A Form 3115 is called the “Application for Change in Accounting Method.” It is for an automatic change in any method of accounting. A form 3115 is filed to change either an entity’s overall accounting method or the accounting treatment of any item, such as switching to the accrual method, accelerating depreciation, expensing a previously capitalized item under §263(a), or a change in the reporting of inventory.
Understanding DCN (Designated Change Number) for Automatic Changes
On the first page of the form 3115 are several lines where the DCN is written. A DCN stands for Designated Change Number. If there is a DCN for the specific change, the change is an automatic change. The typical DCN to apply a cost segregation study is DCN 7. This is an automatic consent change meaning there is no pre-approval or fee to apply the 3115.
A list of Designated Change Numbers can be found at www.irs.gov/pub/irs-pdf/i3115.pdf.
Automatic vs. Non-Automatic Changes: Key Differences
If there is no Designated Change Number for a specific change, the change is non-automatic, and the taxpayer must petition the IRS (and pay a fee) to gain permission to make the change. Once permission has been granted, the 3115 can now be filed. The IRS normally sends an acknowledgment of receipt within 60 days after receiving a Form 3115 filed under the non-automatic change. The deadline for filing a non-automatic change is the end of the current tax year.
Who Can File Form 3115? Eligible Applicants and Entities
In general, the filer of Form 3115 is the applicant. The applicant is an entity, a person, or a separate and distinct trade or business of an entity or a person whose method of accounting is being changed. For a consolidated group, the common parent must file the form for itself or any group member. Identical changes for two or more of the following in any combination may be included in a single Form 3115:
1. Members of a consolidated group.
2. Separate and distinct trades or businesses include Q-Subs and SMLLCs.
3. Partnerships that are wholly owned within a consolidated group.
Filing Deadlines and Extension Rules for Form 3115
In general, a filer that neglects to file a timely 3115 will not be granted an extension except in unusual and compelling circumstances. See Rev. Proc. 2015-13 for the standards that must be met.
Special Filing Considerations
In circumstances where a 3115 is filed on behalf of the applicant, enter the filer’s name and identification number on the first line and enter the applicant’s name and identification number on the fourth line.
For partnerships, enter the name of the partnership on the first line. The signature section includes the signature of one of the general partners or LLC members who has personal knowledge of the facts and is authorized to sign.
Understanding Section 481(a) Adjustments
If there is a change resulting from a 481a adjustment (§263(a), cost segregation, etc.), this is allowed to be taken all in the current tax year as another deduction. If the adjustment is positive, it can be taken over 4 years.
How to File Form 3115: Filing Requirements and Procedures
The filer must file Form 3115 (automatic change) in duplicate. Attach the original 3115 to the filer’s timely filed (including extensions) return for the year of change. The original 3115 attachment does not need to be signed. Send a copy of the signed Form 3115 to the IRS in Ogden, UT, no earlier than the first day of the year of change and no later than the date the original is filed with the federal income tax return for the year of change.
Key Takeaways and Next Steps
Filing Form 3115 for accounting method changes, particularly for cost segregation studies, requires careful attention to detail and proper timing. Remember these critical points:
- Automatic changes like cost segregation (DCN 7) don’t require pre-approval
- File in duplicate – one with your tax return and one to the IRS in Ogden, UT
- Consider Section 481(a) adjustments and their impact on your tax situation
- Pay attention to filing deadlines and signature requirements
While Form 3115 filing procedures can be complex, the potential tax benefits of accounting method changes, especially through cost segregation studies, can provide significant returns on investment. Property owners often see tax savings of $70,000 to $100,000 per million dollars of building cost basis when implementing these strategies correctly
Ready to Maximize Your Tax Savings?
Don’t leave money on the table with your commercial or investment properties. Our team of cost segregation experts has completed over 45,000 studies nationwide and can help you navigate the Form 3115 filing process while maximizing your tax benefits.
Contact CSSI today for a free analysis of your property’s cost segregation potential. Our engineering-based studies are IRS-compliant and come with audit defense at no additional cost.
Frequently Asked Questions
how to fill out form 3115 for missed depreciation
To fix missed depreciation, file IRS Form 3115 to request a change in accounting method. This allows you to claim a one-time Section 481(a) adjustment for previously unclaimed depreciation without amending past returns. Include property details, service dates, and the correct depreciation method. CSSI assists businesses in filing Form 3115 accurately to recover missed deductions and stay compliant with IRS rules.
Where do I mail Form 3115?
Form 3115 should generally be mailed to the IRS office in Ogden, Utah, if you’re filing it separately from your tax return. If you’re submitting it along with your current tax return, send it to the address where you normally file your return. Always check the most recent Form 3115 instructions on the IRS website to confirm the correct mailing address before sending.
Can Form 3115 be filed electronically?
Yes, Form 3115 can be filed electronically if it’s attached to an electronically filed tax return. However, if you’re submitting the duplicate copy required by the IRS, that portion must still be mailed to the appropriate IRS office as stated in the form’s instructions.
Can Form 3115 be filed with an amended return?
No, Form 3115 generally cannot be filed with an amended return. It must be filed with a timely original return for the year of the accounting method change, along with a duplicate copy sent to the IRS office specified in the instructions.
Does Form 3115 need a wet signature?
No, Form 3115 does not require a wet signature if it is filed electronically with your tax return. However, if you are submitting a paper copy, it must be signed by the taxpayer or an authorized representative before mailing to the IRS.
How to complete Form 3115?
To complete Form 3115, you’ll need to provide details about your business, describe the accounting method change, and explain why the change is being made. Include any supporting schedules and attach the form to your current year’s tax return. It’s often recommended to work with a tax professional like CSSI, as errors or missing information can delay approval from the IRS.
How to fill out Form 3115 for a cost segregation study?
When completing Form 3115 for a cost segregation study, you’ll need to report a change in accounting method to adjust depreciation. Include property details, the applicable sections, and the Section 481(a) adjustment. Attach the form to your tax return and send a copy to the IRS as required. CSSI can help prepare and file Form 3115 accurately, ensuring compliance with IRS guidelines and maximizing your depreciation benefits.
How to prepare form 3115
To prepare Form 3115, gather details about your accounting method change, including property and depreciation data, then complete the relevant sections and attach supporting documents. CSSI assists businesses in preparing Form 3115 accurately to ensure IRS compliance and proper cost segregation adjustments.
What is audit protection on Form 3115?
Audit protection on Form 3115 means the IRS will generally not audit prior years for the same accounting method change once the form is filed correctly. CSSI helps ensure your Form 3115 is properly completed so you can benefit from audit protection and avoid potential IRS scrutiny.
