Taxpayer received 30 days to file duplicate Form 3115

Plain-English summary

A taxpayer timely e-filed its return with Form 3115 to change from full inclusion to deferral of qualifying advance payments, but its return preparer failed to instruct it to send the required duplicate Form 3115 to the IRS national office. The preparer discovered the omission the next day and the taxpayer promptly sought relief. The IRS found the regulatory-election relief requirements satisfied and granted 30 days to file the duplicate, without deciding whether the taxpayer qualified for the accounting method change.

Ruling snapshot

• Question: Could the taxpayer file the required national-office duplicate of Form 3115 after the original was timely attached to its return?
• Outcome: Approved, with a 30-day extension.
• Key authorities: IRC §§ 446(e) and 481(a); Treas. Reg. §§ 301.9100-1 through 301.9100-3; Rev. Procs. 2004-34 and 2011-14

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201432007 Third Party Communication: None
Release Date: 8/8/2014 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
--------------------- ------------------------------, ID No. ------------
-------------------------------- ----------------
--------------------------------------- Telephone Number:
----------------- --------------------
---------------------------------- Refer Reply To:
CC:ITA:B02
PLR-144148-13
Date:
April 23, 2014

              TY: ------

Legend

Taxpayer = ------------------
Firm = ----------------------------
Agent= ------------------------------------
Return = -------------------------------------------------
Date1 = ---------------------------
Date2 = ---------------------------
Year = ------

Dear -------------:

This is in response to the letter dated September 30, 2013, submitted on your behalf by
your authorized representative. Taxpayer requests an extension of time to submit a
duplicate copy of Form 3115, Application for Change in Accounting Method, to the
Internal Revenue Service (IRS) national office, in order to make an election for tax Year
to defer federal income taxation of advance payments under section 5.02 of Rev. Proc.
2004-34, 2004-22 I.R.B 991, and section 6.02(3) of Rev. Proc. 2011-14, 2011-4 I.R.B.

330. The request is made in accordance of section 301.9100-3 of the Procedure and
     Administration Regulations.

FACTS

For Year Taxpayer planned to change its method of accounting for advanced payments
for federal income tax purposes, from the full inclusion method to the deferral method
pursuant to section 5.02 of Rev. Proc. 2004-34. Taxpayer informed Firm of this change
when Taxpayer hired Firm to prepare its Year Return. Taxpayer has utilized the
services of Firm for several years, throughout which time Firm has demonstrated a high

standard of competence and professionalism. One of Firm’s employees, Agent, with
experience preparing and filing corporate tax returns for Taxpayer, prepared the return.
Taxpayer cooperated fully with Firm in the submission, preparation, and execution of all
forms provided to Taxpayer in connection with its Year Return. Under the direction of
Firm, Taxpayer timely e-filed Return by the due date (including extensions) on Date1,
including Form 3115, Application for Change in Accounting Method. On Date2, Firm
and Agent realized that they had inadvertently failed to instruct Taxpayer to file a
duplicate Form 3115 with the IRS national office no later than Date1. Taxpayer did not
become aware of the omission to submit the national office copy until the day after
Return was filed when Firm and Agent notified Taxpayer of the requirement and
omission. Taxpayer immediately decided to seek permission from the IRS to make a
late election by submitting a duplicate copy of Form 3115 later than the date Taxpayer
filed the original Form 3115 with Return.

RULING REQUESTED

Taxpayer requests an extension of time to submit a duplicate copy of Form 3115,
Application for Change in Accounting Method, to the IRS national office, in order to
make an election for tax Year, to defer federal income taxation of advance payments
under section 5.02 of Rev. Proc. 2004-34. Specifically, Taxpayer requests an extension
of 45 days from the issuance of a letter ruling to submit a duplicate copy of Form 3115,
as required by section 6.02(3)(a) of Rev. Proc. 2011-14.

LAW AND ANALYSIS

Rev. Proc. 2004-34 generally permits a taxpayer to defer the inclusion in gross income
of advance payments to the next succeeding taxable year. A payment is an advance
payment within the meaning of Rev. Proc. 2004-34 if (1) including the payment in gross
income for the taxable year of receipt is a permissible method of accounting for federal
income tax purposes; (2) the payment is recognized by the taxpayer (in whole or in part)
in revenues in its applicable financial statement for a subsequent taxable year; and (3)
the payment is for certain specified activities including the performance of services or
the use of intellectual property. See section 4.01 of Rev. Proc. 2004-34.

Rev. Proc. 2011-14 provides the procedures by which a taxpayer may obtain automatic
consent to change certain methods of accounting. A taxpayer satisfying all applicable
requirements of this revenue procedure is deemed to have obtained the consent of the
Commissioner to change its method of accounting under § 446(e) of the Internal
Revenue Code and associated Income Tax Regulations.

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 two separate steps. Step
one requires the taxpayer to attach the original Form 3115 to the taxpayer’s timely filed
original federal income tax return for the year of change. Step two requires the taxpayer

to file a signed copy of the Form 3115 with the national office no earlier than the first
day of the year of change, and no later than the date the original Form 3115 is filed with
the taxpayer’s federal income tax return for the year of change.

Section 301.9100-1(c) provides that 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 certain regulatory elections. Section 301.9100-1(b) defines a “regulatory
election” as an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice or announcement
published in the Internal Revenue Bulletin.

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 that granting
relief will not prejudice the interests of the government.

Section 301.9100-3(c)(1) provides that the interests of the government are prejudiced if
granting relief would result in the taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made. The interests of the government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made,
or any taxable years that would have been affected by the election had it been timely
made are closed by the period of limitations on assessment.

Section 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections. Section 301.9100-3(c)(2) provides that the interests of the government are
deemed prejudiced, except in unusual or compelling circumstances, if the accounting
method regulatory election for which relief is requested is subject to the advance
consent procedures for method changes, requires a § 481(a) adjustment, would permit
a change from an impermissible method of accounting that is an issue under
consideration by examination or in any other setting, or provides a more favorable
method of accounting if the election is made by a certain date or taxable year.

CONCLUSION

Based solely on the facts and representations submitted, including affidavits, we
conclude that the requirements of §§ 301.9100-1 and 301-9100-3 have been satisfied.
Accordingly, an extension of time is hereby granted for Taxpayer to file the necessary

copy of the Form 3115 with the IRS national office. The extension shall be for a period
of 30 days from the date of this ruling. Please attach a copy of this ruling to the Forms
3115 when they are filed.

Except as ruled upon above, no opinion is expressed or implied concerning the federal
income tax consequences arising from Taxpayer’s activities. Specifically, we express
no opinion concerning whether Taxpayer is qualified to file its application for a change in
accounting method under Rev. Proc. 2004-34, or that it otherwise meets the
requirements of that revenue procedure.

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

Pursuant to the power of attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.

                                    Sincerely,


                                    Kari L. Fisher
                                    _______________________________
                                    KARI L. FISHER
                                    Assistant to the Branch Chief, Branch 2
                                    Office of Associate Chief Counsel
                                    (Income Tax & Accounting)

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