Application for Change in Accounting Method

Form 3115

(Rev. February 1996) OMB No. 1545-0152

© See page 1 of the instructions for Automatic Change Procedures. Department of the Treasury

Internal Revenue Service

Name of applicant (If joint return is filed, also give spouse’s name.) Identifying number (See page 2 of the instructions.)

Number, street, and room or suite no. (If a P.O. box, see page 2 of the instructions.) Due date for filing Form 3115

City or town, state, and ZIP code District director’s office having jurisdiction

Name of person to contact (If not the applicant, a power of attorney must be submitted.) Contact person’s telephone number/Fax number

( )

Check the appropriate box to indicate 

who is filing this form. Partnership

Check the appropriate box to indicate the type of

accounting method change being requested. (See page

2 of the instructions.)

Individual S Corporation

Depreciation or Amortization

Corporation Insurance Co. (Sec. 816(a))

Financial Products and/or Financial Activities of

Financial Institutions

Qualified Personal Service Corporation

(Sec. 448(d)(2))

Cooperative (Sec. 1381) Insurance Co. (Sec. 831)

Exempt organization. Enter code section ©

Other (specify) ©

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For Paperwork Reduction Act Notice, see page 1 of the instructions. Cat. No. 19280E Form 3115 (Rev. 2-96)

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Eligibility To Request Change (All applicants complete Parts I through IV unless otherwise indicated.)

Is the applicant changing its method of accounting under a revenue procedure or other published IRS document that

provides for automatic changes? (See page 1 of the instructions.)

If “Yes,” enter the citation of the revenue procedure or the title of the applicable document. ©

Is the applicant a member of an affiliated group filing a consolidated return for the year of change?

If “Yes,” attach the parent corporation’s (1) name, (2) identifying number, (3) address, and (4) tax year. If “No,” go to

line 3a.

Do all other members of the affiliated group use the method of accounting being requested on this application?

If “No,” attach an explanation.

Prior to submitting Form 3115, has the applicant, or any member of the affiliated group that has been included in a

consolidated return with the applicant, been contacted by the IRS to schedule an examination of any of its Federal

income tax returns, or was an examination in process? See section 3.02 of Rev. Proc. 92-20, 1992-1 C.B. 685

If “Yes,” complete lines 3b and 3c.

Indicate the “window period” referred to in section 6 of Rev. Proc. 92-20 that applies, or state if the change is being

requested with the consent of the district director under section 6.06. ©

Has a copy of this Form 3115 been provided to the district director? See section 10.06 of Rev. Proc. 92-20

Does the applicant have any Federal income tax returns under consideration by an appeals office? See section 4.02

of Rev. Proc. 92-20

If “Yes,” has the applicant attached the required statement from the appeals officer?

Does the applicant have any Federal income tax returns under consideration before any Federal court? See section

4.03 of Rev. Proc. 92-20

If “Yes,” has the applicant attached the required statement from counsel for the Government?

Is this the first tax year the applicant is required to change its method of accounting under the Internal Revenue Code

or regulations? (i.e., sections 263A, 447, 448, 460, or 585)

If “Yes,” enter the applicable section. ©

Signature—All Applicants (See page 2 of the instructions. )

Under penalties of perjury, I declare that I have examined this application, including accompanying schedules and statements, and to the best of my knowledge

and belief, it is true, correct, and complete. Declaration of preparer (other than applicant) is based on all information of which preparer has any knowledge.

Applicant Parent corporation (if applicable)

Officer’s signature and date Parent officer’s signature and date

Name and title (print or type) Name and title (print or type)

Signature(s) of individual or firm preparing the application and date Name of firm preparing the application

/

Part I

Other (specify) ©
Form 3115 (Rev. 2-96) Page 2

Yes No

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Description of Change

Tax year of change begins (month, day, year) © and ends (month, day, year) ©

Is the applicant applying to change its overall method of accounting?

If “Yes,” check appropriate boxes below to indicate the applicant’s present and proposed methods of accounting. Also

complete Schedule A on page 3.

Attach a copy of all documents directly related to the proposed change. (See page 2 of the instructions.)

If the applicant is not changing its overall method of accounting, attach a description of each of the following:

The item(s) being changed.

The applicant’s present method for the item being changed.

The applicant’s proposed method for the item being changed.

The applicant’s overall method of accounting.

Attach an explanation of whether the proposed method of accounting conforms to generally accepted accounting

principles (GAAP) and state whether the proposed method will be used for financial accounting purposes, including

financial statements. (Insurance companies, see page 2 of the instructions.)

Does the applicant assert that its present method is a Category A method as defined in section 3.06 of Rev. Proc.

92-20?

If “Yes,” attach a statement giving the legal basis for the determination.

Is the applicant’s present method a “Designated B” method as defined in section 3.09 of Rev. Proc. 92-20? (See

page 2 of the instructions.)

If “Yes,” enter the title of the designating document. ©

Attach a description of the applicant’s trade or business, operations, goods and services, and any other types of

activities generating gross income.

Does the applicant have more than one trade or business as defined in Regulations section 1.446-1(d)?

If “Yes,” is each trade or business accounted for separately?

If “Yes,” for each trade or business attach a description of the type of business, the overall method of accounting,

whether the business has changed its accounting method in the last 6 years, and whether the business is changing

its accounting method as part of this application or as a separate application.

Attach a statement addressing whether the applicant has entered (or is considering entering) into a transaction (for

example, a reorganization or merger) to which section 381(c)(4) or (5) applies during the tax year of change. Also include

in the statement an explanation of any changes in method of accounting that resulted (or will result) from the

transaction(s).

Section 481(a) Adjustment

Enter the net section 481(a) adjustment for the year of change. Indicate whether the adjustment is an increase (+) or

a decrease (-) in income. © $

Enter the adjustment that would have been required if the requested change had been made for the tax year preceding

the year of change. Indicate (+) or (-). © $ (See page 3 of the instructions.)

Is any part of the adjustment attributable to transactions between members of an affiliated group, a controlled group,

or other related parties?

If “Yes,” attach an explanation.

Has the adjustment for the year of change been reduced by a pre-1954 amount?

Enter the number of years the present method has been used by the applicant. © (See page 3

of the instructions.)

Enter the applicable period over which the applicant proposes to take the adjustment into account. ©

If the adjustment for the year of change is less than $25,000, does the applicant elect to take the entire adjustment

into account in the year of change?

Enter the NOL, if any, that will expire in the year of change. © $

Enter the credit carryover, if any, that will expire in the year of change. © $

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Attach an explanation of the legal basis supporting the proposed change. Include all authority (statutes, regulations,

published rulings, court cases, etc.) supporting the proposed change. The applicant is encouraged to include a

discussion of any authorities that may be contrary to the proposed change in method of accounting.

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Attach a statement of the applicant’s reasons for the proposed change.

Part III

Part II

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Present method:

Proposed method:

Cash Accrual Other (attach description)

Cash Accrual Other (attach description)

● Applicants filing under an automatic change procedure: Skip lines 11 through 19 and go to line 20.

Enter the gross receipts for the 4 tax years preceding the year of change. (See page 2 of the instructions.)

$ $ $ $
Form 3115 (Rev. 2-96) Page 3

Schedule A—Change in Overall Method of Accounting (If Schedule A applies, Part I must be completed.)

Federal income tax return or other return (e.g., tax-exempt

organization returns) for that period. If the amounts in Part I,

lines 1a through 1g, do not agree with those shown on both the

profit and loss statement and the balance sheet, explain the

differences on a separate sheet.

Attach copies of the profit and loss statement (Schedule F (Form

1040) for farmers) and the balance sheet, if applicable, as of the

close of the tax year preceding the year of change. On a

separate sheet, state the accounting method used when

preparing the balance sheet. If books of account are not kept,

attach a copy of the business schedules submitted with the

Change in Overall Method (See page 3 of the instructions.)

1 Enter the following amounts as of the close of the tax year preceding the year of change. If none, state “None.” Also provide a

breakdown of the amounts entered on lines 1a through 1g.

Amount

a Income accrued but not received $

b Income received or reported before it was earned. Attach a description of the income and the legal basis for the

proposed method (See page 3 of the instructions.)

c Expenses accrued but not paid

Other amounts (specify) ©

d Prepaid expense previously deducted

e Supplies on hand previously deducted

f Inventory on hand previously deducted. Complete Schedule C, Part II

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h Net section 481(a) adjustment (Add lines 1a—1g.) (See page 3 of the instructions.) $

2 Is the applicant also requesting the recurring item exception (section 461(h)) (See page 3 of the instructions.)? Yes No

Change to the Cash Method (See page 3 of the instructions.)

Part I

Part II

Additional Information (Applicants filing under an automatic change procedure, skip Part IV.)

Has the applicant, predecessor, or related party requested or made a change in accounting method or accounting

period in the past 6 years?

If “Yes,” attach a description of each change, the year of change, and whether a ruling letter was received. If a ruling

letter granting the change was received but the change was not made, include an explanation.

Does the applicant, predecessor, or related party currently have pending any request for a private letter ruling, a request

for change in accounting method or accounting period, or a request for technical advice?

If “Yes,” for each such request, indicate the name(s) of the entity, type of request (method, tax year, etc.) and the

specific issue in each request.

Has the applicant attached Form 2848, Power of Attorney and Declaration of Representative? (See page 3 of the

instructions.)

Does the applicant request a conference of right at the IRS National Office if the IRS proposes an adverse response?

Enter the amount of user fee attached to this application. © $ (See page 2 of the instructions.)

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If the applicant qualifies for a reduced user fee for identical accounting method changes, has the information required

by Rev. Proc. 92-90, 1992-2 C.B. 501, been attached?

Applicants requesting a change to the cash method must attach the following information.

A description of the applicant’s investment in capital items and leased equipment used in the trade or business, and the relationship

between these items and the services performed by the business.

A description of inventory items (items that produce income when sold) and materials and supplies used in carrying out the business.

The number of employees, shareholders, partners, associates, etc., and a description of their duties in carrying out the applicant’s

business.

A schedule showing the age of receivables for each of the 4 tax years preceding the year of change.

A schedule showing the applicant’s taxable income (loss) for each of the 4 tax years preceding the year of change.

A profit and loss statement showing the taxable income (loss) based on the cash method for each of the 4 tax years preceding the

year of change.

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Part IV
Form 3115 (Rev. 2-96) Page 4

Schedule B—Changes Within the LIFO Inventory Method (See page 3 of the instructions.)

General LIFO Information

Complete this section if the requested change involves changes within the LIFO inventory method. Also, attach a copy of all Forms 970,

Application to Use LIFO Inventory Method, filed to adopt or expand the use of the LIFO method.

Part I

Part II

Part III

Attach a description of the applicant’s present and proposed LIFO methods and submethods for each of the following items.

Valuing inventory (i.e., unit method or dollar-value method).

Pooling (e.g., by line or type or class of goods; natural business unit; multiple pools; raw material content; simplified dollar-value

method; pooling method authorized under inventory price index (IPI) computation method, etc.).

Pricing dollar-value pools (e.g., double-extension, index, link-chain, link-chain index, IPI computation method, etc.).

Figuring the cost of goods in the closing inventory over the cost of goods in the opening inventory (e.g., most recent purchases,

earliest acquisitions during the year, average cost of purchases during the year, etc.).

If any present method or submethod used by the applicant is not the same as indicated on Form(s) 970 filed to adopt or expand the

use of the method, attach an explanation.

If the proposed change is not requested for all the LIFO inventory, specify the inventory to which the change is and is not applicable.

If the proposed change is not requested for all of the LIFO pools, specify the pool(s) to which the change is applicable.

Attach a statement addressing whether the applicant values any of its LIFO inventory on a method other than cost. For example, if

the applicant values some of its LIFO inventory at retail and the remainder at cost, the applicant should identify which inventory items

are valued under each method.

Change in Pooling Inventories

If the applicant is proposing to change its pooling method or the number of pools, attach a description of the contents and state the

base year for each dollar-value pool the applicant presently uses and proposes to use.

If proposing to use natural business unit (NBU) pools or requesting to change the number of NBU pools, attach the following information

(to the extent not already provided) in sufficient detail to show that each proposed NBU was determined under Regulations section

1.472-8(b)(1) and (2):

A description of the types of products produced by the applicant. If possible, attach a brochure.

A description of the types of processes and raw materials used to produce the products in each proposed pool.

If all of the products to be included in the proposed NBU pool(s) are not produced at one facility, the applicant should explain the

reasons for the separate facilities, indicate the location of each facility, and provide a description of the products each facility produces.

A description of the natural business divisions adopted by the taxpayer. State whether separate cost centers are maintained and if

separate profit and loss statements are prepared.

A statement addressing whether the applicant has inventories of items purchased and held for resale that are not further processed

by the applicant, including whether such items, if any, will be included in any proposed NBU pool.

A statement addressing whether all items including raw materials, goods-in-process, and finished goods entering into the entire

inventory investment for each proposed NBU pool are presently valued under the LIFO method. Describe any items that are not

presently valued under the LIFO method that are to be included in each proposed pool.

A statement addressing whether, within the proposed NBU pool(s), there are items sold to others and transferred to a different unit

of the applicant to be used as a component part of another product prior to final processing.

If the applicant is engaged in manufacturing and is proposing to use the multiple pooling method or raw material content pools,

attach information to show that each proposed pool will consist of a group of items that are substantially similar. See Regulations

section 1.472-8(b)(3).

If the applicant is engaged in the wholesaling or retailing of goods and is requesting to change the number of pools used, attach

information to show that each of the proposed pools is based on customary business classifications of the applicant’s trade or

business.

Change to Inventory Price Index (IPI) Computation Method (See page 3 of the instructions.)

If changing to the IPI computation method, attach the following items.

A completed Form 970.

A statement indicating which indexes, tables, and categories the applicant proposes to use.

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Form 3115 (Rev. 2-96) Page 5

Schedule C—Change in the Treatment of Long-Term Contracts, Inventories, or Other Section 263A Assets

Change in Reporting Income From Long-Term Contracts (Complete Part I and Part III below. See page 3 of the instructions.)

Change in Valuing Inventories (Complete Part III if applicable. See page 3 of the instructions.)

1 Attach a description of the inventory goods being changed.

2 Attach a description of the inventory goods (if any) NOT being changed.

3 Does the proposed change involve a change in the treatment of package design costs? (See page 4 of the

instructions.)

4 Is the applicant’s present inventory valuation method in compliance with section 263A? (See page 4 of the

instructions.)

Check ( u ) the appropriate boxes below that identify the present and proposed

inventory identification and valuation methods being changed and the present

inventory identification and valuation methods not being changed.

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Inventory Not

Being Changed Inventory Being Changed

Present method Proposed method Present method Identification methods:

FIFO

LIFO

Valuation methods:

Cost

Cost or market, whichever is lower

Retail cost

Retail, lower of cost or market

Other (attach explanation)

Enter the value at the end of the tax year preceding the year of change

Copies of Form(s) 970 filed to adopt or expand the use of the method.

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Attach the computation used to determine the section 481(a) adjustment. If the section 481(a) adjustment is based on more than one

component, show the computation for each component.

Method of Cost Allocation (See page 4 of the instructions.)

Complete this part if the requested change involves either

property subject to section 263A or to long-term contracts

subject to section 460. Check ( u ) the appropriate boxes in

Sections B and C showing which costs, under both the present

and proposed methods, are fully included, to the extent required,

in the cost of property produced or acquired for resale under

Yes No

Yes No

Part I

Part II

Part III

Specific identification

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section 263A or allocated to long-term contracts under section

460. If a box is not checked, it is assumed that those costs are

not fully included to the extent required. If a cost is not fully

included, attach an explanation. Mark “N/A” in a box if those

costs are not incurred by the applicant with respect to its

production, resale, or long-term contract activities.

To the extent not already provided, attach a description of the applicant’s present and proposed methods for reporting income from

long-term contracts. If the applicant is a construction contractor, include a description of its construction activities.

Are the applicant’s contracts long-term contracts as defined in section 460(f)(1)? (See page 3 of the instructions.)

If line 2b is “No,” attach an explanation.

If “No,” attach an explanation.

If the applicant is changing from the LIFO inventory method to a non-LIFO method, attach the following information. (See page 4 of

the instructions.)

A statement describing how the proposed method is consistent with the requirements of Regulations section 1.472-6.

The termination event statement required by section 7 of Rev. Proc. 88-15, 1988-1 C.B. 683, or section 9.03 of Rev. Proc. 92-20

(whichever is applicable) and an explanation if there has been a termination event.

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If “Yes,” do all the contracts qualify for the exception under section 460(e)? (See page 3 of the instructions.)

Does the applicant have long-term manufacturing contracts as defined in section 460(f)(2)?

If “Yes,” explain the applicant’s present and proposed method(s) of accounting for long-term manufacturing contracts.

If any of the manufacturing goods are sold or distributed without installation, attach an explanation.

If the applicant is requesting to use the percentage of completion method under section 460(b) for reporting its long-term contract

income, indicate whether the applicant is electing to determine the completion factor for each long-term contract under the simplified

cost-to-cost method. (See page 3 of the instructions.)

Does the applicant want to change the accounting method for all long-term contracts that were outstanding at

the beginning of the year of change?

Attach a statement indicating whether any of the applicant’s contracts are either cost-plus long-term contracts or Federal long-term contracts.

Yes No

Yes No

Yes No

Yes No

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Form 3115 (Rev. 2-96) Page 6

1 Direct material

2 Direct labor

17 Maintenance and repairs that relate to a production, resale, or long-term contract activity

5 Pension and other related costs

16 Utilities

13 Rent

3 Indirect labor

7 Indirect materials and supplies

20 Tools and equipment

21 Quality control and inspection

14 Taxes other than state, local, and foreign income taxes

11 Depreciation, amortization, and cost recovery allowance for equipment and facilities placed in service

and not temporarily idle

12 Depletion

25 Administrative costs (not including any costs of selling or any return on capital)

23 Licensing and franchise costs

4 Officers’ compensation (not including selling activities)

15 Insurance

6 Employee benefits

26 Research and experimental expenses attributable to long-term contracts

19 Rework labor, scrap, and spoilage

22 Bidding expenses incurred in the solicitation of contracts awarded to the applicant

18 Engineering and design costs (not including section 174 research and experimental expenses)

10 Offsite storage and warehousing costs

8 Purchasing costs

9 Handling, processing, assembly, and repackaging costs

27 Interest

28 Other costs (Attach a list of these costs.)

Section C—Other Costs Not Required To Be Allocated

7 Warranty and product liability costs

2 Research and experimental expenses not included on line 26 above

3 Bidding expenses not included on line 22 above

1 Marketing, selling, advertising, and distribution expenses

4 General and administrative costs not included in Section B above

5 Income taxes

6 Cost of strikes

11 Other costs (Attach a list of these costs.)

Section A—Allocation and Capitalization Methods (See page 4 of the instructions.)

Attach a description (including sample computations) of the present and proposed method(s) the applicant uses to capitalize direct and

indirect costs properly allocable to property produced or acquired for resale. Include a description of the method(s) used for allocating

indirect costs to intermediate cost objectives such as departments or activities prior to the allocation of such costs to property produced

or acquired for resale. The description must include the following information.

The method of allocating direct and indirect costs (specific identification method; burden rate method; standard cost method; or

other reasonable allocation method).

The method of allocating mixed service costs (direct reallocation method; step-allocation method; simplified service cost method

using the labor-based allocation ratio; or the simplified service cost method using the production cost allocation ratio).

The method of capitalizing additional section 263A costs (simplified production method with or without the historic absorption ratio

election; simplified resale method with or without the historic absorption ratio election including permissible variations; or the U.S.

ratio method).

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Present method Proposed method

Section B—Direct and Indirect Costs Required To Be Allocated (See Regulations under sections 263A and 451.)

24 Capitalizable service costs (including mixed service costs)

8 Section 179 costs

9 On-site storage

10 Depreciation, amortization, and cost recovery allowance not included on line 11 above
Form 3115 (Rev. 2-96) Page 7

Schedule D—Change in Reporting Advance Payments and Depreciation/Amortization

Change in Reporting Advance Payments (See page 4 of the instructions.)

If the applicant is requesting to defer advance payment for services under Rev. Proc. 71-21, 1971-2 C.B. 549, attach the following

information.

Part I

Change in Depreciation or Amortization (See page 4 of the instructions.)

Applicants requesting approval to change their method of accounting for depreciation or amortization complete this section. Supply this

information for each item or class of property for which a change is requested.

Part II

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Note: If the property has been disposed of before the beginning of the year of change, a method change is not permitted for that property.

See Automatic change for section 167 property in the instructions for Part II, Schedule D, on page 4, for information regarding automatic

changes under Rev. Proc. 74-11, 1974-1 C.B. 420. Also in Part II, see When Not To File Form 3115 for information concerning retroactive

elections and election revocations.

Is depreciation for the property figured under Regulations section 1.167(a)-11 (CLADR)?

If “Yes,” the only changes permitted are under Regulations section 1.167(a)-11(c)(1)(iii).

Is any of the depreciation or amortization required to be capitalized under any Code section (e.g., section 263A)?

If “Yes,” enter the applicable section ©

Has a depreciation or amortization election been made for the property (e.g., the election under section 168(f)(1))?

If “Yes,” state the election made ©

To the extent not already provided, describe the property being changed. Include in the description the type of property, the year

the property was placed in service, and the property’s use in the applicant’s trade or business or income-producing activity.

If the property is residential rental property, did the applicant live in the property before renting it?

Is the property public utility property?

To the extent not already provided in the applicant’s description of its present method, explain how the property is treated under the

applicant’s present method (e.g., depreciable property, inventory property, supplies under Regulations section 1.162-3, nondepreciable

section 263(a) property, property deductible as a current expense, etc.).

If the property is not currently treated as depreciable or amortizable property, provide the facts supporting the proposed change to

depreciate or amortize the property.

If the property is currently treated and/or will be treated as depreciable or amortizable property, provide the following information

under both the present (if applicable) and proposed methods.

The Code section under which the property is depreciated or amortized (e.g., section 168(g)).

If the property is depreciated under section 168, identify the applicable asset class in Rev. Proc. 87-56, 1987-2 C.B. 674. (If none,

state so and explain why.) Also provide the facts supporting the asset class under the proposed method.

The depreciation or amortization method of the property, including the applicable Code section (e.g., 200% declining balance method

under section 168(b)(1)).

The useful life, recovery period, or amortization period of the property.

The applicable convention of the property.

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Sample copies of all service agreements used by the applicant that are subject to the requested change in accounting method.

Indicate the particular parts of the service agreement that require the taxpayer to perform services.

If any parts or materials are provided, explain how the parts or materials relate to the services provided and provide the cost of such

parts or materials as an absolute number and a percentage of the contract price.

If the change relates to contingent service contracts, explain how the contracts relate to merchandise that is sold, leased, installed,

or constructed by the applicant and whether the applicant offers to sell, lease, install, or construct without the service agreement.

A description of the method the applicant will use to determine the amount of income earned each year on contingent contracts and

why that method clearly reflects income earned and related expenses in each year.

If the applicant is requesting a deferral of advance payments for goods under Regulations section 1.451-5, attach the following

information.

Sample copies of all agreements for goods or items requiring advance payments used by the applicant that are subject to the

requested change in accounting method. Indicate the particular parts of the agreement that require the applicant to provide goods

or items.

A statement providing that the entire advance payment is for goods or items. If not entirely for goods or items, a statement that an

amount equal to 95% of the total contract price is properly allocable to the obligation to provide activities described in Regulations

section 1.451-5(a)(1)(i) or (ii) (including services as an integral part of those activities).

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