Automatic Change of Accounting Method required by IRS

January 30, 2015 By Richard Poulson

In February of 2014 the IRS released Rev. Proc. 2014-16 providing further guidance related to the Final Repair Regulations issued in September 2013. The Revenue Procedures requires all taxpayers to file for an automatic change of accounting method to change their method of accounting to comply with the Final Repair Regulations. In order to comply with the Rev. Proc. 2014-16 each taxpayer who owns and uses personal property and real property assets in their business(es), uses supplies, or incurs repairs and/or maintenance expenses will be required to file a form 3115 by the due date of their tax return including extensions (virtually all taxpayers).

As you can imagine, tax professionals and their related professional organizations have been protesting the IRS against this burdensome requirement. The American Institute of Certified Public Accountants sent a letter to the IRS Commissioner in late summer requesting relief from filing for an accounting change for companies and taxpayers with annual gross revenues less than $20 million. So far, the IRS has not yet responded with any relief provisions or response to the request.

Shortly after the Final Repair Regulations were issued, CMP proactively attempted to inform all of our clients about the new repair regulations. We provided free training seminars beginning last January and continuing through 2014 in order to educate our clients on the new requirements. Based on the guidance provided in Rev. Proc. 2014-16, CMP will be filing form 3115 for the automatic change of accounting method for every client who has a depreciation schedule or incurs repair and maintenance expense. We have somewhat standardized the process. However, there will be an additional charge to clients based on the additional time to prepare form 3115 and assembly costs related to the filing requirements outlined in the Rev. Proc. Due to the increased time and work involved in comply with this IRS requirement, there must be an additional charge for form 3115, and we are doing everything we can to keep the cost as low as possible. Form 3115 is a complicated 8 page form plus attachments. According to the IRS website, the form is estimated to take over 23 hours to prepare. Though we pride ourselves in efficiency and don’t anticipate taking 23 hours to prepare your 3115, be aware that your preparation fee will increase commensurately.

Every form 3115 prepared must be attached to the E-filed tax return manually, and a paper copy is required to be sent to the IRS Ogden Service Center. Every taxpayer filing form 3115 will be required to sign the form 3115 along with the E-file IRS form 8879 before we can electronically file the tax returns.

We have researched and consulted with national tax advisors before arriving at the decision to file for the Automatic Change of Accounting Method, and have determined that if the taxpayer neglects to file the change they have essentially given the IRS notice they will not comply with the final regulations. Filing for the change will protect each client against additional audit exposure related to repairs and maintenance and capitalization costs for new asset acquisitions.

We welcome any questions and concerns you may have regarding IRS Rev. Proc. 2014-16 for the Final Repair Regulations and our services in preparing form 3115 for you.

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