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For farming corporations and partnerships with a C

1. A home construction contract as defined in section

corporation as a partner, see section 447 for limits on the use of

460(e)(6)(A), or

the cash method.

2. Any other construction contract entered into by the

applicant if, at the time the contract is entered into, it is

Use of the cash method is also limited under Regulations

expected to be completed within 2 years and the applicant’s

sections 1.471-1 and 1.446-1(c)(2)(i) if the applicant purchases,

average annual gross receipts determined under section

produces, or sells merchandise that is an income-producing

460(e)(2) for the 3-year period preceding the tax year the

factor in its business. However, for exceptions to this limitation,

contract was entered into did not exceed $10 million.

see section 14.03 in the Appendix of Rev. Proc. 2008 – 52.

Line 4b. Under the simplified cost-to-cost method, only certain

Schedule B—Change to the Deferral

costs are used in determining both (a) costs allocated to the

Method for Advance Payments

contract and incurred before the close of the tax year and

(b) estimated contract costs. These costs are: (1) direct material

In general, advance payments must be included in gross

costs; (2) direct labor costs; and (3) allowable deductions for

income in the tax year of receipt for federal income tax

depreciation, amortization, and cost recovery allowances on

purposes. However, an applicant may be entitled to defer the

equipment and facilities directly used to construct or produce

inclusion in income of certain advance payments, as defined in

the subject matter of the long-term contract. See Regulations

section 4.01 of Rev. Proc. 2004-34, 2004-1 C.B. 991, or in

section 1.460-5(c).

Regulations section 1.451-5(a)(1).

Part II—Change in Valuing Inventories Including

Line 1. Rev. Proc. 2004-34 allows applicants using an accrual

Cost Allocation Changes

method, in certain circumstances, to defer the inclusion in

income of advance payments to the next tax year. Applicants

If the applicant is currently using a LIFO inventory method or

requesting to change to the Deferral Method for allocable

submethod and is changing to another LIFO inventory method

payments described in section 5.02(4)(a) of Rev. Proc. 2004-34

or submethod, Schedule D, Part II is not applicable. Use

(other than allocable payments described in section 5.02(4)(c)

Schedule C, Changes Within the LIFO Inventory Method.

of Rev. Proc. 2004-34) or for payments for which a method

Line 3. If an applicant is subject to, but not in compliance with,

under section 5.02(3)(b)(i) or (iii) of Rev. Proc. 2004-34 applies,

section 263A, generally on the same Form 3115 the applicant

must file under the advance consent procedures of Rev. Proc.

must first comply with section 263A before changing an

97-27. All other applicants generally must file under the

inventory valuation method. The applicant must complete

automatic change procedures of Rev. Proc. 2008-52.

Schedule D, Part III, Method of Cost Allocation. For exceptions,

Line 2. Regulations section 1.451-5 allows applicants using an

see Regulations section 1.263A-7(b)(2).

accrual method, in certain circumstances, to defer the inclusion

Line 5a. If the applicant properly elected the LIFO inventory

in income of advance payments for goods or items in

method but is unable to furnish a copy of Form(s) 970,

accordance with the applicants financial reports.

Application to Use a LIFO Inventory Method, attach the

following statement to Form 3115:

Schedule C—Changes Within the LIFO

“I certify that to the best of my knowledge and belief (name

Inventory Method

of applicant) properly elected the LIFO inventory method by

filing Form 970 with its return for the tax year(s) ended (insert

Use this schedule to request a change from one LIFO inventory

date(s)) and otherwise complied with the provisions of section

method or submethod to another LIFO inventory method or

472(d) and Regulations section 1.472-3.”

submethod. All applicants changing within the LIFO inventory

method or submethods must complete Part I. Complete Part II

Line 5c. Attach the two statements required by section

only if applicable.

22.01(5) in the Appendix of Rev. Proc. 2008 – 52.

Part I—General LIFO Information

Part III—Method of Cost Allocation

Applicants requesting to change their method of accounting for

Line 6. Applicants changing to the IPIC method must use this

any property (produced or acquired for resale) subject to

method for all LIFO inventories. This includes applicants

section 263A or any long-term contracts as described in section

requesting designated automatic accounting method change

460 must complete this schedule.

numbers 61 or 62 in the List of Automatic Accounting Method

Changes, later.

If the change is for noninventory property that is subject to

section 263A, attach a detailed description of the types of

Schedule D—Change in the Treatment of

property involved.

Long-Term Contracts Under Section 460,

There are several methods available for allocating and

capitalizing costs under section 263A, and for allocating and,

Inventories, or Other Section 263A

where appropriate, capitalizing costs properly allocable to

long-term contracts. A change to or from any of these methods

Assets

is a change in accounting method that requires IRS consent.

Using the applicable regulations and notice listed below, the

Part I—Change in Reporting Income

applicant should verify which methods are presently being used

From Long-Term Contracts

and the proposed methods that will be used before completing

Line 2a. Under section 460(f), the term long-term contract

Schedule D, Part III. These methods are as follows:

means any contract for the manufacture, building, installation,

1. Allocating Direct and Indirect Costs

or construction of property that is not completed in the tax year

•

Specific identification method — Regulations sections

in which it is entered into. However, a manufacturing contract

1.263A-1(f)(2) and 1.460-5.

will not qualify as long-term unless the contract involves the

•

Burden rate method — Regulations sections 1.263A-1(f)(3)(i)

manufacture of (a) a unique item not normally included in

and 1.460-5.

finished goods inventory or (b) any item that normally requires

•

Standard cost method — Regulations sections

more than 12 calendar months to complete.

1.263A-1(f)(3)(ii) and 1.460-5.

Generally, long-term contracts that do not meet the

•

Any other reasonable allocation method — Regulations

exceptions under section 460(e) must be accounted for using

sections 1.263A-1(f)(4) and 1.460-5.

the percentage of completion method. See section 460 and the

related regulations.

2. Allocating Mixed Service Costs

•

Line 2b. To qualify for the contract exceptions under section

Direct reallocation method — Regulations section

460(e), the contract must be:

1.263A-1(g)(4)(iii)(A).

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Instructions For Form 3115 - Application For Change In Accounting Method - Internal Revenue Service - 2009 Page 8

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