How to Change Your Tax Filing Method to Benefit from Tangible Property Regulations

Changing your method of accounting under the Internal Revenue Code often involves altering how you handle specific expenditures. Particularly in the context of tangible property regulations, this means deciding whether to expense or capitalize an expenditure. Such a change can also affect the timing of recognizing an expense or capitalized asset.

For instance, if you decide to switch from capitalizing repairs to expensing them under the tangible property regulations, you must obtain the Commissioner’s consent. Fortunately, the IRS offers an automatic consent change form for many standard accounting method changes, which does not require a fee.

To generally receive an automatic accounting change, you need to complete, sign, and file IRS Form 3115, known as the Application for Change in Accounting Method. This form must be included with your timely filed tax return (including any extensions) for the year you wish to make the change. Importantly, you cannot submit Form 3115 retroactively, late, or with an amended return. Additionally, you must mail a duplicate copy of Form 3115 to the Internal Revenue Service in Ogden, UT 84201 M/S 6111.

Form 3115 requires you to identify the taxpayer, describe the methods being changed, specify the property involved in the change, and, most crucially, include a §481(a) adjustment if applicable. The §481(a) adjustment ensures that expenditures treated under the old method are accounted for, preventing any duplication in your taxable income.

For further details, you can refer to Rev. Proc. 2015-13, 2015-5 I.R.B. 419, and sections 6.37-6.40 and 10.11 of Rev. Proc. 2015-14, 2015-5 I.R.B. 450.

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