Late-filing relief to attach four accounting-method-change forms to a corporate return

Plain-English summary

A corporation with two lines of business (manufacturing and distribution) made four accounting-method changes for a tax year using the IRS automatic-change procedures, covering depreciation, the simplified resale and simplified production methods for capitalized costs under § 263A, and the treatment of certain nonrefundable product-development payments. It timely mailed the required copies of Form 3115 to the IRS and gave copies to the agent examining an earlier year, but its accounting firm inadvertently failed to attach the four forms to the original tax return. After the firm discovered the omission, the corporation asked for a late-filing extension under Treasury Regulation § 301.9100-3. Finding it acted reasonably and in good faith (relying on its tax professional) and that relief would not prejudice the government, the IRS granted 45 days to file the four forms, which must be identical to the copies already provided, with no other changes to the return allowed. (A fifth requested change had been withdrawn, and the IRS expressed no view on the merits of any method.)

Ruling snapshot

• Question: May a corporation get a late-filing extension to attach four omitted Forms 3115 to its return?
• Outcome: Approved (45-day extension granted)
• Key authorities: Treas. Reg. §§ 301.9100-1(c) and 301.9100-3; Treas. Reg. § 1.446-1(e); Rev. Proc. 2015-13

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202052010
Release Date: 12/24/2020
Index Number: 9100.00-00

[Third Party Communication:
Date of Communication: Month DD, YYYY]

Person To Contact:
ID No.
Telephone Number:
Refer Reply To: CC:ITA:B06
PLR-109152-20

Date: September 29, 2020

Legend

Taxpayer =
EIN:
Taxable Year =
X =
Y =
Accounting Firm =

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

This letter is in reply to a request for a private letter ruling made by Taxpayer. Taxpayer
initially requested an extension of time under sections 301.9100-1(c) and 301.9100-3 of
the Procedure and Administration Regulations to file five Forms 3115, Application For
Change in Accounting Method, for Taxable Year. This letter ruling is being issued
electronically in accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper
copy will not be mailed to Taxpayer.

                                                  FACTS

Taxpayer is a corporation that files its Form 1120, U.S. Corporation Income Tax Return,
using a fiscal year ending on March 31. Taxpayer represents that it has two separate
businesses within the meaning of section 446(d) of the Internal Revenue Code and
section 1.446-1(d) of the Income Tax Regulations. Taxpayer states that one business
manufactures X. Taxpayer states that the other business involves distributing Y.

Taxpayer engaged Accounting Firm to prepare its Form 1120 and to provide general tax
consulting services for Taxable Year. During this engagement, Taxpayer and
Accounting Firm had discussions about implementing multiple accounting method
changes with this Form 1120.

Taxpayer believed that all five accounting method changes that were initially at issue in
this letter ruling were implemented via the automatic change procedures of Rev. Proc.
2015-13, 2015-5 I.R.B. 419. Subsequent to the filing of the request for a ruling,
Taxpayer withdrew one of its five requests for an extension of time to file a Form 3115.

The remaining four accounting method changes that Taxpayer believes are
implemented via the automatic change procedures of Rev. Proc. 2015-13, as identified
by Taxpayer, are:

1. To change its method for depreciating assets used in its business. Taxpayer
   "placed assets consisting of tangible personal property and land
   improvements in service on various dates between March 1, -------, and
   January 1, -------, and owned the assets as of the beginning" of Taxable Year.

2. To change its method for section 263A costs of its Y division "to utilize the
   simplified resale method."

3. To change its method for section 263A costs of its X division to "utilize the
   simplified production method."

4. To change its method for "product development related payments made to a
   third party with which Taxpayer has a contract when such payments are
   nonrefundable and do not guarantee Taxpayer with any future volume of
   business with the third party under the contract."

Regarding these four accounting method changes, Taxpayer represents that it timely
mailed the required four copies of the Forms 3115 to the appropriate office of the
Internal Revenue Service (IRS) as required by Rev. Proc. 2015-13. Taxpayer also
represents that it timely provided the four copies of the Forms 3115 to the revenue
agent examining its Form 1120 for a previous year. It represents that none of the four
accounting methods involved in this letter ruling was or is being questioned by the
agent. However, due to an oversight by the Accounting Firm, the original four Forms
3115 were not attached to the Form 1120 timely filed for Taxable Year.

Subsequent to the filing of the Form 1120 for Taxable Year, Accounting Firm discovered
that the required Forms 3115 had not been attached to Taxpayer's Form 1120 for
Taxable Year. Upon realizing this mistake, Accounting Firm informed Taxpayer and
promptly prepared this request for a letter ruling to obtain an extension of time under
sections 301.9100-1(c) and 301.9100-3 to file the missing Forms 3115.

Accounting Firm has said that it had prepared Taxpayer's Form 1120 for Taxable Year
as if all of the accounting method changes had been properly implemented.
Specifically, the Form 1120 was filed as if the proposed methods were in effect for
Taxable Year and all appropriate adjustments, for example, those required by section
481(a), were reflected. Further, any and all Forms 1120 filed by Taxpayer subsequent
to Taxable Year have been filed by Taxpayer as if the accounting methods had been
properly implemented in Taxable Year.

                             RULING REQUESTED

Taxpayer requests an extension of time for filing the required Forms 3115 for Taxable
Year under sections 301.9100-1(c) and 301.9100-3.

                              LAW AND ANALYSIS

Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a
reasonable extension of time under the rules set forth in sections 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 regulations
published in the Federal Register, or in a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin.

The four requested accounting method changes are regulatory elections as defined
under section 301.9100-1(b) because the due date of the changes are prescribed in
section 1.446-1(e) and section 6.03(3)(a) of Rev. Proc. 2015-13.

Section 301.9100-2 provides for automatic extensions of time for making certain
elections. Section 301.9100-3 provides for extensions of time for making elections that
do not meet the requirements of section 301.9100-2. Taxpayer's request for an
extension of time must be analyzed under the requirements of section 301.9100-3
because the automatic provisions of section 301.9100-2 are not applicable.

Requests for relief under section 301.9100-3 will be granted when a taxpayer provides
evidence to establish to the satisfaction of the Commissioner (i) that the taxpayer acted
reasonably and in good faith and (ii) that granting relief will not prejudice the interest of
the government. See section 301.9100-3(a).

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 a regulatory election is discovered by
the IRS;
(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, the
taxpayer was unaware of the necessity of the election;
(iv) reasonably relied on written advice of the IRS; 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 is deemed not 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 section 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 and chose not to file the election; or
(iii) uses hindsight in requesting relief.

Section 301.9100-3(c)(i) 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 (taking into account the time value of money). The
section also provides that, if the tax consequences of more than one taxpayer are
affected by the election, the government's interests are prejudiced if extending the time
for making the election may result in the affected taxpayers, in the aggregate, having a
lower tax liability than if the election had been timely made.

Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the government are
ordinarily prejudiced if the taxable year in which the regulatory election should be 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 under section
6501(a) before the taxpayer's receipt of a ruling granting relief under this section.

                                  CONCLUSION

On the basis of Taxpayer's representations, we conclude that the requirements of
sections 301.9100-1(c) and 301.9100-3 have been satisfied. Accordingly, we hereby
grant an extension of time for Taxpayer to file the original four Forms 3115 that
should have been attached to its Form 1120 that was filed for Taxable Year. These
Forms 3115 must be identical to the copies of the Forms 3115 that had been filed with
the appropriate IRS office and provided to the examining agent. No other revision to
the Form 1120 filed for Taxable Year can be made. This extension shall be for a period
of 45 days from the date of this letter ruling.

Except as expressly set forth above, this office neither expresses nor implies any
opinion concerning any tax consequences arising from the facts described above under
any other provision of the Code or regulations. This ruling merely permits Taxpayer to
file the original of the four Forms 3115 late. We have no opinion, expressed or implied,
on the propriety of Taxpayer's present and proposed methods of accounting for
depreciating each asset, or on the propriety of Taxpayer's classification of each asset
under section 168(e). We have no opinion, expressed or implied, regarding the
application of the simplified resale method or the simplified production method for the Y
and X businesses, respectively. Also, we have no opinion, expressed or implied,
regarding the propriety of how Taxpayer accounts for product development related
payments made to a third party. We have no opinion, expressed or implied, as to
whether any of the accounting method changes discussed in this letter ruling should be
approved by a director in connection with the examination of Taxpayer's Federal
income tax return. If applicable, this relief under sections 301.9100-1(c) and
301.91003, is disregarded for purposes of determining the amounts of all section 965
elements of all United States shareholders of Taxpayer if the relief otherwise would
change the amount of any section 965 element of any such United States shareholder.
See section 1.965-4(c)(1).

As mentioned, Taxpayer initially requested an extension of time to file five Forms 3115
and one of these five requests was withdrawn. We do not intend to provide any
opinion, expressed or implied, regarding the withdrawn request in this letter ruling and
no inference shall be drawn as to our views regarding this request or its withdrawal by
Taxpayer.

The ruling contained in this letter is 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 this request for an extension of time to file the required original of the Forms
3115, all material is subject to verification on examination.

This ruling is directed only to Taxpayer 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 on file with this office, a copy of this letter is
being sent to each of Taxpayer's authorized representatives.

                                         Sincerely,

                                         Cheryl L. Oseekey
                                         Senior Counsel, Branch 6
                                         Office of Associate Chief Counsel
                                         (Income Tax & Accounting)

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