Publication 538 - Accounting Periods And Methods (Page 17 of 19) in pdf

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the difference between the original value of the

An adjustment of any item of income or

During the 120-day period following the

inventory and the revalued inventory.

deduction that does not involve the proper

date an examination ends, regardless of

time for including it in income or

whether a subsequent examination has

If you must capitalize costs for production

deducting it.

begun, and the method of accounting is

and resale activities, you are required to make

not an issue under consideration.

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this change. If you make the change for the first

An adjustment in the useful life of a depre-

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tax year you are subject to the uniform capitali-

ciable asset.

With the permission of the IRS director for

zation rules, it is an automatic change of ac-

your area.

counting method that does not need IRS

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Filing Form 3115

If the method of accounting to be changed

approval. Otherwise, IRS approval is required to

is an issue pending for tax years under

make the change.

examination. (An issue is pending if the

In general, you must file a current Form 3115 to

IRS has given you written notification indi-

request a change in either an overall accounting

More information. For information about the

cating an adjustment is being made or will

method or the accounting treatment of any item.

uniform capitalization rules, see the section

be proposed with respect to your method

Attach any required user fee. No user fee is

263A regulations.

of accounting.)

required for an automatic change (discussed

later).

Revenue Procedure 97 – 27 is in Cumulative

You must file Form 3115 during the tax year

Bulletin 1997 – 2, and Revenue Procedure

for which the change is requested. You should

Change in

2002 – 19 is in Internal Revenue Bulletin

file as early in the year as possible to give the

2002 – 13.

IRS enough time to respond to the form before

Accounting Method

the original due date of the return for the year of

Automatic Change

change. If you do not file a Form 3115 during the

You can generally choose any permitted ac-

year of change, an extension to file the form will

Procedures

counting method when you file your first tax

be granted only in unusual and compelling cir-

return. You do not need IRS approval to choose

cumstances.

These are procedures under which certain tax-

the initial method. You must, however, use the

The IRS normally acknowledges receipt of a

payers can presume to have IRS approval to

method consistently from year to year and it

completed Form 3115 within 30 days after the

change their method of accounting. The ap-

must clearly show your income. See Accounting

applicant’s filing date. See the form instructions

proval is granted for the tax year for which the

Methods, earlier.

if you do not receive an acknowledgment. The

taxpayer requests a change (year of change), if

A change in your accounting method in-

IRS does not acknowledge receipt of Form 3115

the taxpayer complies with the provisions of the

cludes a change not only in your overall system

for automatic change procedures.

automatic change procedures. No user fee is

of accounting but also in the treatment of any

required for an application filed under an auto-

Conference. If you think the IRS may give an

material item. A material item is one that affects

matic change procedure. Generally, you must

unfavorable response to your request to change

the proper time for inclusion of income or allow-

use Form 3115 to request an automatic change.

your accounting method, you can request a con-

ance of a deduction. Although an accounting

For more information, see the form instructions

ference when you file Form 3115. The IRS na-

method can exist without treating an item con-

and Revenue Procedure 2002 – 9, as modified

tional office will arrange one before the IRS

sistently, an accounting method is not estab-

by Revenue Procedure 2002 – 19, Revenue Pro-

formally replies to your Form 3115. If you do not

lished for that item, in most cases, unless the

cedure 2002 – 28, Revenue Procedure

specifically request a conference, the IRS

item is treated consistently.

2002 – 54, and Announcement 2002 – 17, (or

presumes you do not want one.

any successor). Revenue Procedure 2002 – 9 is

IRS Approval

More than one business. You can use differ-

in Internal Revenue Bulletin 2002 – 3. Revenue

ent methods of accounting for separate and dis-

Procedure 2002 – 19 is in Internal Revenue Bul-

Once you have set up your accounting method

tinct businesses. However, if you request a

letin 2002 – 13. Revenue Procedure 2002 – 28 is

and filed your first return, you must generally get

change in accounting method for one of the

in Internal Revenue Bulletin 2002 – 18. Revenue

IRS approval to change the method. If your

businesses, the IRS will consider whether the

Procedure 2002 – 54 is in Internal Revenue Bul-

current method clearly shows your income, the

change creates or shifts profits or losses be-

letin 2002 – 35. Announcement 2002 – 17 is in

IRS will weigh the need for consistency in report-

tween the businesses and whether the pro-

Internal Revenue Bulletin 2002 – 8.

ing against the need for change.

posed method clearly reflects your income. You

must identify each business by name and

If you do not request IRS approval to change

method of accounting.

an accounting method, the absence of IRS ap-

How To Get Tax Help

proval will not be accepted as a defense to any

Incomplete Form 3115. If your application is

penalty.

not properly completed according to the instruc-

You can get help with unresolved tax issues,

tions for a current Form 3115, you will be notified

Approval required. The following changes

order free publications and forms, ask tax ques-

and given 21 days from the date of the notifica-

are examples of types of changes that require

tions, and get more information from the IRS in

tion letter to furnish the necessary information. If

IRS approval.

several ways. By selecting the method that is

you do not submit the required information

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best for you, you will have quick and easy ac-

A change from the cash method to an ac-

within the reply period, the IRS will not process

cess to tax help.

crual method or vice versa.

your Form 3115. However, the IRS can grant up

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to an additional 15 days to furnish the informa-

A change in the method or basis used to

Contacting your Taxpayer Advocate. If you

tion. Your written request for the 15-day exten-

value inventory.

have attempted to deal with an IRS problem

sion must be submitted within the 21-day period.

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unsuccessfully, you should contact your Tax-

A change in the method of figuring depre-

payer Advocate.

Taxpayers under examination. If the IRS

ciation (except certain permitted changes

has contacted you to schedule an examination

The Taxpayer Advocate represents your in-

to the straight-line method for property

terests and concerns within the IRS by protect-

of any of your returns, you can request approval

placed in service before 1981, as ex-

ing your rights and resolving problems that have

to change your accounting method under sec-

plained in Publication 534, Depreciating

not been fixed through normal channels. While

tion 6 of Revenue Procedure 97 – 27 (or any

Property Placed in Service Before 1987).

Taxpayer Advocates cannot change the tax law

successor), as modified by section 2 of Revenue

Procedure 2002 – 19, only under the following

or make a technical tax decision, they can clear

Approval not required. The following are

circumstances.

up problems that resulted from previous con-

not changes in accounting methods and do not

tacts and ensure that your case is given a com-

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require IRS approval.

During the first 90 days of any tax year if

plete and impartial review.

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you have been under examination for at

Correction of a math or posting error.

To contact your Taxpayer Advocate:

least 12 months and the method of ac-

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Correction of an error in figuring tax liabil-

counting is not an issue under considera-

Call the Taxpayer Advocate at

ity (such as an error in figuring a credit).

tion.

1 – 877 – 777 – 4778.

Page 17

Publication 538 - Accounting Periods And Methods Page 17

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