April 25, 2023

Internal Revenue Service Has Revised Form 3115

This article was written by Kyle R. Young, CCSP & Ben Trotman, CPA

Announcement 2023-12 informs taxpayers and practitioners that the Internal Revenue Service has revised Form 3115, Application for Change in Accounting Method, and its instructions. The Form 3115 (Rev. December 2022) is the current Form 3115 (December 2022 Form 3115) and replaces the December 2018 version of the Form 3115.

The IRS encourages all taxpayers to use the December 2022 Form 3115. However, to allow for a reasonable period for taxpayers to transition to the December 2022 Form 3115, the IRS will accept either the December 2022 Form 3115 or the December 2018 Form 3115 if filed by a taxpayer on or before April 18, 2023, unless the use of the December 2022 Form 3115 is specifically required by guidance published in the Internal Revenue Bulletin. Taxpayers filing Form 3115 after April 18, 2023, must use the December 2022 Form 3115.

The revised Form 3115 includes changes related to the deferral method for advance payments, cost offset methods, and/or the applicable financial statement income inclusion rule and changes to the treatment of research and experimental expenditures. Specified research or experimental expenditures paid or incurred in tax years beginning after 2021 can no longer be deducted. Instead, these costs must be capitalized and amortized over a 5-year period for amounts attributable to domestic research and over a 15-year period for amounts attributable to foreign research. Further details regarding the change in treatment of these expenditures can be found in Rev. Proc. 2023-11.

MSC frequently prepares Form 3115, DCN #7 for cost segregation studies. The revised Form 3115 requires disclosure of any tax credit claimed, subsidy, or grant received with respect to the property subject to the change and disclosure of any necessary adjustments to the property’s basis required under the Code. It is MSC’s opinion that this additional disclosure requirement is to ensure proper and accurate reporting of the property and to fully evaluate eligibility for bonus depreciation.

MSC takeaways & best practices:

  1. Although there are few changes for most taxpayers, the new form must be used.
  2. MSC encourages the duplicate copy to be faxed on or shortly after the filing of the tax return. We know tax planning is fluid, even over multiple years; this practice ensures consistent and accurate filing.
  3. The new and old instructions state that for the latest information about developments related to the form, such as legislation enacted after they were published, go to IRS.gov/Form3115.

Other Useful Links:

Form 3115

3115 Instructions

Rev. Proc. 2015-13

MSC completes the Form 3115 for each project that requires it’s use. We have already contacted each client/CPA impacted to ensure proper filing. Please reach out if you require assistance or if you have any questions.