What to do when you have submitted, or need to submit, a 3115 and you find mistakes

Eric P. Wallace, CPA 2018©

With the number of Form 3115s that are anticipated to be filed with the IRS as a result of the TCJA $25 million and under law changes, it is inevitable that taxpayers and/or their preparers are going to make mistakes on the Form 3115s. We present three potential times when these 3115 mistakes may be found: (a) After the Form 3115 National Office copy has been signed and submitted but before the “original” copy is attached as a pdf with the income tax return; (b) After the Form 3115 “original” has been efiled with the income tax return for the tax year but before the extended due date of the return, even if not extended; and (c) at any time after the extended due date of the tax return has expired. The first two are easy to rectify, the last one is difficult and costly.

If you find Form 3115 mistakes before you have submitted the “original” 3115 with the tax return:

A listing of these mistakes may consist of errors in the 481(a) calculations, to leaving off required information in the 3115 attachment. The IRS does not have any formal way to amend a 3115. What they do have is a process to file a “superseding” 3115. If the taxpayer has not yet filed the original return, the taxpayer can file what is called a “superseding” 3115. That superseding 3115 is submitted to replace the IRS "copy" that the taxpayer had previously filed. In other words, the Form 3115 that is signed and mailed to the IRS is deemed to be the “copy”. The one that is going to be filed with the tax return is deemed to be the “original” even though it can be just an unsigned copy of the one signed and mailed to the IRS. The taxpayer should sign and mail that superseding 3115 to the IRS and state at the top of the Form 3115, page one, and on the 3115 attachments “Superseding 3115”. Also attach a copy of the prior 3115 with its attachments. Mark all of those “Superseded”.

If you find Form 3115 mistakes after you have submitted the “original” 3115 with the tax return, but before the extended due date of the return has passed:

Follow the process described by RP 2015-13 in its release in January of 2015. The regulation section 301.9100-2 rule permitting taxpayers to file automatic method Form 3115 up until the extended due date of the return, was expressed in RP 2015-13 as a reminder to taxpayers about this typically missed opportunity. This 3115 “extension rule” will be very valuable for taxpayers who do not become aware of the opportunity to file a Form 3115 until the regular tax season filing time period has passed. The following is the material included in RP 2015-13:

An automatic extension of 6 months from the due date (excluding any extension) of the federal income tax return for the year of change requested on the Form 3115 is granted to file a Form 3115 under the automatic change procedures provided the taxpayer:

(i) Timely filed (including any extension) its original federal income tax return for the year of change;

(ii) Files an amended return within the 6-month extension period implementing the requested change in method of accounting for the year of change;

(iii) attaches the original Form 3115 to the amended return;

(iv) Files a signed copy of the original Form 3115 with the IRS no later than the date the original is filed with the amended return;

(v) provides a signed copy of the original Form 3115 to the examining agent, Appeals officer(s) or all counsel to the government, as applicable, as required by SECTION 6.03(3); [if applicable] and

(vi) Attaches a statement to the Form 3115 (original, one mailed to the IRS, and any other copy required by SECTION 6.03(3)) that the Form 3115 is being filed pursuant to § 301.9100-2(b) of the Procedure and Administration Regulations.

If the mistake is found at any time after the extended due date of the tax return has expired but before the statue of limitations has expired for the tax year of filing of the income tax return:

If the mistake on the Form 3115 is discovered after the potential extended due date of the income tax return, the taxpayer has two choices. Assuming the Form 3115 has been filed timely, the easiest choice is to provide “additional” information to the IRS with the procedures outline in Rev. Proc. 2015-13, Section 6.03(1)(e) which is titled “Correspondence regarding a previously filed Form 3115”. That section states the following:

(e) Correspondence regarding a previously filed Form 3115. If a taxpayer submits additional correspondence regarding its Form 3115 filed under the automatic change procedures (for example, a revised § 481(a) adjustment or power of attorney), it must attach a copy of the additional correspondence behind a copy of page 1 of the previously filed Form 3115 and submit it to the IRS in Ogden, UT (see the applicable address in section 9.05 of Rev. Proc. 2014-1 (or successor)). Further, if the taxpayer is under examination, before an Appeals office, or before a federal court with respect to any income tax issue, the taxpayer must provide a copy of any additional correspondence it submits regarding its Form 3115 to the examining agent(s), Appeals officer(s), and all counsel to the government, as applicable, no later than the date the taxpayer submits the additional correspondence to the IRS in Ogden, UT.

The most changed item in a previously filed 3115 is, of course, the 481(a) adjustment. With the procedure above, a taxpayer is able to get a “redo” whenever that 481(a) was calculated incorrectly or missed further deductions. This process can be done up to the statute of limitations but it will have to be matched with an amended return.

Alternatively, if the mistake is the lack of filing the Form 3115, and is discovered after the potential extended due date of the income tax return, the taxpayer is left with one choice. That choice is the filing of an IRS 301.1900-3 request for extension of time for making an election or other relief. This “relief” is not automatic. It requires the preparation and submission of significant paperwork, and a filing fee. As of the date of this document, as covered under the provisions of RP 2018-1, a request for extensions of time to file Form 3115, Application for Change in Accounting Method, under §301.9100-3 is $10,000. [If the taxpayer is seeking to file this after 2018, check the applicable RP for the year of filing, such as 2019-1 for 2019.] If the taxpayer can file automatic methods concurrently, then those can be filed on the same Form 3115 and will require one 301.9100-3 fee to submit. For example, if the taxpayer made a mistake or did not submit automatic methods 233 and 235, it would be required to pay one fee for that submission. If the taxpayer also desired to submit DCN 236 for tax year 2018, it would require another 301.9100-3 fee payment and the preparation of a separate 301.9100-3 submission.

A possible alternative to a 301-9100-3 submission is to file the method so desired by the taxpayer, or required by the TPRs, in a subsequent tax year. For example if the taxpayer missed a 3115 submission in 2018, most of the time it can file those in tax year 2019, or after, assuming that the eligibility rules of RP 2015-13, section 5 do not restrict such a filing.

Appendix A: Description of Sections 301.9100-3 Relief from RP 2018-1, section 5.03: A §301.9100 request for extension of time for making an election or for other relief

5.03 An Associate office will consider a request for an extension of time for making an election or other application for relief under § 301.9100–3 of the Treasury Regulations, even if submitted after the return covering the issue presented in the § 301.9100 request has been filed, an examination of the return has begun, or the issues in the return are being considered by Appeals or a Federal court. Except for certain requests pertaining to applications for recognition of tax exemption under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division, a § 301.9100 request is a letter ruling request. Therefore, the § 301.9100 request should be submitted pursuant to this revenue procedure. However, a § 301.9100 request involving recharacterization of an IRA (see § 1.408A–5, Q&A–6) should be submitted pursuant to Rev. Proc. 2018–4. An election made pursuant to § 301.9100–2 for an automatic extension of time is not a letter ruling request and does not require payment of any user fee. See § 301.9100–2(d) and section 15.03(1) of this revenue procedure.

(1) Format of request. A § 301.9100 request (other than an election made pursuant to § 301.9100–2 and certain requests pertaining to applications for recognition of tax exemption under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division) must be in the general form of, and meet the general requirements for, a letter ruling request. These requirements are given in section 7 of this revenue procedure. A § 301.9100 request must include an affidavit and declaration from the taxpayer and other parties having knowledge or information about the events that led to the failure to make a valid regulatory election and to the discovery of the failure. See §§ 301.9100–3(e)(2) and (e)(3). In addition, a § 301.9100 request must include the information required by § 301.9100–3(e)(4).

(2) Period of limitation. The filing of a request for relief under § 301.9100 does not suspend the running of any applicable period of limitation. See § 301.9100–3(d)(2). The Associate office ordinarily will not issue a § 301.9100 ruling if the period of limitation on assessment under § 6501(a) for the taxable year in which an election should have been made, or for any taxable years that would have been affected by the election had it been timely made, will expire before receipt of a § 301.9100 letter ruling. See § 301.9100–3(c)(1)(ii). If, however, the taxpayer consents to extend the period of limitation on assessment under § 6501(c)(4) for the taxable year in which the election should have been made and for any taxable years that would have been affected by the election had it been timely made, the Associate office may issue the letter ruling. See § 301.9100–3(d)(2). Note that the filing of a claim for refund under § 6511 does not extend the period of limitation on assessment. If § 301.9100–3 relief is granted, the Associate office may require the taxpayer to consent to an extension of the period of limitation on assessment. See § 301.9100–3(d)(2).

(3) Taxpayer must notify the Associate office if examination of its return begins while the request is pending. The taxpayer must notify the Associate office if the Service begins an examination of the taxpayer’s return for the taxable year in which an election should have been made, or for any taxable years that would have been affected by the election had it been timely made, while a § 301.9100–3 request is pending. This notification must include the name and telephone number of the examining agent. See § 301.9100–3(e)(4)(i) and section 7.05(1)(b) of this revenue procedure.

(4) Associate office will notify examination agent, appeals officer, or attorney of a § 301.9100 request if the taxpayer’s return is being examined by a Field office or is being considered by an Appeals office or a Federal court. If the taxpayer’s return for the taxable year in which an election should have been made, or for any taxable years that would have been affected by the election had it been timely made, is being examined by a Field office or considered by an Appeals office or a Federal court, the Associate office will notify the appropriate examination agent, appeals officer, or attorney that a § 301.9100 request has been submitted to the Associate office. The examination agent, appeals officer, or attorney is not authorized to deny consideration of a § 301.9100 request. The letter ruling will be mailed to the taxpayer and a copy will be sent to the appeals officer, attorney, or appropriate Service official in the operating division that has examination jurisdiction over the taxpayer’s tax return.

(5) Inclusion of statement required by section 4.04 of Rev. Proc. 2009–41. Eligible entities requesting a letter ruling because they do not meet all of the eligibility requirements of section 4.01 of Rev. Proc. 2009–41, 2009–39 I.R.B. 439, must include either the following representation as part of the entity’s request for a letter ruling or an explanation regarding why they do not qualify to do so: “All required U.S. tax and information returns of the entity (or, if the entity was not required to file any such returns under the desired classification, then all required U.S. tax and information returns of each affected person as defined in Section 4.02 of Rev. Proc. 2009–41) were filed timely or within 6 months of the due date of the respective return (excluding extensions) as if the entity classification election had been in effect on the requested date. No U.S. tax or information returns were filed inconsistently with those described in the prior sentence.”

(6) Relief for late initial classification election. In lieu of requesting a letter ruling under § 301.9100–1 through § 301.9100–3 and this revenue procedure, entities that satisfy the requirements set forth in section 4.01 of Rev. Proc. 2009–41, 2009–39 I.R.B. 439, may apply for late classification election relief under Rev. Proc. 2009–41. Requests for such relief are not subject to user fees. See section 3.01 of Rev. Proc. 2009–41 and section 15.03(2) of this revenue procedure.

Appendix B: Listing of RP 2018-1 User Fees for Advance Consent Filings and/or Extensions of Time to File Form 3115:

CATEGORY

USER FEE FOR REQUESTS RECEIVED PRIOR TO FEBRUARY 2, 2018

USER FEE FOR REQUESTS RECEIVED AFTER FEBRUARY 1, 2018

(b) Changes in Methods of Accounting

(i) Non-automatic Form 3115, Application for Change in Accounting Method (except as provided in paragraph (A)(4)(a) or (b), or (5)(b) of this appendix)

$9,500

(ii) Letter ruling requests for extensions of time to file Form 3115, Application for Change in Accounting Method, under §301.9100-3 (except as provided in paragraph (A)(4)(a) or (b), or (5)(c) of this appendix)

$10,000

Appendix C: Example of IRS Ruling on 301.9100-3 Request

LTR 201351011, September 10, 2013

Distributions of property; Extension of time for making certain elections; Section 446; Accounting methods.

Re: Request for Extension of Time to file Form 3115, Application for Change in Accounting Method

This ruling responds to a letter dated April 18, 2013, submitted by Taxpayer, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to file original Forms 3115, Application for Change in Accounting Method, to change Taxpayer's method of accounting for depreciation for the taxable year ending Date1.

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer timely filed its federal income tax return for the taxable year ending Date1 through an electronic filing. Taxpayer timely filed the signed duplicate copies of the Forms 3115 to change Taxpayer's method of accounting for depreciation for the taxable year ending Date1 under section 6.01 of the Appendix of Rev. Proc. 2011-14, 2011-4 I.R.B. 330, with the Internal Revenue Service (IRS) office in Ogden, Utah. Taxpayer's federal income tax return for the taxable year ending Date1 reflected a change in Taxpayer's method of accounting for depreciation under section 6.01 of the Appendix of Rev. Proc. 2011-14, as reflected on the duplicate filings of the copies of the Forms 3115. However, Taxpayer inadvertently failed to attach the original Forms 3115 to its electronically filed federal income tax return for the taxable year ending Date1.

Taxpayer engaged an accounting firm to prepare and electronically file Taxpayer's federal income tax return and the Forms 3115 for the taxable year ending Date1. After timely filing such federal income tax return and the signed duplicate copies of such Forms 3115, Taxpayer and the accounting firm discovered that the accounting firm had inadvertently not attached the required original Forms 3115 to the federal income tax return when such federal income tax return was electronically filed.

RULING REQUESTED

Taxpayer requests an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to file the original Forms 3115 to change Taxpayer's method of accounting for depreciation under section 6.01 of the Appendix of Rev. Proc. 2011-14, 2011-4 I.R.B. 330, for the taxable year ending Date1.

LAW AND ANALYSIS

Rev. Proc. 2011-14 provides the procedures by which a taxpayer may obtain automatic consent to change certain methods of accounting. A taxpayer complying with all the applicable provisions of this revenue procedure has obtained the consent of the Commissioner of Internal Revenue to change the taxpayer's method of accounting under § 446(e) of the Internal Revenue Code and the Income Tax regulations thereunder.

Section 6.02(3)(a) of Rev. Proc. 2011-14 provides that a taxpayer changing a method of accounting pursuant to Rev. Proc. 2011-14 must complete and file a Form 3115 in duplicate. Section 6.02(3)(a)(i) of Rev. Proc. 2011-14 provides that the original must be attached to the taxpayer's timely filed (including extensions) original federal income tax return implementing the change in method of accounting for the year of change.

Under § 301.9100-(c)(1), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the government.

CONCLUSIONS

Based solely on the facts and representations submitted, we conclude that the requirements of § 301.9100-3(a) have been satisfied. Accordingly, Taxpayer is granted 60 calendar days from the date of this letter to file the original Forms 3115 (with signature) to change Taxpayer's method of accounting for depreciation under section 6.01 of the Appendix of Rev. Proc. 2011-14, 2011-4 I.R.B. 330, for the taxable year ending Date1, with an amended federal income tax return for the taxable year ending Date1.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal income tax consequences of the facts described above under any other provisions of the Code. Specifically, no opinion is expressed or implied concerning (i) whether Taxpayer is qualified to file the original Forms 3115 for the change in method of accounting for depreciation under Rev. Proc. 2011-14; (ii) whether each item of property that is the subject of such Forms 3115 meets the requirements of section 6.01 of the Appendix of Rev. Proc. 2011-14; (iii) whether the change in method of accounting that is the subject of such Forms 3115 qualify under section 6.01 of the Appendix of Rev. Proc. 2011-14; or (iv) the propriety of Taxpayer's present and proposed methods of accounting for depreciation for each item of property that is the subject of such Forms 3115.

In accordance with the power of attorney, we are sending copies of this letter to Taxpayer's authorized representatives. We are also sending a copy of this letter to the appropriate Industry Director, Large Business & International Division (LB&I).

The ruling contained in this letter is based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement. While this office has not verified any of the material submitted in support for a ruling, it is subject to verification on examination.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely, Willie E. Armstrong Jr., Senior Technician Reviewer, Branch 7, Office of Associate Chief Counsel (Income Tax and Accounting).