98-60.
- For taxpayers changing their method of accounting from the
Rule of 78s method to the constant yield method for stated interest on
certain short term consumer loans. See section 5.04 of Rev. Proc.
98-60.
- Obligations issued at discount (section 454). For
cash method taxpayers changing the method of accounting for interest
income on series E or EE U.S. savings bonds. See section 6.01 of Rev.
Proc. 98-60.
- Prepaid subscription income (section 455). For
accrual method taxpayers changing their method of accounting for
prepaid subscription income to the method described in section 455.
See section 7.01 of Rev. Proc. 98-60.
- Taxable year of deduction (section 461).
- For accrual method taxpayers changing their method of
accounting to treat bonuses or self-insured medical benefits as
follows: (a) if the obligation to pay a bonus becomes fixed
and certain by the end of the tax year, and the bonus is otherwise
deductible, but the bonus is paid more than 2 1/2 months after the end
of the tax year, to treat the bonus as deductible in the tax year of
the employer in which or with which ends the tax year of the employee
in which the bonus is includible in the gross income of the employee,
or (b) if the obligation to pay an employee's medical
expenses is neither insured nor paid from a welfare benefit fund
within the meaning of section 419(e), to treat the liability as
incurred in the tax year in which the employee files the claim with
the employer. See section 8.01 of Rev. Proc. 98-60.
- For accrual method taxpayers changing their method of
accounting for real property taxes: (a) to treat the
liability for the taxes as incurred in the tax year the taxes are
paid, (b) to account for the taxes under the recurring item
exception to the economic performance rules, or (c) to
revoke an election under section 461(c) (ratable accrual election).
See section 8.02 of Rev. Proc. 98-60.
- For accrual method taxpayers changing their method of
accounting for self-insured liabilities arising under any workers'
compensation act, or out of any tort, breach of contract, or violation
of law, to treat the liability as incurred in the tax year in which
all events have occurred which establish the fact of liability, the
amount of the liability can be determined with reasonable accuracy,
and payment is made to the person to whom the liability is owed. See
section 8.03 of Rev. Proc. 98-60.
- For accrual method taxpayers changing their method for FICA
and FUTA taxes to a method consistent with Rev. Rul. 96-51, 1996-2
C.B. 36. See section 8.04 of Rev. Proc. 98-60.
- For taxpayers changing their method of accounting for
cooperative advertising cost to a method consistent with the holding
in Rev. Rul. 98-39, 1998-33 I.R.B. 4. See section 8.05 of Rev. Proc.
98-60.
- Inventories (section 471).
- For taxpayers changing their method of accounting for cash
discounts from the method of including the price of the goods before
discount in the cost of goods sold and including in gross income any
discounts taken, to the method of reducing the cost of goods sold by
the cash discounts and deducting as an expense any discounts not
taken, or vice versa. See section 9.01 of Rev. Proc. 98-60.
- For taxpayers changing to a method of accounting for
estimating inventory shrinkage in computing ending inventory using the
“retail safe harbor method” in section 4 of Rev. Proc. 98-29,
1998-15 I.R.B. 22, or another method provided the taxpayer's present
method does not estimate inventory shrinkage and the taxpayer's new
method clearly reflects the taxpayer's taxable income. See section
9.02 of Rev. Proc. 98-60.
- Last-in, first-out (LIFO) inventories (section 472).
- For taxpayers changing from the LIFO inventory method for
all their inventory. See section 10.01 of Rev. Proc. 98-60.
- For taxpayers using the LIFO inventory method changing their
method of determining the cost of used vehicles purchased or taken as
a trade-in, to (a) determine the cost of used vehicles
acquired by trade-in using the average wholesale price listed by an
official used car guide on the date of the trade-in, (b)
determine the cost of used vehicles purchased for cash using the
actual purchase price of the vehicle, or (c) reconstruct
the beginning-of-the-year cost of used vehicles purchased for cash
using values computed by national auto auction companies based on
vehicles purchased for cash. See section 10.02 of Rev. Proc.
98-60.
- For taxpayers engaged in the trade or business of retail
sales of new automobiles or new light-duty trucks changing to the
Alternative LIFO Method described in Rev. Proc. 97-36, 1997-2 C.B.
450. See section 10.03 of Rev. Proc. 98-60.
- For taxpayers changing their LIFO inventory method to use
the inventory price index computation (IPIC) method for their entire
LIFO inventory. See section 10.04 of Rev. Proc. 98-60.
- For taxpayers using the LIFO inventory method changing to a
method of determining current year costs: (a) by reference
to the actual cost of the goods most recently purchased or produced,
(b) by reference to the actual cost of the goods purchased
or produced during the tax year in the order of acquisition, or
(c) by application of an average unit cost. See section 10.05 of
Rev. Proc. 98-60.
- Mark-to-market accounting method for dealers in
securities.
- For taxpayers changing their method of accounting to comply
with elections out of certain exemptions from dealers status for
purposes of section 475. See Rev. Proc. 97-43, 1997-2 C.B. 494.
- For taxpayers discontinuing the mark-to-market method of
accounting for nonfinancial customer paper to comply with section
475(c)(4) for the taxpayer's first taxable year ending after July 22,
1998. The taxpayer must change to a method other than the lower of
cost or market method. See section 10A.01 of Rev. Proc. 98-60.
- Bank reserves for bad debts (section 585). For
banks as defined in section 581 (other than large banks as defined in
section 585(c)(2)), including banks for which a qualified subchapter S
subsidiary election (QSSS) is filed, changing their method of
accounting for bad debts from the section 585 reserve method to the
section 166 specific charge-off method. See section 11.01 of Rev.
Proc. 98-60.
- Original issue discount (section 1273).
- For taxpayers changing their method of accounting for de
minimis OID (discount) to the principal-reduction method described in
Rev. Proc. 97-39, 1997-2 C.B. 485. See section 12.01 of Rev. Proc.
98-60.
- For taxpayers required to change their method of accounting
for a pool of debt instruments to comply with section 1272(a)(6) for
the taxpayer's first taxable year beginning after August 5, 1997. See
section 12.02 of Rev. Proc. 98-60.
- Short-term obligations (section 1281).
- For taxpayers changing their method of accounting for
interest income on short-term obligations to comply with section 1281.
See section 13.01 of Rev. Proc. 98-60.
- For cash method banks in the Eighth Circuit to change to the
cash method for stated interest on short-term loans made in the
ordinary course of business. See section 13.02 of Rev. Proc.
98-60.
- Stripped bonds (section 1286). For certain
taxpayers under examination that sell mortgages and retain rights to
service the mortgages. See Rev. Proc. 91-51, 1991-2 C.B. 779.
Generally, individuals, partnerships, corporations, S corporations,
personal service corporations, cooperatives, insurance companies,
controlled foreign corporations, estates and trusts, and tax-exempt
organizations must file Form 3115 to change their accounting method.
The “applicant” is the taxpayer whose accounting method is being
changed.
Each applicant that is part of a related group must generally file
a separate Form 3115. However, Rev. Proc. 92-90, 1992-2 C.B. 501, and
Appendix A of Rev. Proc. 99-1* provide that a single Form 3115 may be
filed by a parent corporation requesting the identical accounting
method change on behalf of more than one member of a consolidated
group.
A Form 3115 that is filed under Rev. Proc. 97-27 must be filed
during the tax year for which the change is requested. If the tax year
is a short period, file Form 3115 by the last day of the short tax
year. Form 3115 should be filed as early as possible during the year
of change to provide adequate time for the IRS to respond prior to the
original due date of the applicant's return for the year of change.
Applicants filing under any automatic change procedures (see list
beginning on page 1) generally must complete and file an application
in duplicate. The original must be attached to the taxpayer's timely
filed (including extensions) original Federal income tax return for
the year of the change. A copy of the application must be filed with
the IRS National Office no earlier than the first day of the year of
change and no later than when the original is filed with the Federal
income tax return for the year of change.
Applicants, other than exempt organizations, file Form 3115 under
Rev. Proc. 97-27 with the Internal Revenue Service, Associate Chief
Counsel (Domestic), Attention: CC:DOM:CORP:T, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044. Exempt organizations file with
the Internal Revenue Service, Assistant Commissioner (Employee Plans
and Exempt Organizations), Attention: E:EO, P.O. Box 120, Ben Franklin
Station, Washington, DC 20044.
The IRS normally acknowledges receipt of a completed Form 3115
within 30 days after the applicant's filing date. If nothing has been
received within 30 days of filing Form 3115, the applicant can inquire
to: Internal Revenue Service, Control Clerk, CC:DOM:IT&A, Room
5508, 1111 Constitution Avenue, NW, Washington, DC 20224.
Note:
Applicants filing under any of the Automatic Change Procedures
will not receive an acknowledgment.
Applicants filing under an automatic change procedure do not pay a
user fee. Other applicants requesting a change under Rev. Proc. 97-27
must pay a user fee of $1,200 for each Form 3115. Generally, a
separate user fee must be paid for each member of an affiliated group
that files an application. However, for rules regarding a parent
corporation requesting the identical accounting method change for more
than one member of a consolidated group, see paragraph (A)(5) of
Appendix A of Rev. Proc. 99-1*.
Taxpayers whose gross income (as defined in Appendix A of Rev.
Proc. 99-1*) is less than $1 million ($150,000 if the request involves
a personal tax issue) qualify for a reduced user fee of $500. The user
fee (check or money order payable to the Internal Revenue Service)
must be attached to Form 3115.
A taxpayer that fails to timely file a Form 3115 will not be
granted an extension of time to file under Regulations section
301.9100-1 except in unusual or compelling circumstances.
Applicants filing a ruling request for an extension of time to file
Form 3115 under Regulations section 301.9100-1 must pay a $700 user
fee. A taxpayer that receives an extension of time under Regulations
section 301.9100-1 must also pay a separate user fee for the
accounting method request. See paragraph (A)(3)(b) of Appendix A of
Rev. Proc. 99-1*.
Prev | First | Next Instructions Index | 2003 Tax Help Archives | Tax Help Archives | Home
|