Privacy Act and Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. Section 446(e) says that you must obtain IRS approval before you change your method of accounting, except where otherwise provided. To obtain this approval, you are required to provide the information requested on this form. This information will be used to ensure that you are complying with the applicable laws, and to figure and collect the right amount of tax. Failure to provide all of the information requested may prevent processing of this form. Providing false information may subject you to penalties. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia for use in the administration of their taxes.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average times are:

Form	Recordkeeping	Learning about the law or the form	Preparing and sending the form to the IRS
3115	20 hr., 34 min.	3 hr., 15 min.	4 hr., 56 min.
Sch. A	4 hr., 18 min.	1 hr., 41 min.	1 hr., 50 min.
Sch. B	4 hr., 47 min.	46 min.	2 hr., 4 min.
Sch. C	27 hr., 1 min.	1 hr., 40 min.	3 hr., 22 min.
Sch. D	5 hr., 1 min.	1 hr., 59 min.	2 hr., 9 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. DO NOT send the tax form to this office. Instead, see When and Where To File on page 2.

General Instructions

Purpose of Form

File Form 3115 to request a change in either an overall accounting method or the accounting treatment of any item. A request for a change in accounting method that includes several unrelated items or submethods of accounting is treated as a separate request for each unrelated item or submethod. Accordingly, file a separate Form 3115 for each unrelated item or submethod. See Rev. Proc. 97-27,1997-1 C.B. 680, and section 9.01 of Rev. Proc. 99-1*, 1999-1 I.R.B. 6, for rules on changing an accounting method.

Note:    For items marked with an asterisk (*), Rev. Proc. 99-1 is updated annually.

When filing Form 3115, applicants must determine if, since May 1999 (the current revision date of Form 3115), the IRS has published an accounting method ruling, notice, or procedure relating to the specific method being changed.

For more information, see Pub. 538, Accounting Periods and Methods.

Automatic Change Procedures

Note:    All section references to Rev. Proc. 98-60, 1998-51 I.R.B. 16 refer to its APPENDIX.

An applicant that timely files and complies with an automatic change procedure obtains consent to change its accounting method. No user fee is required if Form 3115 is filed under one of the following published automatic change procedures.

• Trade or business expenses (section 162).

1. For lawyers handling cases on a contingent fee basis, from treating advances to their clients for litigation costs as deductible business expenses to treating the advances as loans. See section 1.01 of Rev. Proc. 98-60.
2. For taxpayers changing their method of accounting for year 2000 costs (costs incurred to ensure that computer systems are year 2000 compliant). See section 1.02 of Rev. Proc. 98-60.

• Depreciation or amortization (sections 167, 168, and 197).
  1. For taxpayers changing from an impermissible method for depreciation, under which taxpayers claimed less depreciation than allowable, to a permissible method of depreciation, under which the taxpayers will claim the depreciation allowable. See section 2.01 of Rev. Proc. 98-60.
  2. For taxpayers changing from one permissible method for depreciation under section 167 to another permissible method for depreciation under section 167. See section 2.02 of Rev. Proc. 98-60.
  3. For taxpayers changing their method of accounting from treating property as sold to treating property as leased and vice versa, and taxpayers changing their method of accounting from treating property as purchased to treating property as leased and vice versa. See section 2.03 of Rev. Proc. 98-60.
• Research and Experimental Expenditures (section 174).
  For taxpayers changing their treatment of expenditures that qualify as research and experimental expenditures under section 174 for a particular project or projects
  • from treating such expenditures as expenses to treating the expenditures as deferred expenses or vise versa;
  • to a different period of amortization for such expenditures that are being treated as deferred expenses; or
  • from treating such expenditures as expenses or deferred expenses to treating the expenditures as capital expenditures under section 263(a) or vice versa. See section 2A.01 of Rev. Proc. 98-60.
• Capital expenditures (section 263).
  1. For taxpayers changing to one of the three alternative methods for package design costs described in Rev. Proc. 97-35, 1997-2 C.B. 448. See section 3.01 of Rev. Proc. 98-60.
  2. For taxpayers changing their method of accounting for line pack gas or cushion gas to a method consistent with the holding in Rev. Rul. 97-54, 1997-2 C.B. 23. See section 3.02 of Rev. Proc. 98-60.
• Uniform capitalization (section 263A).
  For certain small resellers, formerly small resellers, or reseller-producers changing their method for costs subject to section 263A. See section 4.01 of Rev. Proc. 98-60.
• Plan contributions and deferred compensation (section 404).
  For taxpayers changing their method of accounting to comply with Regulations section 404(a)(11) regarding the payment of deferred compensation. See Notice 99-16, 1999-13 I.R.B.10.
• Methods of accounting (section 446).
  1. For certain taxpayers changing to an overall accrual method or to an overall accrual method in conjunction with the recurring item exception under section 461(h)(3) in specified situations. See section 5.01 of Rev. Proc. 98-60.
  2. For accrual method manufacturers, wholesalers, and retailers of motor vehicles or other durable consumer goods that sell multi-year service warranty contracts changing to the service warranty income method described in Rev. Proc. 97-38, 1997-2 C.B. 479. See section 5.02 of Rev. Proc. 98-60.
  3. For manufacturers, wholesalers, and retailers of motor vehicles or other durable consumer goods that purchase multi-year service warranty insurance policies in connection with the sale of multi-year service warranty contracts to customers changing their method of accounting for premiums paid in advance to capitalize the amount paid or incurred and amortize the amount over the life of the insurance policy. See section 5.03 of Rev. Proc. 98-60.
  4. For taxpayers changing their method of accounting from the Rule of 78s method to the constant yield method for stated interest on certain short term consumer loans. See section 5.04 of Rev. Proc. 98-60.
• Obligations issued at discount (section 454). For cash method taxpayers changing the method of accounting for interest income on series E or EE U.S. savings bonds. See section 6.01 of Rev. Proc. 98-60.
• Prepaid subscription income (section 455). For accrual method taxpayers changing their method of accounting for prepaid subscription income to the method described in section 455. See section 7.01 of Rev. Proc. 98-60.
• Taxable year of deduction (section 461).
  1. For accrual method taxpayers changing their method of accounting to treat bonuses or self-insured medical benefits as follows:
     • if the obligation to pay a bonus becomes fixed and certain by the end of the tax year, and the bonus is otherwise deductible, but the bonus is paid more than 2 1/2 months after the end of the tax year, to treat the bonus as deductible in the tax year of the employer in which or with which ends the tax year of the employee in which the bonus is includible in the gross income of the employee, or
     • if the obligation to pay an employee's medical expenses is neither insured nor paid from a welfare benefit fund within the meaning of section 419(e), to treat the liability as incurred in the tax year in which the employee files the claim with the employer. See section 8.01 of Rev. Proc. 98-60.
  2. For accrual method taxpayers changing their method of accounting for real property taxes:
     • to treat the liability for the taxes as incurred in the tax year the taxes are paid,
     • to account for the taxes under the recurring item exception to the economic performance rules, or
     • to revoke an election under section 461(c) (ratable accrual election). See section 8.02 of Rev. Proc. 98-60.
  3. For accrual method taxpayers changing their method of accounting for self-insured liabilities arising under any workers' compensation act, or out of any tort, breach of contract, or violation of law, to treat the liability as incurred in the tax year in which all events have occurred which establish the fact of liability, the amount of the liability can be determined with reasonable accuracy, and payment is made to the person to whom the liability is owed. See section 8.03 of Rev. Proc. 98-60.
  4. For accrual method taxpayers changing their method for FICA and FUTA taxes to a method consistent with Rev. Rul. 96-51, 1996-2 C.B. 36. See section 8.04 of Rev. Proc. 98-60.
  5. For taxpayers changing their method of accounting for cooperative advertising cost to a method consistent with the holding in Rev. Rul. 98-39, 1998-33 I.R.B. 4. See section 8.05 of Rev. Proc. 98-60.
• Inventories (section 471).
  1. For taxpayers changing their method of accounting for cash discounts from the method of including the price of the goods before discount in the cost of goods sold and including in gross income any discounts taken, to the method of reducing the cost of goods sold by the cash discounts and deducting as an expense any discounts not taken, or vice versa. See section 9.01 of Rev. Proc. 98-60.
  2. For taxpayers changing to a method of accounting for estimating inventory shrinkage in computing ending inventory using the retail safe harbor method in section 4 of Rev. Proc. 98-29, 1998-15 I.R.B. 22, or another method provided the taxpayer's present method does not estimate inventory shrinkage and the taxpayer's new method clearly reflects the taxpayer's taxable income. See section 9.02 of Rev. Proc. 98-60.
• Last-in, first-out (LIFO) inventories (section 472).
  1. For taxpayers changing from the LIFO inventory method for all their inventory. See section 10.01 of Rev. Proc. 98-60.
  2. For taxpayers using the LIFO inventory method changing their method of determining the cost of used vehicles purchased or taken as a trade-in, to
     • determine the cost of used vehicles acquired by trade-in using the average wholesale price listed by an official used car guide on the date of the trade-in,
     • determine the cost of used vehicles purchased for cash using the actual purchase price of the vehicle, or
     • reconstruct the beginning-of-the-year cost of used vehicles purchased for cash using values computed by national auto auction companies based on vehicles purchased for cash. See section 10.02 of Rev. Proc. 98-60.
  3. For taxpayers engaged in the trade or business of retail sales of new automobiles or new light-duty trucks changing to the Alternative LIFO Method described in Rev. Proc. 97-36, 1997-2 C.B. 450. See section 10.03 of Rev. Proc. 98-60.
  4. For taxpayers changing their LIFO inventory method to use the inventory price index computation (IPIC) method for their entire LIFO inventory. See section 10.04 of Rev. Proc. 98-60.
  5. For taxpayers using the LIFO inventory method changing to a method of determining current year costs:
     • by reference to the actual cost of the goods most recently purchased or produced,
     • by reference to the actual cost of the goods purchased or produced during the tax year in the order of acquisition, or
     • by application of an average unit cost. See section 10.05 of Rev. Proc. 98-60.
• Mark-to-market accounting method for dealers in securities.
  1. For taxpayers changing their method of accounting to comply with elections out of certain exemptions from dealers status for purposes of section 475. See Rev. Proc. 97-43, 1997-2 C.B. 494.
  2. For taxpayers discontinuing the mark-to-market method of accounting for nonfinancial customer paper to comply with section 475(c)(4) for the taxpayer's first taxable year ending after July 22, 1998. The taxpayer must change to a method other than the lower of cost or market method. See section 10A.01 of Rev. Proc. 98-60.
• Bank reserves for bad debts (section 585). For banks as defined in section 581 (other than large banks as defined in section 585(c)(2)), including banks for which a qualified subchapter S subsidiary election (QSSS) is filed, changing their method of accounting for bad debts from the section 585 reserve method to the section 166 specific charge-off method. See section 11.01 of Rev. Proc. 98-60.
• Original issue discount (section 1273).
  1. For taxpayers changing their method of accounting for de minimis OID (discount) to the principal-reduction method described in Rev. Proc. 97-39, 1997-2 C.B. 485. See section 12.01 of Rev. Proc. 98-60.
  2. For taxpayers required to change their method of accounting for a pool of debt instruments to comply with section 1272(a)(6) for the taxpayer's first taxable year beginning after August 5, 1997. See section 12.02 of Rev. Proc. 98-60.
• Short-term obligations (section 1281).
  1. For taxpayers changing their method of accounting for interest income on short-term obligations to comply with section 1281. See section 13.01 of Rev. Proc. 98-60.
  2. For cash method banks in the Eighth Circuit to change to the cash method for stated interest on short-term loans made in the ordinary course of business. See section 13.02 of Rev. Proc. 98-60.
• Stripped bonds (section 1286). For certain taxpayers under examination that sell mortgages and retain rights to service the mortgages. See Rev. Proc. 91-51, 1991-2 C.B. 779.

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