IRS Grants Extension for Late Form 3115 Filing Due to Accounting Firm Oversight

Taxpayer’s $481(a) Adjustment at Stake Due to Late Form 3115 Filing

The IRS granted a 45-day extension to a taxpayer who filed Form 3115, Application for Change in Accounting Method, after the statutory deadline, preserving a $481(a) adjustment recorded on its return. The adjustment under Internal Revenue Code (IRC) § 481(a)—which ensures income or deductions are not duplicated or omitted when changing accounting methods—was at risk of disallowance due to the late filing. The IRS’s decision hinges on the taxpayer’s request for relief under Treasury Regulations § 301.9100-1 and § 301.9100-3, which allow extensions for late regulatory elections when reasonable cause exists. This ruling underscores the critical role of Form 3115 in accounting method changes and the potential financial consequences of missing filing deadlines.

How an Accounting Firm’s Oversight Led to a Late Form 3115 Filing

For Year 1 and Year 2, the taxpayer—a limited liability company classified as a partnership for federal tax purposes—incorrectly treated certain leased vehicles as owned assets. The vehicles were acquired through finance or operating leases with a third-party lessor, but the taxpayer claimed depreciation and interest deductions as if it owned the assets outright. This misclassification resulted in an overstatement of deductions under Section 167 (depreciation) and Section 163 (interest expense).

In Year 3, the taxpayer engaged its longtime accounting firm to prepare and file Form 3115, Application for Change in Accounting Method, to correct the improper treatment of the leased vehicles. The firm intended to use the automatic consent procedures under Revenue Procedure 2015-13, which allows certain accounting method changes without a private letter ruling. The form was prepared to reflect the change from treating the leased vehicles as owned to recognizing them as lease obligations under Section 446(e), which requires IRS consent for accounting method changes.

The accounting firm submitted a copy of the completed Form 3115 to the IRS in compliance with the filing requirements of Revenue Procedure 2015-13. However, when filing the taxpayer’s Form 1065, U.S. Return of Partnership Income, for Year 3, the firm inadvertently failed to attach the original Form 3115 to the electronically filed return. The Form 1065 was timely filed on Date 5 after the taxpayer requested and received an automatic extension of time to file using Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

In Month 1 following the filing, the accounting firm discovered the oversight through an internal review. The failure to upload the original Form 3115 to the electronically filed Form 1065 meant the method change was not properly documented with the IRS, putting the taxpayer’s Section 481(a) adjustment at risk of disallowance. The firm subsequently submitted a request for an extension of time to file the original Form 3115 under Treasury Regulations § 301.9100-1 and § 301.9100-3, which allow relief for late regulatory elections when reasonable cause exists.

IRS Grants Extension, Citing Taxpayer’s Reasonable and Good Faith Efforts

The IRS granted the taxpayer’s request for an extension under Treasury Regulations § 301.9100-1 and § 301.9100-3, which provide discretionary relief for late regulatory elections when the taxpayer demonstrates reasonable cause and good faith. Section 301.9100-3(a) specifically requires the taxpayer to establish that the late filing resulted from reasonable cause, the election was made in good faith, and granting relief will not prejudice the Government’s interests.

In this case, the IRS concluded the taxpayer met these standards. The failure to file the original Form 3115 stemmed from an inadvertent error by the accounting firm, which overlooked uploading the form to the electronically filed Form 1065. The firm later submitted a duplicate Form 3115 in a timely manner, demonstrating its intent to comply with Rev. Proc. 2015-13. Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 requires the original Form 3115 to be attached to the taxpayer’s timely filed federal income tax return, and the IRS found no evidence of willful neglect or disregard for filing requirements.

The IRS also determined that granting relief would not prejudice its interests. The taxpayer’s timely submission of the duplicate Form 3115 and the lack of any prior IRS examination or audit of the method change minimized any potential disruption to tax administration. The IRS emphasized that the taxpayer’s reasonable and good faith efforts—including internal reviews and corrective actions—justified the extension, ensuring the method change could proceed without jeopardizing the Section 481(a) adjustment.

What This Ruling Means for Taxpayers and Accounting Firms

The IRS’s decision to grant relief in this case underscores the absolute necessity of strict compliance with Form 3115 filing requirements under Rev. Proc. 2015-13 for accounting method changes. Section 446(e) of the Internal Revenue Code mandates IRS consent before taxpayers may alter their accounting methods, and failure to file Form 3115 by the tax return due date—including extensions—can result in the disallowance of the method change and potential accuracy-related penalties under § 6662. The IRS’s willingness to grant relief here does not diminish the risk; it merely reflects the taxpayer’s reasonable and good faith efforts and the lack of prejudice to tax administration.

Taxpayers who miss deadlines due to oversight or administrative errors may still seek relief under § 301.9100-3, which allows extensions for regulatory elections when the failure was inadvertent and supported by reasonable cause. However, reliance on accounting firms to handle such filings without verification is perilous. The IRS’s decision here was influenced by the taxpayer’s internal reviews and corrective actions, not by blind trust in third-party advisors. Taxpayers and firms must implement systems of accountability—such as dual verification of critical filings—to avoid similar pitfalls.

Finally, this ruling is non-precedential under § 6110(k)(3), meaning it cannot be cited as legal authority in other cases. Taxpayers and practitioners should treat it as a cautionary example rather than a binding precedent. The IRS’s emphasis on good faith efforts and minimal disruption to tax administration suggests that future relief may hinge on similar factors: proactive corrective measures, lack of prior IRS scrutiny, and transparent documentation. For industries undergoing frequent accounting method changes—such as retail, manufacturing, or software—this ruling serves as a reminder that compliance is non-negotiable, and relief, when available, is narrowly tailored.