IRS grants extra time to file a late accounting-method-change application (Form 3115)

Plain-English summary

A corporate group that files a consolidated return wanted to change its method of
accounting for certain prepaid insurance premium costs. Changing an accounting
method usually needs IRS consent, but "automatic consent" is available if the
taxpayer attaches Form 3115 to a timely filed return (and files a duplicate copy
separately). Here the taxpayer's CPA filed the duplicate Form 3115 on time, but due
to an unusual series of events e-filed the actual return with the original Form 3115
one day after the extended deadline, so the automatic-consent timing rule was missed.
The taxpayer asked for relief under the "9100" rules. The IRS found the taxpayer
acted reasonably and in good faith, largely because it reasonably relied on a
qualified tax professional, and that relief would not prejudice the government. It
granted 60 days to file the original Form 3115 with an amended return for the year of
change. The IRS expressed no opinion on whether the method change itself is eligible
for automatic consent or is otherwise correct. This is routine relief for a narrowly
missed accounting-method-change deadline.

Ruling snapshot

• Question: Should the taxpayer get an extension of time under Treas. Reg. § 301.9100-3 to file a late Form 3115 for an accounting method change?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 446(e); Treas. Reg. § 1.446-1(e); Treas. Reg. § 1.263(a)-4(f); Rev. Proc. 2015-13; Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201850013 Third Party Communication: None
Release Date: 12/14/2018 Date of Communication: Not Applicable
Index Number: 9100.10-01, 263.14-00
Person To Contact:
-------------------, ID No. ----------------
------------------------------ Telephone Number:
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---------------------------------- Refer Reply To:
CC:ITA:B01
------------------------ PLR-110218-18
------------------------------------------------------ Date:
September 14, 2018

Taxpayer = -------------------------------------------------

CPA = ----------------

Date 1 = ---------------------------

Date 2 = ------------------------

Date 3 = ------------------------

Year 1 = -------

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

This letter responds to a letter dated March 20, 2018, submitted on behalf of Taxpayer,
requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure
and Administration Regulations to change its method of accounting under § 446(e) of
the Internal Revenue Code, § 1.446-1(e) of the Income Tax Regulations, and the
automatic consent procedures of Rev. Proc. 2015-13, for the tax year ending on Date 1.

                                                  FACTS

Taxpayer is a domestic C corporation that, along with its subsidiaries, files a
consolidated federal income tax return. Taxpayer uses a calendar taxable year, and it
uses an accrual method as its overall method of accounting.

Taxpayer timely filed Form 7004, Application for Automatic Extension of Time to File
Certain Business Income Tax, Information, and Other Returns, providing Taxpayer an
extension until Date 2, to file its federal income tax return for the Year 1 taxable year.
Taxpayer engaged CPA to prepare its federal income tax return for Year 1. Taxpayer
PLR-110218-18 2

also instructed CPA to file a Form 3115, Application for Change in Accounting Method,
to change Taxpayer's, and a wholly owned subsidiary's, method of accounting for
certain prepaid insurance premium costs under Treas. Reg. § 1.263(a)-4(f), pursuant to
the automatic consent procedures in Rev. Proc. 2015-13 and Rev. Proc. 2017-30,
starting with Year 1. Section 6.03(1) of Rev. Proc. 2015-13 requires a taxpayer using
the automatic consent procedures for a change in method of accounting to attach a
completed Form 3115 to the taxpayer's timely filed (including extensions) original tax
return for the year of change. CPA represented to Taxpayer that it would file
Taxpayer's Form 1120 and Form 3115 before the extended due date of Taxpayer's
return. Prior to Year 1, CPA had timely filed Taxpayer's federal and state income tax
returns for the previous five years.

On Date 3 (three days before the extended due date for Taxpayer's return), CPA
provided Taxpayer with a completed return (with Form 3115) for Taxpayer to review.
The same day, Taxpayer informed CPA that it had completed its review and instructed
CPA to file the return and Form 3115.

Due to an unusual series of events, CPA could not e-file Taxpayer's Form 1120 and
Form 3115 for the year at issue until one day following the extended due date of Date 2.
However, CPA did file a duplicate copy of Taxpayer's Form 3115 with the IRS in
Covington, KY, on Date 2, as required by section 6.03(1)(a)(i) of Rev. Proc. 2015-13.

CPA advised Taxpayer that its original Form 3115 was not timely filed, and that its
change in accounting method did not comply with the automatic consent requirements
in Rev. Proc. 2015-13 and Rev. Proc. 2017-30. CPA advised Taxpayer that it may be
eligible for relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations, and Taxpayer engaged CPA to prepare a request for such
relief.
LAW

Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain automatic
consent to change certain accounting methods. A taxpayer complying with all the
applicable provisions of this revenue procedure has obtained the consent of the
Commissioner to change its method of accounting under § 446(e) and the regulations
thereunder.

Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2015-13 must complete and file a Form 3115
in duplicate. The original must be attached to the taxpayer's timely filed (including any
extensions) original federal income tax return for the year of change, and a copy (with
signature) of the Form 3115 must be filed with the appropriate office of the Internal
Revenue Service 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.
PLR-110218-18 3

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. Section 301.9100-1(b) further provides that
an election includes a request to adopt, change, or retain an accounting method.

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(b)(1) provides that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer:

  (i)     requests relief before the failure to make the regulatory election is
          discovered by the Service;
  (ii)    failed to make the election because of intervening events beyond the
          taxpayer's control;
  (iii)   failed to make the election because, after exercising reasonable diligence
          (taking into account the taxpayer's experience and the complexity of the
          return at issue), the taxpayer was unaware of the necessity for the
          election;
  (iv)    reasonably relied on the written advice of the Service; or
  (v)     reasonably relied on a qualified tax professional, including a tax
          professional employed by the taxpayer, and the tax professional failed to
          make, or advise the taxpayer to make, the election.

Section 301.9100-3(b)(3) provides that a taxpayer will not be deemed to have acted
reasonably and in good faith if the taxpayer:

  (i)     seeks to alter a return position for which an accuracy-related penalty has
          been or could be imposed under § 6662 at the time the taxpayer requests
          relief, and the new position requires or permits a regulatory election for
          which relief is requested;
  (ii)    was informed in all material respects of the required election and related
          tax consequences, but chose not to file the election; or

PLR-110218-18 4

  (iii)   uses hindsight in requesting relief.

Section 301.9100-3(c)(1) provides that an extension of time to make a regulatory
election will be granted only when the interests of the government are not prejudiced by
the granting of relief. The interests of the government are prejudiced if granting relief
would result in a 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 (taking into account the time value of money). Section 301.9100-3(c)(1)(i).

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
under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this
section. Section 301.9100-3(c)(1)(ii).

Section 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections. The interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if the accounting method regulatory election for
which relief is requested:

  (i)     is subject to the procedure set forth in § 1.446-1(e)(3)(i) of this chapter
          (requiring advance written consent of the Commissioner);
  (ii)    requires an adjustment under § 481(a) (or would require an adjustment
          under § 481(a) if the taxpayer changed to the method of accounting for
          which relief is requested in a taxable year subsequent to the taxable year
          in which the election should have been made);
  (iii)   would permit a change from an impermissible method of accounting that is
          an issue under consideration by examination, an appeals office, or a
          federal court and the change would provide a more favorable method or
          more favorable terms and conditions than if the change were made as part
          of an examination; or
  (iv)    provides a more favorable method of accounting or more favorable terms
          and conditions if the election is made by a certain date or taxable year.

                                  CONCLUSION

Taxpayer's election is a regulatory election, as defined in § 301.9100-1(b), because the
due date of the election is prescribed in a Rev. Proc. 2015-13, which was published in
the Internal Revenue bulletin. Based solely on the information provided and
representations made, we conclude that Taxpayer acted reasonably and in good faith,
and granting relief will not prejudice the interests of the Government. Accordingly, the
requirements of §§ 301.9100-1 and 301.9100-3 have been met.
PLR-110218-18 5

Taxpayer is granted an extension of 60 days from the date of this ruling to file the
required original Form 3115 described above for the Year 1 taxable year with an
amended federal income tax return for that year.
A copy of this ruling should be attached to Taxpayer's federal tax returns for the tax
years affected. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.

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

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any fact or item discussed or referenced in this letter. Specifically,
we have no opinion, either expressed or implied, concerning (1) whether the accounting
method change Taxpayer has attempted to make is eligible to be made under the
automatic consent procedures of Rev. Proc. 2015-13 and Rev. Proc. 2017-30; and (2)
whether Taxpayer otherwise meets the requirements of Rev. Proc. 2015-13 to make an
accounting method change using Rev. Proc. 2015-13. Further, no opinion is expressed
or implied regarding the correctness of Taxpayer's accounting method.

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.

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

                                   Sincerely,



                                   Norma C. Rotunno
                                   Branch Chief, Branch 1
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

CC: