S corporation gets 60 days to attach omitted Form 3115

Plain-English summary

An S corporation commissioned a cost-segregation study and intended to change its depreciation accounting method under the automatic procedures of Revenue Procedure 2015-13. A signed copy of Form 3115 was timely mailed to the IRS, and the corporation's return reflected the intended section 481(a) adjustment, but its former accounting firm failed to attach the original Form 3115 to the electronically filed return. The IRS concluded that the requirements for regulatory-election relief were satisfied and granted 60 days to file an amended return with the Form 3115 and a copy or identifying statement for the ruling. The IRS did not decide whether the method change qualified for automatic consent or whether the depreciation treatment was correct.

Ruling snapshot

• Question: Could the S corporation receive additional time to satisfy the original Form 3115 filing requirement for its accounting-method change?
• Outcome: Approved, with 60 days to file an amended return carrying the required Form 3115.
• Key authorities: IRC §§ 446(e) and 481(a); Treas. Reg. §§ 1.446-1(e), 301.9100-1, and 301.9100-3; Rev. Proc. 2015-13.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201951002 Third Party Communication: None
Release Date: 12/20/2019 Date of Communication: Not Applicable
Index Numbers: 9100.10-01
Person To Contact:
------------------ ---------------- ---------------------------, ID No. ---------------
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------------------------------ Telephone Number/Fax Number:
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Refer Reply To:
CC:ITA:B07
PLR-104256-19
Date:
August 29, 2019

In re: Request For An Extension Of Time To File a Form 3115, Application for Change
in Accounting Method

LEGEND

Taxpayer ----------------------------
-----------------------------
CPA ----------------
A ---------------------------------------------------------
--------------------------------------------
B --------------------------------------------------------
Year1 -------
Date1 ----------------------------
Date2 -------------------
Date3 ----------------------
Date4 ------------------
Date5 ---------------------------
Date6 ---------------------------
Date7 ------------------------
Date8 -----------------------
Date9 -----------------------

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

   This responds to a letter dated January 22, 2019, and supplemental

correspondence submitted, by Taxpayer requesting an extension of time pursuant to
§§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to file
an original Form 3115, Application for Change in Accounting Method, with Taxpayer’s
timely filed (including extension) federal income tax return for the taxable year ending
PLR-104256-19 2

Date1.
FACTS

     Taxpayer represents that the facts are as follows:
    Taxpayer is a domestic S corporation engaged in the business of A. Taxpayer

files a Form 1120S, U.S. Income Tax Return for an S Corporation, on a calendar-year
basis. Taxpayer’s overall method of accounting is the cash method.
On Date2, Taxpayer engaged CPA to prepare a cost segregation study regarding
the acquisition and construction costs pertaining to Taxpayer’s properties in several
states. The study was to determine the appropriate modified accelerated cost recovery
system asset classifications for federal income tax purposes. CPA finalized the report
for each location summarizing the segregated assets by asset class, including allocated
indirect costs, and computing the corresponding tax depreciation. CPA provided these
reports to Taxpayer in Date3. Additionally, CPA provided this information to Taxpayer’s
former accounting firm for purposes of preparing Taxpayer’s federal income tax return
for the Year1 taxable year.
At Taxpayer’s request, CPA prepared a Form 3115 in accordance with the
automatic change procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, and section
6.01 of the List of Automatic Changes revenue procedure (designated automatic
change number 7), requesting to change Taxpayer’s method of accounting for
depreciation. On Date4, CPA provided the completed Form 3115 to Taxpayer with
proper filing instructions. Taxpayer’s president signed the form, and a copy of the
signed Form 3115 was mailed to the Internal Revenue Service in Ogden, UT, prior to
the electronic filing of Taxpayer’s Year1 federal income tax return. The original
completed Form 3115 was sent to Taxpayer’s former accounting firm to be attached to
Taxpayer’s electronically filed Year1 federal income tax return.
On Date7, Taxpayer engaged CPA to: (1) amend Taxpayer’s previously filed
federal income tax returns for the taxable years ended Date5 (the taxable year prior to
the year of change for the Form 3115) and Date1 (the year of change); and (2) prepare
Taxpayer’s federal income tax return for the taxable year ended Date6 (the taxable year
following the year of change).
On Date8, while reviewing Taxpayer’s originally filed federal income tax return for
the Year1 taxable year for purposes of preparing Taxpayer’s amended Year1 federal
income tax return, CPA discovered that the original Form 3115 was not attached to the
copy of Taxpayer’s Year1 federal income tax return. CPA immediately contacted
Taxpayer and asked Taxpayer to contact its former accounting firm to ascertain whether
the Form 3115 was included as an e-file attachment to Taxpayer’s Year1 federal
income tax return electronically filed with the IRS.
On Date9, Taxpayer’s former accounting firm informed Taxpayer that, due to an
oversight, the original Form 3115 was not attached to Taxpayer’s electronically filed
PLR-104256-19 3

Year1 federal income tax return. However, despite Taxpayer’s former accounting firm
inadvertently failed to attach the Form 3115 to Taxpayer’s timely-filed Year1 federal
income tax return, such return was prepared consistent with the intended accounting
method change as it included the § 481(a) adjustment related to the Form 3115 and the
assets in the accounting method change were depreciated consistent with the cost
segregation study and the Form 3115.
Taxpayer subsequently engaged CPA to submit this request.

                               RULING REQUESTED
    Taxpayer requests an extension of time under § 301.9100-3 to refile the Year1

federal income tax return with the appropriately attached Form 3115, to be effective as
of the date of the originally filed Year1 federal income tax return, to be in compliance
with the duplicate filing requirement under section 6.03(1) of Rev. Proc. 2015-13.

                               LAW AND ANALYSIS

   Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain

automatic consent to change certain accounting methods. Section 9 of Rev. Proc.
2015-13 provides that consent of the Commissioner to change its accounting method
under § 446(e) of the Internal Revenue Code and § 1.446-1(e) of the Income Tax
Regulations is granted only if the taxpayer complies with all the applicable provisions of
the revenue procedure and implements the change in method 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.

   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 Form 3115 must be attached to the taxpayer’s timely filed
(including any extension) 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
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.
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 301.9100-1(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.
PLR-104256-19 4

  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 301.9100-3(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,
Taxpayer is granted an extension of 60 calendar days from the date of this letter ruling
to file the required original Form 3115 pertaining to the previously described accounting
method change for Year1. This filing must be made by Taxpayer filing an amended
federal income tax return for that year, and attaching a copy of this letter ruling to the
amended return. A copy of this letter is enclosed for that purpose. Alternatively, a
taxpayer filing its federal income tax return electronically may satisfy this requirement by
attaching a statement to the amended return that provides the date and control number
of the letter ruling.
Except as expressly set forth above, we express no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code or regulations. Specifically, no opinion is expressed or implied on whether: (1) the
accounting method change Taxpayer has made is (a) eligible to be made under the
automatic change procedure of Rev. Proc. 2015-13 or (b) within the scope of section
6.01 of the List of Automatic Changes revenue procedure; or (2) Taxpayer's
depreciation method, recovery period, and convention for any asset that is subject to
the Form 3115 are correct.
The ruling contained in this letter ruling is based upon information and
representations submitted by Taxpayer and accompanied by a penalty of perjury
statement executed an appropriate party. While this office has not verified any of the
material submitted in support of the request for the ruling, all material is subject to
verification on examination.
PLR-104256-19 5

  This letter ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that this ruling may not be used or cited as precedent.

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to Taxpayer’s authorized representatives. We also are sending a
copy of this letter ruling to the appropriate operating division director.

                                      Sincerely,

                                      Charles J. Magee

                                      CHARLES J. MAGEE
                                      Senior Counsel, Branch 7
                                      Office of Associate Chief Counsel
                                      (Income Tax & Accounting)

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

cc: