Extension granted for accounting-method change forms

Plain-English summary

A consolidated group failed to timely submit originals and signed duplicate copies of three Forms 3115 after its return preparer failed to file a requested Form 7004 extension. The forms covered depreciation, prepaid expenses, and LIFO inventory accounting changes, and the group reflected the changes and section 481 adjustments on its later-filed return. The IRS found that the requirements for discretionary regulatory-election relief were satisfied. It treated the Forms 3115 and duplicate copies as timely filed, but did not extend the deadlines for the Form 7004 or the consolidated return and did not rule on whether the accounting changes otherwise qualified for automatic consent.

Ruling snapshot

• Question: Should the group receive additional time to file the original and duplicate Forms 3115 for its accounting-method changes?
• Outcome: approved, limited to treating the specified Forms 3115 and copies as timely
• Key authorities: IRC §§ 446(e), 481(a); Treas. Reg. §§ 301.9100-1, 301.9100-3; Rev. Proc. 2015-13

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201933003                                              Third Party Communication: None
Release Date: 8/16/2019                                        Date of Communication: Not Applicable
Index Number: 9100.10-01
                                                               Person To Contact:
------------------- ---------------------------------          -----------------------------, ID # ----------------
------------------------------------------------------         -----------------
-------------------------------------------------              Telephone Number:
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                                                               Refer Reply To:
                                                               CC:ITA:B07
                                                               PLR-130597-18
                                                               Date:
                                                               May 17, 2019

         Legend

Parent:            ------------------------------------------------------
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S1:                -----------------------------------------
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S2:                -------------------------
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Firm:             -----------------------

Date1:            -----------------------

Date2:            ---------------------------

Date3:            --------------------

Date4:            ------------------------

Date5:            ----------------------------

Date6:            ----------------------------

Date7:            -----------------------


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

      This letter ruling responds to a letter dated October 12, 2018, and supplemental
correspondence, submitted by Parent on behalf of its subsidiaries, S1 and S2. Parent is
PLR-130597-18                                2

requesting an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to file the originals and the signed duplicate
copies of three Forms 3115, Application for Change in Accounting Method, for S1 and
S2. Parent should have filed the originals and copies of these originals pursuant to
section 6.03(1)(a) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, 432, on behalf of S1 and
S2, beginning for the taxable year beginning Date1, and ending Date2.

FACTS

      Parent represents the facts are as follows:

      Parent is the common parent of a consolidated group that includes S1 and S2.
Parent files a consolidated federal income tax return on a calendar year basis. Parent
uses an overall accrual method of accounting.

       Beginning for the taxable year beginning Date1, S1 and S2 wanted to change
their methods of accounting for depreciation of certain tangible, depreciable assets
under § 168 of the Internal Revenue Code, and their methods of accounting for prepaid
insurance and prepaid software maintenance contracts under § 1.263(a)-4 of the
Income Tax Regulations. Additionally, S1 wanted to change its method of accounting of
determining current-year cost of LIFO inventory, beginning for the taxable year
beginning Date1. Parent believes that all these changes in methods of accounting
could be implemented under the automatic change procedures in Rev. Proc. 2015-13.
Thus, in accord with the automatic change procedures of Rev. Proc. 2015-13, Parent
should have completed the required originals of the Forms 3115, reflecting the desired
accounting method changes, and attached these originals to Parent’s timely filed,
consolidated federal income tax return for the taxable year beginning Date1.

        Further, in accord with the automatic change procedures of Rev. Proc. 2015-13,
a copy of the originals of the Forms 3115, each with an original signature or a
photocopy of the original signature, should have been timely filed with the appropriate
office of the Internal Revenue Service (IRS). Lastly, Parent’s consolidated federal
income tax return for the taxable year beginning Date1, should have reflected these
accounting method changes made by S1 and S2.

        Parent’s consolidated federal income tax return for the taxable year beginning
Date1, and ending Date2, was due on Date3, without extensions. Parent was unable to
file such consolidated federal income tax return by Date3, so it intended to request an
extension of time to file its consolidated federal income tax return to Date4. Parent
engaged Firm to prepare its federal income tax return and the application for an
extension for the taxable year beginning Date1, and ending Date2. Parent gave Firm all
of the relevant information necessary to correctly and timely file Parent’s federal
extension for the taxable year beginning Date1, and ending Date2. On Date3, Parent
timely paid the tax it owed on extension for its federal income tax return for the taxable
year beginning Date1, and ending Date2. However, due to extraordinary series of
events, Parent failed to timely file Form 7004, Application for Automatic Extension of
PLR-130597-18                                3

Time to File Certain Business Income Tax, Information, and Other Returns, for the
taxable year beginning Date1, and ending Date2, to extend the due date for its federal
tax return.

       On Date5, Firm became aware that Parent’s Form 7004 had not been timely
filed. Parent was unaware that its Form 7004 had not been filed until it was notified by
Firm.

       As a result of Parent’s failure to timely file Form 7004 for the taxable year
beginning Date1, and ending Date2, the original Forms 3115 were not attached to a
timely filed federal income tax return for that taxable year, and the signed duplicate
copies of its Forms 3115 were not timely filed with the appropriate IRS office as required
by section 6.03(1)(a) of Rev. Proc. 2015-13.

       Parent filed the signed duplicate copies of two Forms 3115 for S1 and S2 for
their changes in methods of accounting for depreciation and prepaid insurance and
prepaid software maintenance contracts with the Ogden, Utah office of the IRS on
Date6, and filed the signed duplicate copy of the Form 3115 for S1 for its change in
method of accounting of determining current-year cost of LIFO inventory with that office
on Date7. Both dates are after Date3 and before Date4.

       Parent filed its consolidated federal income tax return for the taxable year
beginning Date1, and ending Date2, on Date4. Parent attached to this filed return the
originals of the three Forms 3115 mentioned in the preceding paragraph. The filed
return also fully reflects the accounting method changes made by S1 and S2, including
the necessary adjustments under § 481(a).

RULING REQUESTED

         Parent requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-
3 to file the original Forms 3115 and the signed duplicate copies of the originals of the
Forms 3115 described above for S1 and S2 for the taxable year beginning Date1, and
ending Date2.

LAW AND ANALYSIS

        Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as
modified by Rev. Proc. 2017-59, and by section 17.02 of Rev. Proc. 2016-1, provides
the automatic change procedures and the non-automatic change procedures by which a
taxpayer may obtain consent to change its methods of accounting. Pursuant to section
9 of Rev. Proc. 2015-13, a taxpayer that complies with all the applicable provisions of
this revenue procedure and implements the change in method of accounting on its
federal income tax return for the requested year of change to which the original Form
3115 is attached pursuant to section 6.03 of Rev. Proc. 2015-13, has obtained the
consent of the Commissioner of Internal Revenue to change its method of accounting
under § 446(e) and the regulations thereunder.
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        Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing a
method of accounting under the automatic change procedures of 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 signed copy of the original Form 3115 must be filed with the
appropriate office of the IRS no earlier than the first day of the requested year of change
and no later than when the original Form 3115 is filed with the federal income tax return
for the requested 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.

       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 subject to § 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 the
granting of relief will not prejudice the interests of the Government.

       Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory
elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in § 1.446-1(e)(3)(i) or the relief requires an adjustment under §
481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the
accounting method for which relief is requested in a taxable year subsequent to the
taxable year the election should have been made).

CONCLUSION

       Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Parent is granted an extension of time to:

       (1) file the three originals of the Forms 3115 changing S1 and S2’s methods of
       accounting, beginning for the taxable year beginning Date1, and ending Date2,
       and

       (2) file the signed duplicate copies of these original Forms 3115 with the
       appropriate office of the IRS.
PLR-130597-18                                5


In this regard, we will consider the filing of the three original Forms 3115 with Parent’s
consolidated federal income tax return for the taxable year beginning Date1, and ending
Date2, that was filed on Date4, to be timely made. We also will consider the filing of the
signed duplicate copies of the original Forms 3115 with the IRS office in Ogden, Utah,
on Date6 and Date7, as applicable, to be timely made.

       Except as expressly set forth above, we express no opinion concerning the tax
consequences of the facts described above under any other provision of the Code or
regulations. Specifically, no opinion is expressed or implied concerning whether (1) the
accounting method changes S1 and S2 have made are eligible to be made under the
automatic change procedures of Rev. Proc. 2015-13 or under Rev. Proc. 2018-31,
2018-22 I.R.B. 637, or (2) S1 and S2 otherwise meet the requirements of Rev. Proc.
2015-13 to make the accounting method changes using the automatic change
procedures of Rev. Proc. 2015-13. Lastly, we emphasize that this letter ruling does not
grant any extension of time for the filing of Parent’s Form 7004 or its consolidated
federal income tax return for the taxable year beginning Date1, and ending Date2.

      The ruling contained in this letter ruling is based upon facts and representations
submitted by Parent with an accompanying penalty of perjury statement executed by
the appropriate party. While this office has not verified any of the material submitted in
support of this request for an extension of time to file the required Forms 3115, all
material is subject to verification on examination.

      This letter ruling is directed only to Parent, who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

        In accordance with the power of attorney, we are sending copies of this letter
ruling to Parent’s authorized representatives.

                                      Sincerely,

                                      Kathleen Reed

                                      Kathleen Reed
                                      Branch Chief, Branch 7
                                      Office of the Associate Chief Counsel
                                      (Income Tax & Accounting)


Enclosures (2):
      Copy of this letter
      Copy for section 6110 purposes