Form 3115 - Dec 2022

Everything you need to know about IRS form 3115

What is Form 3115 used for?

Form 3115, the Application for Change in Accounting Method, is how taxpayers ask the IRS for consent to change either an overall accounting method or the treatment of a single item. Section 446(e) of the tax code requires this consent before you switch methods for federal income tax purposes.

The form covers a wide range of changes. Common examples include moving from cash to accrual accounting, switching inventory valuation methods and correcting how an asset is depreciated. It is the IRS mechanism for making the change cleanly, rather than fixing the issue on a past return.

How do you fill out Form 3115 for missed depreciation?

Missed or incorrect depreciation counts as an impermissible accounting method, and Form 3115 is the only accepted way to fix it. You cannot correct it by amending a prior return such as a 1040-X or 1120-X. Instead, the entire cumulative effect is captured in the current year through a Section 481(a) adjustment.

• To complete it for this purpose, you generally follow these steps:
• Identify the asset and the depreciation that should have been claimed in prior years.
• Subtract the depreciation actually claimed to find your Section 481(a) adjustment.
• Apply the correct Designated Change Number (DCN) for the depreciation change.
• Attach the form to your current-year return and send a signed copy to the IRS.

A positive adjustment, meaning you under-deducted before, lets you claim the shortfall and is favorable to you. Depreciation calculations get complex quickly, so many filers work with a CPA or cost segregation specialist.

Can you file Form 3115 by itself?

No, Form 3115 is not filed on its own for automatic changes. You attach the original to your timely filed federal income tax return for the year of change, including any extension. A signed duplicate copy then goes to the IRS service center in Ogden, Utah.

Non-automatic changes work differently. Those are mailed to the IRS National Office during the tax year of the change, and you must wait for written consent before the change takes effect. Knowing which category your change falls into determines how and when you file.

When is Form 3115 due, and do you file it every year?

You do not file Form 3115 every year. It is filed once for each accounting method change, in the year that change takes effect. For automatic changes the deadline matches your tax return due date, including extensions, since the form is attached to that return.

Non-automatic changes follow a tighter schedule and are generally submitted during the tax year of the change, with no extension available. There is no statute of limitations on the form, so a needed adjustment can reach as far back as required.

Is there a penalty for not filing Form 3115?

There is no flat penalty simply for not filing, but skipping it carries real risk. If the IRS spots an incorrect method first, it can force the change in a later year on unfavorable terms and take away your control over the timing.

You can also lose deductions in the meantime. Until the adjustment is made you cannot claim further depreciation on the affected asset, and selling it without correcting the method can mean losing the write-off entirely. Filing protects the deduction and reduces exposure during an examination.

Does Form 3115 trigger an audit?

Filing Form 3115 does not automatically trigger an audit. It is a routine compliance form, and automatic changes are pre-approved by the IRS under its published procedures. Filing correctly actually lowers risk by bringing an impermissible method into compliance.

That said, accuracy matters. A poorly prepared Section 481(a) calculation or a missing Designated Change Number can invite questions. Clean workpapers and the correct procedure are the best protection against follow-up from the IRS.

How much does it cost to file Form 3115?

The cost depends on the type of change. Automatic changes, which include most depreciation corrections, do not require a user fee. This makes catching up on missed depreciation relatively low cost from a filing standpoint.

Non-automatic changes do require a user fee paid to the IRS, with the current amount set in the annual revenue procedure. Beyond IRS fees, many filers pay a CPA or specialist to prepare the form, since the calculations and eligibility rules are detailed.

Need to file Form 3115? Our fillable template helps property owners and businesses apply method changes and claim missed depreciation without the formatting headache. Fill it in online, save as a clean PDF and keep a copy for your records. Try it today for free.