July 14, 2015

Form 3115 Audit Protection Procedures for Taxpayers Under Examination

Form 3115 Audit Protection Procedures for Taxpayers Under Examination

Taxpayers under examination who are seeking to file a change of accounting method should begin filing this week, based on newly established filing time windows established by a new IRS guidance issued in June 2015. Under new Rev. Proc. 2015-33, taxpayers now have a three-month period in which to file for a change in accounting method and receive audit protection, running from July 15th to October 15th.

In January 2015, the IRS issued Revenue Procedure 2015-13, which changed the rules for companies under examination seeking an accounting method change. (Rev. Proc. 2015-13 “clarifies, modifies and supersedes” Rev. Proc. 2011-14, which was the previous procedure for all accounting method changes). The new procedure changed the rules for when a taxpayer under examination who is filing Form 3115 “Application for Change in Accounting Method” receives audit protection.

Prior to the issuance of 2015-13, a taxpayer under examination was unable to file the change unless the application was filed within a certain time window or director consent was obtained. Further, changes lacked audit protection. This imposed limitations that severely restricted taxpayers’ ability to change from impermissible to permissible accounting methods. The issuance of Rev. Proc. 2015-13 gave taxpayers under examination the right to file Form 3115 at any time while under examination. However, the taxpayer received audit protection only if certain exceptions were met, including filing Form 3115 within a three-month window, and provided that the change item requested was not already under examination. The three-month window would begin on the 15th day of the seventh month of the tax year and end on the 15th day of the tenth month of the tax year.

In June 2015, the IRS released Revenue Procedure 2015-33, which modified and clarified certain provisions of Rev. Proc. 2015-13. Rev. Proc. 2015-33 modified the transition rules and increased the allowable time for filing Form 3115 when a taxpayer is under examination. The transition rule in Rev. Proc. 2015-13 allowed taxpayers to file Form 3115 within a 90-day period. Under new procedures, Rev. Proc. 2015-33, allows taxpayers to file within a three-month period, which runs from July 15th to October 15th.

Therefore, any taxpayer required to file a change (including the mandated changes related to the Tangible Property Regulations) and presently under examination should plan to file the change application (Form 3115) between July 15 and October 15, 2015 in order to ensure audit protection and other favorable terms.

Contact your Marcum Tax Advisor to ensure your filing meets the requirements of the new procedures.