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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11861
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Under the new new rule abut filing a form 3115

Customer Question

under the new new rule abut filing a form 3115 for changing a accounting method if i have a servers corporation sales about 3M no inventory i wane change from cash to cash to accrual basis for the 2014 return do i have to file the form 3115
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
Hi,
Yes, you don't HAVE to but certainly can ... and DO need to file 3115.
To know if you HAVE to change, add your gross receipts for the most recent tax year to the previous two years and divide by three.
If the average is over $5 million, you have to switch to accrual. Also, you have change if your business carries an inventory and your gross receipts are more than a million.
But yes, to change, complete IRS Form 3115, (including the adjustment to income from switching to accrual)
Attach your P & L and balance sheet for the previous year.
You can file at any time after the first day of the year for the year you want to change, including waiting to file it as an attachment to your tax return for that year.
Unless this is your last year of business, or your currently under an examination/audit you can file under the "automatic change" process, which requires completing sections I, II and III of Form 3115. This gives you automatic approval if you meet the IRS requirements.
If your company IS an exception, again, your last year of business, or you're already under a tax examination -- you have to file for the "advance change," which requires parts II, III and IV.
Let me know if you have questions...
Lane
Customer: replied 2 years ago.
i am asking i wane change to accrual basis but i am asking if i change to accrual basis if i have to file also the Form 3115
Expert:  Lane replied 2 years ago.
Yes, you do ... ANY change after your first year of filing requires IRS permission via 3115, although you can send in the form WITH the return for the year you want to change, you don't hhave to get permission first
Customer: replied 2 years ago.
so what i she new rule?
Expert:  Lane replied 2 years ago.
Generally, the final tangible property regulations that took effect in 2014 are the codification of all previous guidance—temporary regulations, revenue procedures, court cases, etc.—regarding when and how an expenditure or improvement effort should be expensed or capitalized/depreciated. These final authoritative rules set forth various tests, safe harbors, and elections for the tax treatment of typical expenditures. The specific regulations are Reg §§ 1.263(a)-1, 1.263(a)-2, 1.263(a)-3, 1.263(a)-6, 1.162-3, 1.162-4, 1.162-11, 1.167(a)-4, 1.168(i)-1, 1.168(i)-7, 1.168(i)-8 and 1.1016-3. In most of these regulations, it states that a change to comply with these regulations is a change in accounting method, requiring consent of the Commissioner.
Expert:  Lane replied 2 years ago.
Guidance from the IRS before pulling this all together was to capitalize most large purchases, but now the final regulations require testing of all expenditures for being a betterment, adaptation, or restoration to determine if an item should be capitalized.
Expert:  Lane replied 2 years ago.
Guidance from the IRS before pulling this all together was to capitalize most large purchases, but now the final regulations require testing of all expenditures for being a betterment, adaptation, or restoration to determine if an item should be capitalized.
Expert:  Lane replied 2 years ago.
Essentially, the assumption is that every business with material and supplies or depreciation has been using an incorrect method of accounting, because the final regulations adopted some new guidance contrary to “how it was always done before.” Chances of a tax return audit increase significantly if a Form 3115 is not filed.
Expert:  Lane replied 2 years ago.
Other questions?
Customer: replied 2 years ago.
so i have to file the 3115?
Expert:  Lane replied 2 years ago.
Yes ... I thought you were asking about making a change from cash to accrual ... Yes every business that uses depreciation has to ...
Expert:  Lane replied 2 years ago.
There's the potential permanent loss of deductions, penalties, (and risk of an IRS audit) for those who do not file a Form 3115. Under the “use it or lose it” rules of depreciation, any improperly capitalized (and depreciated) assets or repairs could be permanently lost as a deduction.
Expert:  Lane replied 2 years ago.
I hope this helped
Expert:  Lane replied 2 years ago.
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Customer: replied 2 years ago.
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Expert:  Lane replied 2 years ago.
Hi,
I see you requested the phone consult.
I'll make the offer, and then, you accept by clicking on "Get More Help"
This way an encrypted channel will open up (a smaller box on your screen) where only we can see what's being shared.
Once you accept, I'll enter my office phone
Lane
Expert:  Lane replied 2 years ago.
Hi,
… just checking back in to see how things are going.
Did my answer help?
Let me know…
Lane