SECTION 263 TANGIBLE PROPERTY REGULATIONS (TPR)

AND THE FORM 3115

Every effort has been made to ensure the accuracy of the materials, neither he author nor the NSTP assumes any responsibility for any individual’s reliance on the information provided. Each participant should verify independently the information provided before relying on them and asses the tax and other consequences of using the particular strategy, technique or suggestion before recommending the same to a client or implementing the same on a client’s behalf.

This document covers the issues most likely to be encountered by the small business/rental client. There are many other consideration for the large entity that should be researched further to determine the tax treatment for those entities.

HISTORY OF THE REGULATIONS:

The new regulations were introduced in 2011 to much discussion and discontent. The IRS reviewed the new regulations ad issued final regulations in September of 2013 which were effective with the filing of the 2014 business tax returns. So what are these new regulations and what do they mean?

The regulations were issued to standardize the treatment of expenditures for repairs, improvements, betterments, and restoration. Several issues must be addressed with your client to correctly assess the treatment of these expenditures:

• Do you have a capitalization policy? • How do you determine when an expenditure is a repair? • Do you keep inventory on any of your materials and supplies? • Do you have rotable spare parts?

The IRS has determined that any repair or maintenance expenditure which is considered betterment, restoration or an adaption of an asset or property to like new condition must be capitalized. If it is part of a building then it adopts the life of that building, in other words 39 years for commercial property and 27 ½ years for residential rental property.

The IRS has set several safe harbors that small business can use. Namely that the entity has been consistent in expensing repairs and maintenance; that the item purchased is less than $500 or will last less than a year; and, the entity has established a formal accounting policy.

Any routine maintenance costs can still be expenses – known as the Routine Maintenance Safe Harbor. These would be costs that are needed to maintain the property in a reasonable, efficient manner. Changing the oil in a delivery truck every 6,000 miles or so is routine maintenance. However repairing the air conditioning unit or replacing the tires is not considered routing maintenance and those costs would be capitalized.

And finally, there is a Small Taxpayer Safe Harbor which stats that if you have spent less than the lesser of $10,000 or 2% of the original cost than those expenditures can be expensed.

NEW REGULATIONS 1.1016-3:

(ii) The determination of the amount properly allowable for exhaustion, wear and tear, obsolescence, amortization, and depletion must be made on the basis of facts reasonably known to exist at the end of the taxable year. A taxpayer is not permitted to take advantage in a later year of the taxpayer’s prior failure to take any such allowance or the taxpayer’s taking an allowance plainly inadequate under the known facts in prior years. In the case of depreciation, if in prior years the taxpayer has consistently taken proper deductions under one method, the amount allowable for such prior years may not be increased, even though a greater amount would have been allowable under another proper method. For rules governing losses on retirement or disposition of depreciable property, including rules for determining basis, see §1.167(a)-8, §1.168(i)-1T (e), §1.168(i)-8T, Prop. Reg. §1.168(i)-1(e) (September 19, 2013), or Prop. Reg. §1.168(i)-8 (September 19, 2013), as applicable. The application of this paragraph is illustrated by the following examples (for purposes of this example, assume section 167(f)(1) as in effect on September 19, 2013, applies to taxable years beginning on or after January 1, 2014):

Example

On July 1, 2014, A, a calendar-year taxpayer, purchased and placed in service “off-the-shelf” computer software at a cost of $36,000. This computer software is not an amortizable section 197 intangible. Pursuant to section 167(f)(1), the useful life of the computer software is 36 months. It has no salvage value. Computer software placed in service in 2014 is not eligible for the additional first year depreciation deduction provided by section 168(k). A did not deduct any depreciation for the computer software for 2014 and deducted depreciation of $12,000 for the computer software for 2015. As a result, the total amount of depreciation allowed for the computer software as of December 31, 2015, was $12,000. However, the total amount of depreciation allowable for the computer software as of December 31, 2015, is $18,000 ($6,000 for 2014 $12,000 for 2015). As a result, the unrecovered cost of the computer software as of December 31, 2015, is $18,000 (cost of $36,000 less the depreciation allowable of $18,000 as of December 31, 2015). Accordingly, depreciation for 2016 for the computer software is $12,000 (unrecovered cost of $18,000 divided by the remaining useful life of 18 months as of January 1, 2016 multiplied by 12 full months in 2016).

THE BASICS:

Supplies – any purchases under $200 or with a useful life of 12 months or less are supplies. If a business has a policy for expensing vs. capitalizing then can use the de minimis safe harbor that allows expensing up to $500 (the safe harbor amount for business with a GAAP statement is $5,000). And then a distinction needs to be made as to whether they are incidental, non-incidental or rotable and temporary spare parts.

Improvements to Buildings – the new example of improvements is if it better the property, restores it, or adapts it to a new or different use. The new rules define building improvements and buildings systems and that any improvements to a building system is an improvements to the building as a whole. For purpose of capitalizing and the improvement the building is considered to be a single unit of property.

• Unit of Property – if a building owner pays for betterment, restoration or adapts any of the building systems, they have also affected the building as a whole and therefore the cost must be capitalized and not expensed. For example an argument may have been made in the past that renovating an air conditioning system did not necessarily improve the building as a whole and the repairs would be expensed. However, under the new rules the building is now a unit of property as a whole and any work performed on any of the building is now a unit of property as a whole and work performed on any of the building systems also improves the building structure and therefore needs to be capitalized.

• Building structure includes

o The building

o Building structural components – not include in the list of building systems

• Building systems includes

o HVAV systems

o Plumbing systems

o Electrical systems

o Escalators

o Elevators

o Fire-protection and alarm systems

o Security systems for the protection of the building and its occupants

o Gas distribution systems

o Other structural components as designated in the Internal Revenue Bulletin

• Unit of Property as it related to Personal Property – the new regulations include the

concept of “functional interdependence” when applying the unit of property to property

other than buildings. For example if you own the cab to pull a tractor trailer you cannot

separate the engine from the tires from the overall cab structure. They are all functionally

interdependent and cannot be separated for purposes of avoiding the new regulations. In

the case of plant property, a unit of property is comprised of each component (or group of

components) within the unit of property that performs a discrete and major function or

operation within the functionally inter-dependent machinery or equipment.

• “Components of property are functionally interdependent if the placing in service

of one component by the taxpayer is dependent on the placing in service of the

other component by the taxpayer.”

• This follows the anti-abuse rule: “If you need all the parts of a machine together

for the machine to work, then it’s one machine (and thus one ‘unit of property’).

So no playing games with breaking apart the different pieces of the machine into

different ‘assets.’”

Examples:

1. Able owns an office building that contains a HVAC system. The HVAC system

incorporates ten roof-mounted units that service different parts of the building. The roof-

mounted units are not connected and have separate controls and duct work that distribute

the heated or cooled air to different spaced in the building’s interior. Able pays an

amount for labor and materials for work performed on the roof-mounted units. Under

paragraph (e)(2)(i) of this section, Able must treat the building and its structural

components as a single unit of property. As provided under paragraph (e)(2)(ii) of this

section, an amount is paid to improve a building if it is for an improvement to the

building structure or any designated building system. Under paragraph (e)(2)(ii)(B)(1) of

this section, the entire HVAC system, including all of the roof-mounted units and their

components, comprise a building system. Therefore, under paragraph (e)(2)(ii) of this

section, if an amount paid by Able for work on the roof-mounted units is an improvement

(for example, a betterment) to the HVAC system, Able must treat this amount as an

improvement to the building.

2. Bob owns a building that it uses in its retail business. The building contains two elevator

banks in different locations in its building. Each elevator bank contains three elevators.

Bob pays an amount for labor and materials for work performed on the elevators. Under

paragraph (e)(2)(i) of this section, Bob must treat the building and its structural

components as a single unit of property. As provided under paragraph (e)(2)(ii) of this

section, an amount is paid to improve a building if it is for an improvement to the

building structure or any designated building system. Under paragraph (e)(2)(ii)(B)(5) of

this section, all six elevators, including all their components, comprise a building system.

Therefore, under paragraph (e)(2)(ii) of this section, if an amount paid by Bob for work

on the elevators is an improvement (for example, a betterment) to the elevator system,

Bob must treat this amount as an improvement to the building.

3. Carl has a laundering line comprising a sorter, boiler, washer, dryer, ironer, and folder.

Because the laundering line is deemed to be an industrial process, it is defined as plant

property. Each component that performs a discreet and major function is to be treated as a

separate unit of property. Effectively, each sorter, boiler, washer, dryer, ironer, folder is a

separate unit-of-property. The final repair regulations stat the unit of property for plant

property used to perform an industrial process generally is comprised of each component

(or grouping of components) within the plant that performs a discrete and major function

or operation within functionally interdependent machinery and equipment.

4. David operated a restaurant with an assembly line system that prepares and cooks

tortillas. The unit of property is the entire tortilla cooking line because the various

components of the cooking line are functionally interdependent. Although the equipment

is used to perform a manufacturing process, the equipment is not being used in an

industrial process, as it performs a small-scale function as a part of David’s retail

restaurant operations. Therefore, it is not considered plant property.

Safe Harbor Guidelines:

Safe Harbor for small taxpayers: if the total amount during the year for repairs, maintenance, and

improvements on an eligible business does not exceed the lesser of $10,000 or 2% of the

unadjusted basis of the building then the amount paid do not need to be capitalized. A small

taxpayer is defined as having average gross income (based on the last three years) that falls under

$10 million.

Safe Harbor for routine maintenance: this includes any recurring activity to keep the building or

property other than building in good operating condition and may include

o The inspection, cleaning, and testing of the building structure or any of its systems

o The replacement of damaged or worn parts with comparable and commercially available replacement parts

o The inspection, cleaning and testing of the unit of property

o The replacement of damaged or worn parts of the unit of property with comparable and commercially available replacement parts

Facilitative Cost Rules: All amounts paid to facilitate the acquisition of tangible property must also be capitalized. Taxpayers do not have to capitalize the amounts paid for non-facilitative

costs connected to real property. These may include the costs incurred to research whether or not to acquire the property and which real property to acquire. Following is the list provided by Treasury that are considered “inherently facilitative amounts:”

• Transporting the property (for example, shipping fees and moving costs)

• Securing an appraisal or determining the value or price of property

• Negotiating the terms or structure of the acquisition and obtaining tax advice on the acquisition

• Application fees, bidding costs, or similar expenses

• Preparing and reviewing the documents that effectuate the acquisition of the property (for example, preparing the bid, offer, sales, contract, or purchase agreement)

• Examining and evaluating the title of property

• Obtaining regulatory approval of the acquisition or securing permits related to the acquisition, including application fees

• Conveying property between the parties, including sales and transfer taxes and title registration costs

• Finders’ fees or brokers’ commissions, including contingency fees

• Architectural, geological, survey, engineering, environmental, or inspection services pertaining to particular properties

• Services provided by a qualified intermediary or other facilitator for an exchange

Partial Dispositions of Assets – the building owner is now able to accelerate the depreciation of partial dispositions rather than waiting for when the full asset is disposed.

SECTION 481 ADJUSTMENTS: The new regulations may also require a “catch-up” adjustment so that income and/or expenses are not double-counted or an item is omitted in the accounting change.

This is generally not necessary for those small businesses that have been using a combination of Section 179 and bonus depreciation to fully write off assets.

If the change in accounting period results in a positive §481(a) adjustment that is less than $50,000 than the taxpayer may make a §481(a) de minimis election. The election is made by completing the Form 3115 and take the entire §481(a) adjustment into account in the year of the change when the entity implements the change in method of accounting.

Note that a §41(a) adjustment for either repairs or maintenance that should not have been capitalized or for partial or prior dispositions may also result in AMT or state adjustments as well.

For a business return the §481(a) would be reported for the applicable asset. On the Form 1040 report the adjustment on the Other Income line on the applicable Schedule C, Schedule E or Schedule F.

§481 (a) General rule In computing the taxpayer’s taxable income for any taxable year (referred to in this section as the “year of the change”) –

(1) if such computation is under a method of accounting different form the method under which the taxpayer’s taxable income for the preceding taxable year was computed, then

(2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.

(b) Limitation on tax where adjustments are substantial

(1) Three year allocation If–

(A) the method of accounting from which the change is made was used by the taxpayer in computing his taxable income for the 2 taxable years preceding the year of the change, and

(B) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000, then the tax under this chapter attributable to such increase in taxable income shall not be greater than the aggregate increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if one-third of such increase were included for each of the 2 preceding taxable years.

(2) Allocation under new method of accounting If–

(A) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000, and

(B) the taxpayer establishes his taxable income (under the new method of accounting) for one or more taxable years consecutively preceding the taxable year of the change for which the taxpayer in computing taxable income used the method of accounting from which the change is made, then the tax under this chapter (or under the corresponding provisions of prior revenue laws) which would result if the adjustments required by subsection (a)(2) were allocated to the taxable year or years specified in subparagraph (B) to which they are properly allocable under the new method of accounting and the balance of the adjustment required by subsection (a)(2) was allocated to the taxable year of the change.

(3) Special rules for computations under paragraph (1) and (2) For purposes of this subsection–

(A) There shall be taken into account the increase and decrease in tax for any taxable year preceding the year of the change to which no adjustment is allocated under paragraph (1) or (2) but which is affected by a net operating loss (as defined in section 172) or by a capital

loss carryback or carryover (as defined in section 1212), determined with reference to taxable years with respect to which adjustments under paragraph (1) or (2) are allocated.

(B) The increase or decrease in the tax for any taxable year for which an assessment of any deficiency, or a credit or refund of any overpayment, is prevented by any law or rule of law, shall be determined by reference to the tax previously determined (within the meaning of section 1314(a)) for such year.

(C) In applying section 7807(b)(1), the provisions of chapter 1 (other than subchapter E, relating to self-employment income) and chapter 2 of the Internal Revenue Code of 1939 shall be treated as the corresponding provisions of the Internal Revenue Code of 1939.

(c) Adjustment under regulations In the case of any change described in subsection (a), the taxpayer may, in such manner and subject to such conditions as the Secretary may be regulations prescribe, take the adjustments required by subsection (a)(2) into account in computing the tax imposed by this chapter for the taxable year or years permitted under such regulations.

WHAT ABOUT FULLY DEPRECIATED ITEMS: Fully depreciated 1245 property with the proper class lives is not affected

Fully depreciated 1250 property that should not have been capitalized will need an adjustment

Fully depreciated prior year capitalized items that should have been expensed can by removed from the depreciation schedule and are not subject to the recapture rules.

Correcting the class life would trigger a method 7 filing requirement. For example: the entity capitalized the replacement of all furnaces in the building as 7 years property. They were installed 10 years ago and have no remaining depreciation according to the tax schedule. The furnaces are part of the building structure and should be a 39 year asset, not a 7 year class property.

If the entity has a 5 year asset that was incorrectly classified as a 7 year asset but took Section 179 on the full amount this would not trigger a 3115 filing. The asset is fully depreciated anyway and with Rev. Proc. 2015-13 method 7 is no longer prohibited after an IRS audit.

Verify that all bonus deprecation elections are correct. If the entity elects out of bonus depreciation it must do so for the entire class of assets. Section 179 is an asset by asset election.

WHEN AND WHY A FORM 3115 WOULD BE NEEDED: The automatic accounting method described in Rev. Proc. 2011-14 says that the accounting method changes to comply with the new tangible property regulations (TPR) will be automatic in 2014 but will require additional paperwork in future years. It is recommended that the Form 3115, which is a one-time only submission, be submitted with the filing of the 2014 returns. The Form 3115 is actually sent in twice–once as a separate filing with the IRS before the tax return is submitted. This filing is sent to 1973 Rulon White Boulevard, MS 4917, Ogden, Utah 84404. The second filing is submitted with the income tax return.

The assumption being made with the reading of the new regulations is that the IRS is expecting the Form 3115 with every 2014 income tax return that is filed. The general sentiment form the accounting community is that it will increase the audit risk to the accountant and the business if the Form 3115 is not included. Even if you are filing the Form 3115 to notify the IRS that there is no change to the accounting period as you have been doing everything right, this will protect you in the future years. Think cover letter that is included with every compiled financial statement that is submitted to a bank or financial institution. Is the letter truly necessary? Not really, as in essence it is saying that as the accountant you are not responsible for the contents of the financial statements only that you are presenting it in a manner familiar to the financial institution.

If you are uncertain – extend the return! An automatic extension of 6 months from the due date of the (excluding any extension) of the federal income tax return for the year of change requested of the Form 3115 is granted to file a Form 3115 under the automatic change procedures provided by the taxpayer by either a timely filed return (including any extension) of its original federal income tax return for the year of the change or files an amended return within the 6-month extension period implementing the requested change in method of accounting for the year of the change. The original Form 3115 must be submitted with the amended federal tax return.

Reporting of the new regulations on the Form 3115 may be divided into four different situations:

1. Taxpayer must file the 3115 and apply the new regulations to assets as of January 1, 2014 that are either on the depreciation schedule or should be on the depreciation as well as to all future expenditures. These filings would use the 184, 186 and 192 filings and methods.

2. Taxpayer must file the 3115 and apply the new regulations to new expenditures after January 1, 2014. These filings would generally apply to materials and supplies and use the 186 and/or 187 filings and methods. Or they may utilize the inherently facilitative rules of method 192.

3. The taxpayer has the option of filing the 3115 but must file if they want to take advantage of the retroactive benefits of the new regulations.

4. The taxpayer has the option of filing the 3115 for all transactions from January 1, 2014 and after.

**Code 184 filing is due with the 2014 return and enables the taxpayer to adopt the repairs and maintenance threshold and take a 481(a) adjustment for all items that was capitalized but should have been expensed.

**Code 186 filing allows the taxpayer to adopt the safe-harbor amount of $200 for material and supplies and for transactions after January 1, 2014.

**Code 187 filing is the incidental material and supplies rule.

**Code 192 is the method that allows for the proper capitalization of assets purchased and includes the definition for inherently facilitative costs.

**Method 7 is for any impermissible to permissible depreciation changes such as class life is not correct, bonus was handled correctly, and assets that were depreciated and should not have been or vice versa.

Some of the consequences of not filing the Form 3115 may include:

1. If there are expenditures that should have been expensed but were capitalized the taxpayer would not have the option to correct the difference and would have a permanent reduction.

2. If the event of an IRS audit, the taxpayer may have permanent differences due to denied depreciation deductions.

3. The taxpayer may be unable to deduct repair and maintenance costs unless the 3115 is filed.

4. Without adopting a Accounting Policy for the entity it may limit or eliminate the ability to use the safe harbor provisions.

5. The changes for the 2014 are generally automatic and incur no filing fee

PREPARING THE FORM 3115:

If you are preparing a form to report a Code 184, 186, or 192 change, you would answer the questions in Parts I, II, III and V on pages 1 through 3 of the form and leave the rest of the form blank. (see samples starting on page 00)

REFERENCES:

If you want even more detail, refer to Treas. Reg. 1.263(a)-3(j), Treas. Reg. 1.263(a)-3(k) and Treas. Reg. 1.263(a)-3(1).

You may also want to ready TD 9636 and TD 9689.

And if you really want to dig into the nitty gritty details, check out Rev. Proc. 2014-16, Rev. Proc. 2014-17 and Rev. Proc. 2014-54.

For the newest change see Rev. Proc 2015-20

Appendix A – Sample Small Business Accounting Policy for Tangible Property

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Accounting Policy for Capitalizing vs. Expensing

Tangible Property (Not including Inventory)

POLICY IS FOR:

________________________________________ (hereinafter referred to as “the business”)

Date of Adoption: _________________________

Definitions

Tangible property Property that can be physically touched. Tangible property include both tangible personal property and tangible real property. Tangible property does not include intangible property such as logos, copyrights, trademarks, patents, etc.

Tangible personal property Any tangible property except land and improvements thereto, such as buildings or other inherently permanent structure (including items which are structural components of such buildings or structures). See Treas. Reg. §1.48-1(c).

Tangible real property Land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of the buildings or structures) that are not personal property. See Treas. Reg. §1.263(a)-2(b)(3) and §1.48-1(d).

When to Treat Amounts Paid for Tangible Property as “Materials and Supplies”

Amounts paid for materials and supplies will be treated as materials and supplies expense in the business’ books if the amounts qualify for treatment as materials and supplies for federal income tax purposes under either Treas. Reg. §1.162-3 or its future equivalent (default materials and supplies rules) or Treas. Reg. §1.263(a)-1(f)(1)(ii) or its future equivalent (de minimis safe harbor election for taxpayers without applicable financial statements).

In general, this means that any amounts paid to acquire or produce tangible property will be expensed as materials and supplies in the business’ books if it is not inventory and if it meets at least one of the following tests:

• The cost of acquiring or producing the property is $500 or less • The property has an economic useful life of 12 months or less, beginning when the

property is used or consumed in the business’ operations • The property is a component acquired to maintain, repair, or improve a unit of tangible

property owned, leased, or services by the business

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• The property consist of fuel, lubricants, water, and similar items, reasonably expected to be consumed in 12 months or less, beginning when used in the business’ operations

• There is published guidance from the Treasury or the IRS which permits taxpayers to treat the property as materials and supplies (for example, Rev. Proc. 2002-12 on smallwares and Rev. Proc. 2002-28 on certain inventoriable items)

When to Treat Amounts Paid for Tangible Property as “Repairs”

Amounts paid for repairs and maintenance to tangible property will be treated as repairs expense in the business’ books if they qualify for treatment as repairs for federal income tax purposes under Treas. Reg. §1.162-4 or its future equivalent.

This means that any amounts paid to acquire or produce tangible property will be expensed as repairs in the business’ books if the amount is not required to be capitalized for federal income tax purposes. See the section below on improvements for guidance on when to capitalize.

When to Treat Amounts Paid for Tangible Property as “Routine Maintenance”

Amounts paid to maintain tangible property will be treated as maintenance expense in the business’ books if the amounts fall under the safe harbor for routine maintenance, per Treas. Reg. §1.263(a)-3(i) or its future equivalent.

Buildings For buildings, routine maintenance means the recurring activities that the business expects to perform as a result of the business’ use of the building to keep the building structure or its building systems in its ordinarily efficient operating conditions. It will not include any improvements which increase the value of the building or the building’s asset life. Examples of routine maintenance for buildings include:

• The inspection, cleaning, and testing of the building structure or each building system • The replacement of damaged or worn parts with comparable and commercially available

replacement parts

Routine maintenance may be performed at any time during the useful life of the building structure or building systems. However, activities are routine only if the business reasonably expects to perform the activities more than once during the 10-year period beginning at the time the building structure or the building system upon which the routine maintenance is performed is placed in service by the business.

Property other than buildings For property other than buildings, routine maintenance means the recurring activities that the business expects to perform as a result of the business; use of the unit of property to keep the unit of property in its ordinarily efficient operating conditions. It will not include any improvements which increase the value of the property or the property’s asset life.

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Examples of routine maintenance for property other than buildings include:

• The inspection, cleaning, and testing of the unit of property • The replacement of damaged or worn parts of the unit of property with comparable and

commercially available replacement parts

Routine maintenance may be performed at any time during the useful life of the unit or property. However, activities are routine only if, at the time the unit of property is placed in service by the business reasonably expects to perform the activities more than once during the class life of the unit property.

In this context, class life means the life of the property under the alternative depreciation system, or ADS, rules. Here’s a table of the most commonly encountered asset classes and their ADS class lives:

Description of assets included ADS Recovery Period (in years)

Office Furniture, Fixtures, and Equipment Includes furniture and fixtures that are not a structural component of a building. Includes such assets as desks, files, safes, and communications equipment. Does not include communications equipment that is in other classes.

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Information Systems Includes computers and their peripheral equipment used in administering normal business transactions and the maintenance of business records, their retrieval and analysis.

5

Data Handling Equipment; except Computers Includes only typewriters, calculators, adding and accounting machines, copiers, and duplicating equipment

6

Automobile, Taxis 5

Light General Purpose Trucks Includes trucks for use over the road (actual weight less than 13,000 pounds)

5

Heavy General Purpose Trucks Includes heavy general purpose trucks, concrete ready mix-trucks, and or trucks, for use over the road (actual unloaded weight 13,000 pounds or more)

6

Trailers and Trailer-Mounted Containers 6

Tables describing a complete list of ADS class lives, including special class lives for assets in specific industries (especially various manufacturing industries), can be found at IRS.gov.

When to Capitalize Amounts Paid to Acquire or Produce Tangible Property

The business will capitalize all amounts paid to acquire or produce tangible property, not including materials and supplies, in its books. This includes leasehold improvements, land and land improvements, buildings, machinery and equipment, and furniture and fixtures.

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Amounts paid to acquire or produce a unit of real or personal property include the invoice price, transaction costs, and costs for work performed prior to the date that the unit of property is placed in service by the business.

The business’ accounting policies for tangible property held as inventory are not covered in this document.

When to Capitalize Amounts Paid to Facilitate Acquisition of Tangible Property

The business will capitalize all amounts paid to facilitate the acquisition of tangible property, not including materials and supplies, in its books. This will include, but not necessarily be limited to, the Treasury’s list of what is considers inherently facilitative amounts [see Treas. Reg. §1.263(a)-2(f)(2)(ii)].

Inherently facilitative amounts

• Transporting the property (for example, shipping fees and moving costs) • Securing and appraisal or determining the value or price of property • Negotiating the terms or structure of the acquisition and obtaining tax advice on the

acquisition • Application fees, bidding costs, or similar expenses • Preparing and reviewing the documents that effectuate the acquisition of the property (for

example, preparing the bid, offer, sales contract, or purchase agreement) • Examining and evaluating the title of property • Obtaining regulatory approval of the acquisition or securing permits related to the

acquisition, including the application fees • Conveying property between the parties, including sales and transfer taxes, and title

registration costs • Finders’ fees or brokers’ commissions, including contingency fees • Architectural, geological, survey, engineering, environmental, or inspection services

pertaining to particular properties • Services provided by a qualified intermediary or other facilitator of an exchange under

section 1031

Amounts that are not facilitative The business will not capitalize in its books any amounts that are not considered facilitative amounts for federal income tax purposes per Treas. Reg.§ 1.263(a)-2(f)(2)(iii). These are amounts paid that relate to activities performed in the process of determining whether to acquire real property and which real property to acquire. Note this is different from facilitative costs because facilitative costs occur after you’ve decided which property to acquire. Note also that this rule only applies to real property.

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When to Capitalize Amounts Paid to Improve Tangible Property The business will capitalize all amounts paid to improve tangible property, not including repairs and maintenance, in its books. The nosiness will treat all betterments, restorations, and adaptations to a new or different use as improvements to tangible property. Betterments The company will treat all betterments, as a defined in Treas. Reg. § 1.263(a)-3(j) or its future equivalent, as improvements in its books. This means that any amount paid will be treated as a betterment to a unit of property if it meets at least one of three tests:

• It ameliorates a material condition or defect that either existed prior to the business’ acquisition of the unit of property or arose during the production of the unit property, whether or not the business was aware of the condition or defect at the time of acquisition or production

• It’s for a material addition, including a physical enlargement, expansion, extension, or addition of a major component to the unit of property or a material increase in the capacity, including additional cubic or linear space, of the unit of property

• It’s reasonably expected to materially increase the productivity, efficiency, strength, quality, or output of the unit of property

Restorations The business will treat all restorations, as defined in Treas. Reg. § 1.263(a)-3(k) or its future equivalent, as improvements in its books. This means that any amount paid will be treated as a restoration if it meets at least one of six tests:

• It’s for the replacement of a component of a unit of property for which the business has properly deducted a loss for that component, other than a casualty loss

• It’s for the replacement of a component of a unit of property for which the nosiness has properly taken into account the adjusted basis of the component in realizing gain or loss resulting from the sale or exchange of the component

• It’s for the restoration of damage to a unit of property for which the business is required to take a basis adjustment as a result of a casualty loss or relating to a casualty event, subject to certain limits [see Treas.Reg.1.263(a)-3(k)(4) on these limit

• It returns the unit of property to its ordinarily efficient operating condition if the property has deteriorated to a state of disrepair and is no longer functional for its intended use

• It results in the rebuilding of the unit of property to a like-new condition after the end of its class life (see the section on routine maintenance for an explanation of using class lives)

17

• Is for the replacement of a part of combination of parts that comprise a major component or a substantial structural part of a unit of property

A casualty loss in this context is, generally speaking, any loss arising from a casualty event such as a fire, storm, shipwreck, or other casualty. This definition doesn’t include losses from theft. See Treas. Reg. § 1.165-7. Like-new condition in this context means a unit of property is brought to the status of new, rebuilt, remanufactured, or a similar status under the terms of any federal regulatory guideline or the manufacturer’s original specifications. Generally, a comprehensive maintenance program, even though substantial, does not return a unit of property to a like-new condition. See Treas. Reg. § 1.263(a)-3(k)(5). A major component in this context is a part of combination of parts that performs a discrete and critical function in the operation of the unit of property (does not include incidental components of the property). A substantial structural part in this context is a part or combination of parts that comprises a large portion of the physical structure of the unit of property. See Treas. Reg. § 1.263(a)-3(k)(6). Adaptations to a new or different use The business will treat all adaptations to a new or different use, as defined in Treas. Reg. § 1.263(a)-3(l) or its future equivalent, as improvements in its books. A new or different use is a use inconsistent with the business’ ordinary ise of the unit of property at the time originally placed in service by the business. Conflicts Between This Document and Treasury Regulations If any explanation of tax accounting rules in this document is in conflict with the applicable treasury regulations, the business’ books will follow the accounting rules as described in the treasury regulations. For example, if Treas. Reg. § 1.162-3 is changed such that this document’s explanation of its provisions regarding materials and supplies is no longer up to date, the business will follow the provisions of the treasury regulation for its bookkeeping, not this document.

18

19

Exhibit B – IRS Tables of Automatic Accounting Method Changes for the New TPRs

20

Changes under the final tangible property regulations:

Description of Change DCN Citation

A change to deducting amounts paid or incurred for repair and maintenance or a change to capitalizing amounts paid or incurred for improvements to tangible property and, if depreciable, to depreciating such property under section 167 or section 168. Includes a change, if any, in the method of identifying the unit of property, or in the case of a building, identifying the buildings structure or building system for the purpose of making the change.

184 §§1.162-4, 1.263(a)-3

Change to the regulatory accounting method. 185 §1.263(a)-3(m)

Change to deducting non-incidental materials and supplies when used or consumed 186 §§1.162-3(a)(1), (c)(1)

Change to deducting incidental materials and supplies when paid or incurred 187 §§1.1692-3(a)(2), (c)(1)

Change to deducting non-incidental rotable and temporary spare parts when disposed of 188 §1.1692-3(a)(3), (c)(2)

Change to the optional method for rotable and temporary spare parts 189 §1.1692-3(e)

Change by a dealer in property to deduct commissions and other transaction costs that facilitate the sale of property 191 §1.263(a)-1(e)(2)

Change by a non-dealer in property to capitalizing commissions and other costs that facilitate the sale of property 191 §1.263(a)-1(e)(1)

Change to capitalizing acquisition or production costs and, if depreciable, to depreciating such property under section 167 or section 168 192 §1.263(a)-2

Change to deducting certain costs for investigating or pursuing the acquisition of real property (whether and which) 193 §1.263(a)-2(f)(2)(iii)

21

Exhibit C: Example of Form 3115 with DCN 184

22

Form 3115(Rev. December 2009) Department of the Treasury Internal Revenue Service

Application for Change in Accounting Method OMB No. 1545-0152

Name of filer (name of parent corporation if a consolidated group) (see instructions) Identification number (see instructions)

Principal business activity code number (see instructions)

Number, street, and room or suite no. If a P.O. box, see the instructions. Tax year of change begins (MM/DD/YYYY)

Tax year of change ends (MM/DD/YYYY)

City or town, state, and ZIP code Name of contact person (see instructions)

Name of applicant(s) (if different than filer) and identification number(s) (see instructions) Contact person’s telephone number

If the applicant is a member of a consolidated group, check this box . . . . . . . . . . . . . . . . ▶

If Form 2848, Power of Attorney and Declaration of Representative, is attached (see instructions for when Form 2848 is required), check this box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ Check the box to indicate the type of applicant.

Individual Corporation Controlled foreign corporation (Sec. 957) 10/50 corporation (Sec. 904(d)(2)(E)) Qualified personal service corporation (Sec. 448(d)(2)) Exempt organization. Enter Code section ▶

Cooperative (Sec. 1381) Partnership S corporation Insurance co. (Sec. 816(a)) Insurance co. (Sec. 831) Other (specify) ▶

Check the appropriate box to indicate the type of accounting method change being requested. (see instructions)

Depreciation or Amortization Financial Products and/or Financial Activities of Financial Institutions Other (specify) ▶

Caution. To be eligible for approval of the requested change in method of accounting, the taxpayer must provide all information that is relevant to the taxpayer or to the taxpayer's requested change in method of accounting. This includes all information requested on this Form 3115 (including its instructions), as well as any other information that is not specifically requested.

The taxpayer must attach all applicable supplemental statements requested throughout this form.

Part I Information For Automatic Change Request1 Enter the applicable designated automatic accounting method change number for the requested automatic change. Enter

only one designated automatic accounting method change number, except as provided for in guidance published by the IRS. If the requested change has no designated automatic accounting method change number, check "Other," and provide both a description of the change and citation of the IRS guidance providing the automatic change. See instructions.

Yes No

▶ (a) Change No. (b) Other Description ▶

2 Do any of the scope limitations described in section 4.02 of Rev. Proc. 2008-52 cause automatic consent to beunavailable for the applicant's requested change? If "Yes," attach an explanation. . . . . . . . . . . .

Note. Complete Part II below and then Part IV, and also Schedules A through E of this form (if applicable). Part II Information For All Requests Yes No

3 Did or will the applicant cease to engage in the trade or business to which the requested change relates, or terminate its existence, in the tax year of change (see instructions)? . . . . . . . . . . . . . . . . . . .If “Yes,” the applicant is not eligible to make the change under automatic change request procedures.

4 a Does the applicant (or any present or former consolidated group in which the applicant was a member during theapplicable tax year(s)) have any Federal income tax return(s) under examination (see instructions)? . . . . . If “No,” go to line 5.

b Is the method of accounting the applicant is requesting to change an issue (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) either (i) under consideration or (ii) placed in suspense (see instructions)? . . . . . . . . . . . . . .

Signature (see 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, the application contains all the relevant facts relating to the application, and it is true, correct, and complete. Declaration of preparer (other than applicant) is based on all information of which preparer has any knowledge.

Filer Preparer (other than filer/applicant)

Signature and date

Name and title (print or type)

Signature of individual preparing the application and date

Name of individual preparing the application (print or type)

Name of firm preparing the application

For Privacy Act and Paperwork Reduction Act Notice, see the instructions. Cat. No. 19280E Form 3115 (Rev. 12-2009)

X

X

184

Form 3115 (Rev. 12-2009) Page 2 Part II Information For All Requests (continued) Yes No

4 c Is the method of accounting the applicant is requesting to change an issue pending (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) for any tax year under examination (see instructions)? . . . . . . . . . . . . . . . .

d Is the request to change the method of accounting being filed under the procedures requiring that the operating division director consent to the filing of the request (see instructions)? . . . . . . . . . . . . . . .If “Yes,” attach the consent statement from the director.

e Is the request to change the method of accounting being filed under the 90-day or 120-day window period? . .If “Yes,” check the box for the applicable window period and attach the required statement (see instructions).

90 day 120 day: Date examination ended ▶

f

Name ▶ Telephone number ▶ Tax year(s) ▶

If you answered “Yes” to line 4a, enter the name and telephone number of the examining agent and the tax year(s) under examination.

g Has a copy of this Form 3115 been provided to the examining agent identified on line 4f? . . . . . . . .5 a Does the applicant (or any present or former consolidated group in which the applicant was a member during the

applicable tax year(s)) have any Federal income tax return(s) before Appeals and/or a Federal court? . . . .If “Yes,” enter the name of the (check the box) Appeals officer and/or counsel for the government,

telephone number, and the tax year(s) before Appeals and/or a Federal court. Name ▶ Telephone number ▶ Tax year(s) ▶

b Has a copy of this Form 3115 been provided to the Appeals officer and/or counsel for the government identified on line 5a? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c Is the method of accounting the applicant is requesting to change an issue under consideration by Appeals and/or a Federal court (for either the applicant or any present or former consolidated group in which the applicant was a member for the tax year(s) the applicant was a member) (see instructions)? . . . . . . . . . . . . .If “Yes,” attach an explanation.

6 If the applicant answered “Yes” to line 4a and/or 5a with respect to any present or former consolidated group,attach a statement that provides each parent corporation’s (a) name, (b) identification number, (c) address, and (d) tax year(s) during which the applicant was a member that is under examination, before an Appeals office, and/or before a Federal court.

7 If, for federal income tax purposes, the applicant is either an entity (including a limited liability company) treated as a partnership or an S corporation, is it requesting a change from a method of accounting that is an issue under consideration in an examination, before Appeals, or before a Federal court, with respect to a Federal income tax return of a partner, member, or shareholder of that entity? . . . . . . . . . . . . . . . . . . .

If “Yes,” the applicant is not eligible to make the change. 8a Does the applicable revenue procedure (advance consent or automatic consent) state that the applicant does not

receive audit protection for the requested change (see instructions)? . . . . . . . . . . . . . . .b If “Yes,” attach an explanation.

9a Has the applicant, its predecessor, or a related party requested or made (under either an automatic change procedure or a procedure requiring advance consent) a change in method of accounting within the past 5 years (including the year of the requested change)? . . . . . . . . . . . . . . . . . . . . . . .

b If "Yes," for each trade or business, attach a description of each requested change in method of accounting (including the tax year of change) and state whether the applicant received consent.

c If any application was withdrawn, not perfected, or denied, or if a Consent Agreement granting a change was not signed and returned to the IRS, or the change was not made or not made in the requested year of change, attachan explanation.

10 a Does the applicant, its predecessor, or a related party currently have pending any request (including any concurrently filed request) for a private letter ruling, change in method of accounting, or technical advice? . . .

b If “Yes,” for each request attach a statement providing the name(s) of the taxpayer, identification number(s), the type of request (private letter ruling, change in method of accounting, or technical advice), and the specific issue(s) in the request(s).

11 Is the applicant requesting to change its overall method of accounting? . . . . . . . . . . . . .If “Yes,” check the appropriate boxes below to indicate the applicant’s present and proposed methods of accounting. Also, complete Schedule A on page 4 of this form.

Present method: Cash Accrual Hybrid (attach description)

Proposed method: Cash Accrual Hybrid (attach description)

Form 3115 (Rev. 12-2009)

X

X

X

X

Form 3115 (Rev. 12-2009) Page 3 Part II Information For All Requests (continued) Yes No

12 If the applicant is either (i) not changing its overall method of accounting, or (ii) is changing its overall method ofaccounting and also changing to a special method of accounting for one or more items, attach a detailed and complete description for each of the following:

a The item(s) being changed. b The applicant’s present method for the item(s) being changed. c The applicant’s proposed method for the item(s) being changed. d The applicant’s present overall method of accounting (cash, accrual, or hybrid).

13 Attach a detailed and complete description of the applicant’s trade(s) or business(es), and the principal businessactivity code for each. If the applicant has more than one trade or business as defined in Regulations section1.446-1(d), describe: whether each trade or business is accounted for separately; the goods and services provided by each trade or business and any other types of activities engaged in that generate gross income; theoverall method of accounting for each trade or business; and which trade or business is requesting to change its accounting method as part of this application or a separate application.

14 Will the proposed method of accounting be used for the applicant’s books and records and financial statements? For insurance companies, see the instructions . . . . . . . . . . . . . . . . . . . . . .If “No,” attach an explanation.

15a Has the applicant engaged, or will it engage, in a transaction to which section 381(a) applies (e.g., a reorganization, merger, or liquidation) during the proposed tax year of change determined without regard to anypotential closing of the year under section 381(b)(1)? . . . . . . . . . . . . . . . . . . . .

b If “Yes,” for the items of income and expense that are the subject of this application, attach a statement identifying the methods of accounting used by the parties to the section 381(a) transaction immediately before the date of distribution or transfer and the method(s) that would be required by section 381(c)(4) or (c)(5) absent consent to the change(s) requested in this application.

16 Does the applicant request a conference with the IRS National Office if the IRS proposes an adverse response? 17 If the applicant is changing to either the overall cash method, an overall accrual method, or is changing its method

of accounting for any property subject to section 263A, any long-term contract subject to section 460, or inventories subject to section 474, enter the applicant's gross receipts for the 3 tax years preceding the tax year ofchange.

1st preceding year ended: mo. yr.

2nd preceding year ended: mo. yr.

3rd preceding year ended: mo. yr.

$ $ $ Part III Information For Advance Consent Request Yes No18 Is the applicant’s requested change described in any revenue procedure, revenue ruling, notice, regulation, or

other published guidance as an automatic change request? . . . . . . . . . . . . . . . . . .If “Yes,” attach an explanation describing why the applicant is submitting its request under advance consent request procedures.

19 Attach a full explanation of the legal basis supporting the proposed method for the item being changed. Include a detailed and complete description of the facts that explains how the law specifically applies to the applicant’s situation and that demonstrates that the applicant is authorized to use the proposed method. Include all authority (statutes, regulations, published rulings, court cases, etc.) supporting the proposed method. Also, include either a discussion of the contrary authorities or a statement that no contrary authority exists.

20 Attach a copy of all documents related to the proposed change (see instructions). 21 Attach a statement of the applicant’s reasons for the proposed change. 22 If the applicant is a member of a consolidated group for the year of change, do all other members of the

consolidated group use the proposed method of accounting for the item being changed? . . . . . . . .If “No,” attach an explanation.

23 a Enter the amount of user fee attached to this application (see instructions). ▶ $

b If the applicant qualifies for a reduced user fee, attach the required information or certification (see instructions). Part IV Section 481(a) Adjustment Yes No24 Does the applicable revenue procedure, revenue ruling, notice, regulation, or other published guidance require the applicant to

implement the requested change in method of accounting on a cut-off basis rather than a section 481(a) adjustment? . . .If “Yes,” do not complete lines 25, 26, and 27 below.

25 Enter the section 481(a) adjustment. Indicate whether the adjustment is an increase (+) or a decrease (-) in income. ▶ Attach a summary of the computation and an explanation of the methodology used to determine the section 481(a) adjustment. If it is based on more than one component, show the computation for each component. If more than one applicant is applying for the method change on the same application, attach a list of the name, identification number, principal business activity code (see instructions), and the amount of the section 481(a) adjustment attributable to each applicant.

$

Form 3115 (Rev. 12-2009)

X

Form 3115 (Rev. 12-2009) Page 4 Part IV Section 481(a) Adjustment (continued) Yes No26 If the section 481(a) adjustment is an increase to income of less than $25,000, does the applicant elect to take the

entire amount of the adjustment into account in the year of change? . . . . . . . . . . . . . . .27 Is any part of the section 481(a) adjustment attributable to transactions between members of an affiliated group, a

consolidated group, a controlled group, or other related parties? . . . . . . . . . . . . . . . .If “Yes,” attach an explanation.

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

Part I Change in Overall Method (see instructions) 1 Enter the following amounts as of the close of the tax year preceding the year of change. If none, state “None.” Also, attach a

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

a Income accrued but not received (such as accounts receivable) . . . . . . . . . . . . . . $

b Income received or reported before it was earned (such as advanced payments). Attach a description ofthe income and the legal basis for the proposed method . . . . . . . . . . . . . . . .

c Expenses accrued but not paid (such as accounts payable) . . . . . . . . . . . . . . .d Prepaid expenses previously deducted . . . . . . . . . . . . . . . . . . . . . .e Supplies on hand previously deducted and/or not previously reported . . . . . . . . . . . .f Inventory on hand previously deducted and/or not previously reported. Complete Schedule D, Part II .g Other amounts (specify). Attach a description of the item and the legal basis for its inclusion in the

calculation of the section 481(a) adjustment. ▶

h Net section 481(a) adjustment (Combine lines 1a–1g.) Indicate whether the adjustment is an increase (+) or decrease (-) in income. Also enter the net amount of this section 481(a) adjustment amount on Part IV, line 25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

2 Is the applicant also requesting the recurring item exception under section 461(h)(3)? . . . . . . . Yes No3 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. Also attach a statement specifying 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 Federal income tax return or other return (e.g., tax-exempt organization returns) for that period. If the amounts in Part I, lines1a through 1g, do not agree with those shown on both the profit and loss statement and the balance sheet, attach a statement explaining the differences.

Part II Change to the Cash Method For Advance Consent Request (see instructions) Applicants requesting a change to the cash method must attach the following information:

1 A description of inventory items (items whose production, purchase, or sale is an income-producing factor) and materials and supplies used in carrying out the business.

2 An explanation as to whether the applicant is required to use the accrual method under any section of the Code or regulations.

Schedule B—Change to the Deferral Method for Advance Payments (see instructions)

1 If the applicant is requesting to change to the Deferral Method for advance payments described in section 5.02 of Rev. Proc. 2004-34, 2004-1 C.B. 991, attach the following information:

a A statement explaining how the advance payments meet the definition in section 4.01 of Rev. Proc. 2004-34.b If the applicant is filing under the automatic change procedures of Rev. Proc. 2008-52, the information required by section

8.02(3)(a)-(c) of Rev. Proc. 2004-34.c If the applicant is filing under the advance consent provisions of Rev. Proc. 97-27, the information required by section

8.03(2)(a)-(f) of Rev. Proc. 2004-34.2 If the applicant is requesting to change to the deferral method for advance payments described in Regulations section

1.451-5(b)(1)(ii), attach the following.a A statement explaining how the advance payments meet the definition in Regulations section 1.451-5(a)(1).b A statement explaining what portions of the advance payments, if any, are attributable to services, whether such services are

integral to the provisions of goods or items, and whether any portions of the advance payments that are attributable tonon-integral services are less than five percent of the total contract prices. See Regulations sections 1.451-5(a)(2)(i) and (3).

c A statement explaining that the advance payments will be included in income no later than when included in gross receipts for purposes of the applicant's financial reports. See Regulations section 1.451-5(b)(1)(ii).

d A statement explaining whether the inventoriable goods exception of Regulations section 1.451-5(c) applies and if so, when substantial advance payments will be received under the contracts, and how the exception will limit the deferral of income.

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 5

Schedule C—Changes Within the LIFO Inventory Method (see instructions)

Part I 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.

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

a Valuing inventory (e.g., unit method or dollar-value method). b Pooling (e.g., by line or type or class of goods, natural business unit, multiple pools, raw material content, simplified dollar-

value method, inventory price index computation (IPIC) pools, vehicle-pool method, etc.). c Pricing dollar-value pools (e.g., double-extension, index, link-chain, link-chain index, IPIC method, etc.). d Determining the current-year cost of goods in the ending inventory (i.e., most recent acquisitions, earliest acquisitions during

the current year, average cost of current-year acquisitions, or other permitted method). 2 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. 3 If the proposed change is not requested for all the LIFO inventory, attach a statement specifying the inventory to which the

change is and is not applicable. 4 If the proposed change is not requested for all of the LIFO pools, attach a statement specifying the LIFO pool(s) to which the

change is applicable.

5 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, identify which inventory itemsare valued under each method.

6 If changing to the IPIC method, attach a completed Form 970.

Part II Change in Pooling Inventories 1 If the applicant is proposing to change its pooling method or the number of pools, attach a description of the contents of, and

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

2 If the applicant is 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 A description of the types of products produced by the applicant. If possible, attach a brochure. b A description of the types of processes and raw materials used to produce the products in each proposed pool.

c If all of the products to be included in the proposed NBU pool(s) are not produced at one facility, state the reasons for theseparate facilities, the location of each facility, and a description of the products each facility produces.

d 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.

e 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.

f 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.

g A statement addressing whether, within the proposed NBU pool(s), there are items both sold to unrelated parties and transferred to a different unit of the applicant to be used as a component part of another product prior to final processing.

3 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).

4 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. See Regulations section 1.472-8(c).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 6 Schedule D—Change in the Treatment of Long-Term Contracts Under Section 460, Inventories, or Other Section 263A Assets (see instructions)

Part I Change in Reporting Income From Long-Term Contracts (Also complete Part III on pages 7 and 8.) 1 To the extent not already provided, attach a description of the applicant’s present and proposed methods for reporting income

and expenses from long-term contracts. Also, attach a representative actual contract (without any deletion) for the requestedchange. If the applicant is a construction contractor, attach a detailed description of its construction activities. Are the applicant’s contracts long-term contracts as defined in section 460(f)(1) (see instructions)? . . Yes No2aIf “Yes,” do all the contracts qualify for the exception under section 460(e) (see instructions)? . . . . Yes Nob If line 2b is “No,” attach an explanation.

c If line 2b is “Yes,” is the applicant requesting to use the percentage-of-completion method using cost-to-cost under Regulations section 1.460-4(b)? . . . . . . . . . . . . . . . . . . . . Yes No

d If line 2c is “No,” is the applicant requesting to use the exempt-contract percentage-of-completionmethod under Regulations section 1.460-4(c)(2)? . . . . . . . . . . . . . . . . . . . Yes NoIf line 2d is “Yes,” attach an explanation of what cost comparison the applicant will use to determine a contract’s completion factor. If line 2d is “No,” attach an explanation of what method the applicant is using and the authority for its use.

3a Does the applicant have long-term manufacturing contracts as defined in section 460(f)(2)? . . . . . Yes Nob If “Yes,” attach an explanation of the applicant’s present and proposed method(s) of accounting for long-

term manufacturing contracts. c Attach a description of the applicant’s manufacturing activities, including any required installation of manufactured goods.

4 To determine a contract’s completion factor using the percentage-of-completion method: a Will the applicant use the cost-to-cost method in Regulations section 1.460-4(b)? . . . . . . . . Yes Nob If line 4a is “No,” is the applicant electing the simplified cost-to-cost method (see section 460(b)(3) and

Regulations section 1.460-5(c))? . . . . . . . . . . . . . . . . . . . . . . . . Yes No5 Attach a statement indicating whether any of the applicant’s contracts are either cost-plus long-term

contracts or Federal long-term contracts. Part II Change in Valuing Inventories Including Cost Allocation Changes (Also complete Part III on pages 7 and 8.) 1 Attach a description of the inventory goods being changed. 2 Attach a description of the inventory goods (if any) NOT being changed. 3 a Is the applicant subject to section 263A? If "No," go to line 4a . . . . . . . . . . . . . . Yes Nob Is the applicant's present inventory valuation method in compliance with section 263A (see instructions)?

If "No," attach a detailed explanation . . . . . . . . . . . . . . . . . . . . . . . Yes No

4 a Check the appropriate boxes below. Identification methods:

Inventory Being Changed Inventory Not

Being Changed

Present method Proposed method Present method

Specific identification . . . . . . . . . . . . . . . .FIFO . . . . . . . . . . . . . . . . . . . . .LIFO . . . . . . . . . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

Valuation methods: Cost . . . . . . . . . . . . . . . . . . . . .Cost or market, whichever is lower . . . . . . . . . . .Retail cost . . . . . . . . . . . . . . . . . . .Retail, lower of cost or market . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

b Enter the value at the end of the tax year preceding the year of change 5 If the applicant is changing from the LIFO inventory method to a non-LIFO method, attach the following information (see

instructions). a Copies of Form(s) 970 filed to adopt or expand the use of the method. b Only for applicants requesting advance consent. A statement describing whether the applicant is changing to the method

required by Regulations section 1.472-6(a) or (b), or whether the applicant is proposing a different method. c Only for applicants requesting an automatic change. The statement required by section 22.01(5) of the Appendix of Rev.

Proc. 2008-52 (or its successor).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 7 Part III Method of Cost Allocation (Complete this part if the requested change involves either property subject

to section 263A or long-term contracts as described in section 460 (see instructions)). Section A—Allocation and Capitalization Methods 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 real or tangible personal property produced and property acquired for resale, or to allocate and, where appropriate, capitalize direct and indirect costs properly allocable to long-term contracts. 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 long-term contracts, real or tangible personal property produced, and property acquired for resale. The description must include the following:

1 The method of allocating direct and indirect costs (i.e., specific identification, burden rate, standard cost, or other reasonable allocation method).

2 The method of allocating mixed service costs (i.e., direct reallocation, step-allocation, simplified service cost using the labor-based allocation ratio, simplified service cost using the production cost allocation ratio, or other reasonable allocation method).

3 The method of capitalizing additional section 263A costs (i.e., simplified production with or without the historic absorption ratio election, simplified resale with or without the historic absorption ratio election including permissible variations, the U.S. ratio, or other reasonable allocation method).

Section B—Direct and Indirect Costs Required To Be Allocated Check the appropriate boxes showing the costs that are or will be fully included, to the extent required, in the cost of real or tangible personal property produced or property acquired for resale under section 263A or allocated to long-term contracts under section 460. Mark “N/A” in a box if those costs are not incurred by the applicant. If a box is not checked, it is assumed that those costs are not fully included to the extent required. Attach an explanation for boxes that are not checked.

Present method Proposed method

1 Direct material . . . . . . . . . . . . . . . . . . . . . . . . .2 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . .3 Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . .4 Officers’ compensation (not including selling activities) . . . . . . . . . . . .5 Pension and other related costs . . . . . . . . . . . . . . . . . . .6 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . .7 Indirect materials and supplies . . . . . . . . . . . . . . . . . . . .8 Purchasing costs . . . . . . . . . . . . . . . . . . . . . . . .9 Handling, processing, assembly, and repackaging costs . . . . . . . . . . .

10 Offsite storage and warehousing costs . . . . . . . . . . . . . . . . .11 Depreciation, amortization, and cost recovery allowance for equipment and facilities

placed in service and not temporarily idle . . . . . . . . . . . . . . . .12 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Taxes other than state, local, and foreign income taxes . . . . . . . . . . . .15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Maintenance and repairs that relate to a production, resale, or long-term contract activity 18 Engineering and design costs (not including section 174 research and experimental

expenses) . . . . . . . . . . . . . . . . . . . . . . . . . .19 Rework labor, scrap, and spoilage . . . . . . . . . . . . . . . . . .20 Tools and equipment . . . . . . . . . . . . . . . . . . . . . . .21 Quality control and inspection . . . . . . . . . . . . . . . . . . . .22 Bidding expenses incurred in the solicitation of contracts awarded to the applicant . .23 Licensing and franchise costs . . . . . . . . . . . . . . . . . . . .24 Capitalizable service costs (including mixed service costs) . . . . . . . . . .25 Administrative costs (not including any costs of selling or any return on capital) . . . .26 Research and experimental expenses attributable to long-term contracts . . . . . .27 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Other costs (Attach a list of these costs.) . . . . . . . . . . . . . . . .

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 8 Part III Method of Cost Allocation (see instructions) (continued)

Section C—Other Costs Not Required To Be Allocated (Complete Section C only if the applicant is requesting to change its method for these costs.)

Present method Proposed method

1 Marketing, selling, advertising, and distribution expenses . . . . . . . . . . .2 Research and experimental expenses not included in Section B, line 26 . . . . . .3 Bidding expenses not included in Section B, line 22 . . . . . . . . . . . .4 General and administrative costs not included in Section B . . . . . . . . . .5 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .6 Cost of strikes . . . . . . . . . . . . . . . . . . . . . . . . .7 Warranty and product liability costs . . . . . . . . . . . . . . . . . .8 Section 179 costs . . . . . . . . . . . . . . . . . . . . . . . .9 On-site storage . . . . . . . . . . . . . . . . . . . . . . . . .

10 Depreciation, amortization, and cost recovery allowance not included in Section B, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Schedule E—Change in Depreciation or Amortization (see instructions)

Applicants requesting approval to change their method of accounting for depreciation or amortization complete this section. Applicants must provide this information for each item or class of property for which a change is requested.

Note. See the List of Automatic Accounting Method Changes in the instructions for information regarding automatic changes under sections 56, 167, 168, 197, 1400I, 1400L, or former section 168. Do not file Form 3115 with respect to certain late elections and election revocations (see instructions).

1 Is depreciation for the property determined under Regulations section 1.167(a)-11 (CLADR)? . . . . Yes NoIf “Yes,” the only changes permitted are under Regulations section 1.167(a)-11(c)(1)(iii).

2 Is any of the depreciation or amortization required to be capitalized under any Code section (e.g., section 263A)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” enter the applicable section ▶

3 Has a depreciation, amortization, or expense election been made for the property (e.g., the election under sections 168(f)(1), 179, or 179C)? . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” state the election made ▶

4 a To the extent not already provided, attach a statement describing 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.

b If the property is residential rental property, did the applicant live in the property before renting it? . . Yes Noc Is the property public utility property? . . . . . . . . . . . . . . . . . . . . . . Yes No

5 To the extent not already provided in the applicant’s description of its present method, attach a statement explaining how theproperty 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.).

6 If the property is not currently treated as depreciable or amortizable property, attach a statement of the facts supporting theproposed change to depreciate or amortize the property.

7 If the property is currently treated and/or will be treated as depreciable or amortizable property, provide the following information for both the present (if applicable) and proposed methods:

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

b The applicable asset class from Rev. Proc. 87-56, 1987-2 C.B. 674, for each asset depreciated under section 168 (MACRS) or under section 1400L; the applicable asset class from Rev. Proc. 83-35, 1983-1 C.B. 745, for each asset depreciated under former section 168 (ACRS); an explanation why no asset class is identified for each asset for which an asset class has not been identified by the applicant.

c The facts to support the asset class for the proposed method. d The depreciation or amortization method of the property, including the applicable Code section (e.g., 200% declining balance

method under section 168(b)(1)). e The useful life, recovery period, or amortization period of the property. f The applicable convention of the property. g A statement of whether or not the additional first-year special depreciation allowance (for example, as provided by section

168(k), 168(l), 168(m), 168(n), 1400L(b), or 1400N(d)) was or will be claimed for the property. If not, also provide an explanationas to why no special depreciation allowance was or will be claimed.

Form 3115 (Rev. 12-2009)

FORM 3115 ATTACHMENTS

3115 SAMPLE COMPANY, EIN 12-3456789 (DCN 184)

ATTACHMENT 1

FORM 3115, PART II, LINE 12

ITEM BEING CHANGED: REPAIRS AND MAINTENANCE EXPENSES ACCT

CAPITALIZED IMPROVEMENTS

NO IDENTIFICATION OF UNITS OF PROPERTY ARE BEING CHANGED UNDER §1.263(a) – 3(e)

PRESENT METHOD: REPAIRS AND MAINTENANCE EXPENSE ACCT–

COST OF INCIDENT REPAIRS WHICH NEITHER MATERIALLY ADD TO THE VALUE OF A PROPERTY NOR APPRECIABLY PROLONG ITS LIFE, BUT KEEP A PROPERTY IN AN ORDINARILY EFFICIENT OPERATING CONDITION, ARE DEDUCTED PER FORMER TREAS. REG. §1.162-4

CAPITALIZED IMPROVEMENTS–

REPAIRS IN THE NATURE OF REPLACEMENTS, TO THE EXTENT THAT THEY ARREST DETERIORATION AND APPRECIABLY PROLONG THE LIFE OF A PROPERTY, ARE CAPITALIZED PER PREVIOS TREAS. REG. §1.162-4

PROPOSED METHOD: REPAIRS AND MAINTENANCE EXPENSE ACTT–

DEDUCTING REPAIRS COSTS IN ACCORDANCE WITH TREAS. REG. §1.162-4

DEDUCTING ROUTINE MAINTENANCE COSTS WHICH FALL UNDER THE NEW SAFE HARBOR RULES FOR ROUTINE MAINTENANCE DESCRIBED IN TREAS. REG. §1.263(a) – 3(i).

DEDUCTING COSTS FOR REPAIRS, MAINTENANCE, IMPROVEMENTS, AND SIMILAR ACTIVITIES PERFORMED ON ELIGIBLE BUILDINGS WHEN SUCH TREATMENT IS PERMISSABLE UNDER THE NEW SAFE HARBOR RULES FOR SMALL EXPENSES DESCRIBED IN TREAS. REG. §1.263(a) – 3(h)

SPECIFICALLY:

CHANGE TO CAPITALIZING COSTS FOR BETTERMENTS, IMPROVEMENTS, AND RESTORATION COSTS WHEN SUCH COSTS DO NOT FALL UNDER THE SAFE HARBOR FOR SMALL TAXPAYERS [§1.263(a)-31]

CHANGE TO DEDUCTING CERTAIN IN COSTS FOR BUILDING PROPERTY WHEN SUCH TREATMENT IS PERMISSIBLE UNDER THE SAFE HARBOR FOR SMALL TAXPAYERS [§1.263(a) – (h)]

PRESENT OVERALL ACCOUTING METHOD CASH

ATTACHMENT 2

FORM 3115, PART II, LINE 13

APPLICANT PROVIDES GENERAL BUSINESS CONSULTING SERVICES. BUSINESS CODE IS 541990. THE APPLICANT HAS ONLY ONE TRADE OR BUSINESS

ATTACHMENT 3

FORM 3115, PART V, LINE 25

TAXPAYER BELIVES THERE IS NO §481 ADJUSTMENT DUE TO EXTENSIVE PAST USE OF §179 DEDUCTION AND BONUS DEPRECIATION DEDUCTION TO EXPENSE THE COST OF ACQUIRED, PRODUCED, OR IMPROVED PROPERTY. TAXPAYER HAS NO CAPITALIZED COSTS THAT WOULD BE DEDUCTIBLE UNDER PROPOSED ACCOUTING METHOD

Exhibit D: Example of Form 3115 with DCN 186

23

Form 3115(Rev. December 2009) Department of the Treasury Internal Revenue Service

Application for Change in Accounting Method OMB No. 1545-0152

Name of filer (name of parent corporation if a consolidated group) (see instructions) Identification number (see instructions)

Principal business activity code number (see instructions)

Number, street, and room or suite no. If a P.O. box, see the instructions. Tax year of change begins (MM/DD/YYYY)

Tax year of change ends (MM/DD/YYYY)

City or town, state, and ZIP code Name of contact person (see instructions)

Name of applicant(s) (if different than filer) and identification number(s) (see instructions) Contact person’s telephone number

If the applicant is a member of a consolidated group, check this box . . . . . . . . . . . . . . . . ▶

If Form 2848, Power of Attorney and Declaration of Representative, is attached (see instructions for when Form 2848 is required), check this box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ Check the box to indicate the type of applicant.

Individual Corporation Controlled foreign corporation (Sec. 957) 10/50 corporation (Sec. 904(d)(2)(E)) Qualified personal service corporation (Sec. 448(d)(2)) Exempt organization. Enter Code section ▶

Cooperative (Sec. 1381) Partnership S corporation Insurance co. (Sec. 816(a)) Insurance co. (Sec. 831) Other (specify) ▶

Check the appropriate box to indicate the type of accounting method change being requested. (see instructions)

Depreciation or Amortization Financial Products and/or Financial Activities of Financial Institutions Other (specify) ▶

Caution. To be eligible for approval of the requested change in method of accounting, the taxpayer must provide all information that is relevant to the taxpayer or to the taxpayer's requested change in method of accounting. This includes all information requested on this Form 3115 (including its instructions), as well as any other information that is not specifically requested.

The taxpayer must attach all applicable supplemental statements requested throughout this form.

Part I Information For Automatic Change Request1 Enter the applicable designated automatic accounting method change number for the requested automatic change. Enter

only one designated automatic accounting method change number, except as provided for in guidance published by the IRS. If the requested change has no designated automatic accounting method change number, check "Other," and provide both a description of the change and citation of the IRS guidance providing the automatic change. See instructions.

Yes No

▶ (a) Change No. (b) Other Description ▶

2 Do any of the scope limitations described in section 4.02 of Rev. Proc. 2008-52 cause automatic consent to beunavailable for the applicant's requested change? If "Yes," attach an explanation. . . . . . . . . . . .

Note. Complete Part II below and then Part IV, and also Schedules A through E of this form (if applicable). Part II Information For All Requests Yes No

3 Did or will the applicant cease to engage in the trade or business to which the requested change relates, or terminate its existence, in the tax year of change (see instructions)? . . . . . . . . . . . . . . . . . . .If “Yes,” the applicant is not eligible to make the change under automatic change request procedures.

4 a Does the applicant (or any present or former consolidated group in which the applicant was a member during theapplicable tax year(s)) have any Federal income tax return(s) under examination (see instructions)? . . . . . If “No,” go to line 5.

b Is the method of accounting the applicant is requesting to change an issue (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) either (i) under consideration or (ii) placed in suspense (see instructions)? . . . . . . . . . . . . . .

Signature (see 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, the application contains all the relevant facts relating to the application, and it is true, correct, and complete. Declaration of preparer (other than applicant) is based on all information of which preparer has any knowledge.

Filer Preparer (other than filer/applicant)

Signature and date

Name and title (print or type)

Signature of individual preparing the application and date

Name of individual preparing the application (print or type)

Name of firm preparing the application

For Privacy Act and Paperwork Reduction Act Notice, see the instructions. Cat. No. 19280E Form 3115 (Rev. 12-2009)

3115 SAMPLE COMPANY

100 YALE BOULEVARD

LONG ISLAND CITY, NY 11101

12-3456789

54199001-01-201412-31-2014

CRAIG DOE

908-555-5555

DO NOT COMPLETE FOR AUTOMATIC CHANGES

X

X

Form 3115 (Rev. 12-2009) Page 2 Part II Information For All Requests (continued) Yes No

4 c Is the method of accounting the applicant is requesting to change an issue pending (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) for any tax year under examination (see instructions)? . . . . . . . . . . . . . . . .

d Is the request to change the method of accounting being filed under the procedures requiring that the operating division director consent to the filing of the request (see instructions)? . . . . . . . . . . . . . . .If “Yes,” attach the consent statement from the director.

e Is the request to change the method of accounting being filed under the 90-day or 120-day window period? . .If “Yes,” check the box for the applicable window period and attach the required statement (see instructions).

90 day 120 day: Date examination ended ▶

f

Name ▶ Telephone number ▶ Tax year(s) ▶

If you answered “Yes” to line 4a, enter the name and telephone number of the examining agent and the tax year(s) under examination.

g Has a copy of this Form 3115 been provided to the examining agent identified on line 4f? . . . . . . . .5 a Does the applicant (or any present or former consolidated group in which the applicant was a member during the

applicable tax year(s)) have any Federal income tax return(s) before Appeals and/or a Federal court? . . . .If “Yes,” enter the name of the (check the box) Appeals officer and/or counsel for the government,

telephone number, and the tax year(s) before Appeals and/or a Federal court. Name ▶ Telephone number ▶ Tax year(s) ▶

b Has a copy of this Form 3115 been provided to the Appeals officer and/or counsel for the government identified on line 5a? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c Is the method of accounting the applicant is requesting to change an issue under consideration by Appeals and/or a Federal court (for either the applicant or any present or former consolidated group in which the applicant was a member for the tax year(s) the applicant was a member) (see instructions)? . . . . . . . . . . . . .If “Yes,” attach an explanation.

6 If the applicant answered “Yes” to line 4a and/or 5a with respect to any present or former consolidated group,attach a statement that provides each parent corporation’s (a) name, (b) identification number, (c) address, and (d) tax year(s) during which the applicant was a member that is under examination, before an Appeals office, and/or before a Federal court.

7 If, for federal income tax purposes, the applicant is either an entity (including a limited liability company) treated as a partnership or an S corporation, is it requesting a change from a method of accounting that is an issue under consideration in an examination, before Appeals, or before a Federal court, with respect to a Federal income tax return of a partner, member, or shareholder of that entity? . . . . . . . . . . . . . . . . . . .

If “Yes,” the applicant is not eligible to make the change. 8a Does the applicable revenue procedure (advance consent or automatic consent) state that the applicant does not

receive audit protection for the requested change (see instructions)? . . . . . . . . . . . . . . .b If “Yes,” attach an explanation.

9a Has the applicant, its predecessor, or a related party requested or made (under either an automatic change procedure or a procedure requiring advance consent) a change in method of accounting within the past 5 years (including the year of the requested change)? . . . . . . . . . . . . . . . . . . . . . . .

b If "Yes," for each trade or business, attach a description of each requested change in method of accounting (including the tax year of change) and state whether the applicant received consent.

c If any application was withdrawn, not perfected, or denied, or if a Consent Agreement granting a change was not signed and returned to the IRS, or the change was not made or not made in the requested year of change, attachan explanation.

10 a Does the applicant, its predecessor, or a related party currently have pending any request (including any concurrently filed request) for a private letter ruling, change in method of accounting, or technical advice? . . .

b If “Yes,” for each request attach a statement providing the name(s) of the taxpayer, identification number(s), the type of request (private letter ruling, change in method of accounting, or technical advice), and the specific issue(s) in the request(s).

11 Is the applicant requesting to change its overall method of accounting? . . . . . . . . . . . . .If “Yes,” check the appropriate boxes below to indicate the applicant’s present and proposed methods of accounting. Also, complete Schedule A on page 4 of this form.

Present method: Cash Accrual Hybrid (attach description)

Proposed method: Cash Accrual Hybrid (attach description)

Form 3115 (Rev. 12-2009)

X

X

X

X

Form 3115 (Rev. 12-2009) Page 3 Part II Information For All Requests (continued) Yes No

12 If the applicant is either (i) not changing its overall method of accounting, or (ii) is changing its overall method ofaccounting and also changing to a special method of accounting for one or more items, attach a detailed and complete description for each of the following:

a The item(s) being changed. b The applicant’s present method for the item(s) being changed. c The applicant’s proposed method for the item(s) being changed. d The applicant’s present overall method of accounting (cash, accrual, or hybrid).

13 Attach a detailed and complete description of the applicant’s trade(s) or business(es), and the principal businessactivity code for each. If the applicant has more than one trade or business as defined in Regulations section1.446-1(d), describe: whether each trade or business is accounted for separately; the goods and services provided by each trade or business and any other types of activities engaged in that generate gross income; theoverall method of accounting for each trade or business; and which trade or business is requesting to change its accounting method as part of this application or a separate application.

14 Will the proposed method of accounting be used for the applicant’s books and records and financial statements? For insurance companies, see the instructions . . . . . . . . . . . . . . . . . . . . . .If “No,” attach an explanation.

15a Has the applicant engaged, or will it engage, in a transaction to which section 381(a) applies (e.g., a reorganization, merger, or liquidation) during the proposed tax year of change determined without regard to anypotential closing of the year under section 381(b)(1)? . . . . . . . . . . . . . . . . . . . .

b If “Yes,” for the items of income and expense that are the subject of this application, attach a statement identifying the methods of accounting used by the parties to the section 381(a) transaction immediately before the date of distribution or transfer and the method(s) that would be required by section 381(c)(4) or (c)(5) absent consent to the change(s) requested in this application.

16 Does the applicant request a conference with the IRS National Office if the IRS proposes an adverse response? 17 If the applicant is changing to either the overall cash method, an overall accrual method, or is changing its method

of accounting for any property subject to section 263A, any long-term contract subject to section 460, or inventories subject to section 474, enter the applicant's gross receipts for the 3 tax years preceding the tax year ofchange.

1st preceding year ended: mo. yr.

2nd preceding year ended: mo. yr.

3rd preceding year ended: mo. yr.

$ $ $ Part III Information For Advance Consent Request Yes No18 Is the applicant’s requested change described in any revenue procedure, revenue ruling, notice, regulation, or

other published guidance as an automatic change request? . . . . . . . . . . . . . . . . . .If “Yes,” attach an explanation describing why the applicant is submitting its request under advance consent request procedures.

19 Attach a full explanation of the legal basis supporting the proposed method for the item being changed. Include a detailed and complete description of the facts that explains how the law specifically applies to the applicant’s situation and that demonstrates that the applicant is authorized to use the proposed method. Include all authority (statutes, regulations, published rulings, court cases, etc.) supporting the proposed method. Also, include either a discussion of the contrary authorities or a statement that no contrary authority exists.

20 Attach a copy of all documents related to the proposed change (see instructions). 21 Attach a statement of the applicant’s reasons for the proposed change. 22 If the applicant is a member of a consolidated group for the year of change, do all other members of the

consolidated group use the proposed method of accounting for the item being changed? . . . . . . . .If “No,” attach an explanation.

23 a Enter the amount of user fee attached to this application (see instructions). ▶ $

b If the applicant qualifies for a reduced user fee, attach the required information or certification (see instructions). Part IV Section 481(a) Adjustment Yes No24 Does the applicable revenue procedure, revenue ruling, notice, regulation, or other published guidance require the applicant to

implement the requested change in method of accounting on a cut-off basis rather than a section 481(a) adjustment? . . .If “Yes,” do not complete lines 25, 26, and 27 below.

25 Enter the section 481(a) adjustment. Indicate whether the adjustment is an increase (+) or a decrease (-) in income. ▶ Attach a summary of the computation and an explanation of the methodology used to determine the section 481(a) adjustment. If it is based on more than one component, show the computation for each component. If more than one applicant is applying for the method change on the same application, attach a list of the name, identification number, principal business activity code (see instructions), and the amount of the section 481(a) adjustment attributable to each applicant.

$

Form 3115 (Rev. 12-2009)

X

Form 3115 (Rev. 12-2009) Page 4 Part IV Section 481(a) Adjustment (continued) Yes No26 If the section 481(a) adjustment is an increase to income of less than $25,000, does the applicant elect to take the

entire amount of the adjustment into account in the year of change? . . . . . . . . . . . . . . .27 Is any part of the section 481(a) adjustment attributable to transactions between members of an affiliated group, a

consolidated group, a controlled group, or other related parties? . . . . . . . . . . . . . . . .If “Yes,” attach an explanation.

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

Part I Change in Overall Method (see instructions) 1 Enter the following amounts as of the close of the tax year preceding the year of change. If none, state “None.” Also, attach a

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

a Income accrued but not received (such as accounts receivable) . . . . . . . . . . . . . . $

b Income received or reported before it was earned (such as advanced payments). Attach a description ofthe income and the legal basis for the proposed method . . . . . . . . . . . . . . . .

c Expenses accrued but not paid (such as accounts payable) . . . . . . . . . . . . . . .d Prepaid expenses previously deducted . . . . . . . . . . . . . . . . . . . . . .e Supplies on hand previously deducted and/or not previously reported . . . . . . . . . . . .f Inventory on hand previously deducted and/or not previously reported. Complete Schedule D, Part II .g Other amounts (specify). Attach a description of the item and the legal basis for its inclusion in the

calculation of the section 481(a) adjustment. ▶

h Net section 481(a) adjustment (Combine lines 1a–1g.) Indicate whether the adjustment is an increase (+) or decrease (-) in income. Also enter the net amount of this section 481(a) adjustment amount on Part IV, line 25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

2 Is the applicant also requesting the recurring item exception under section 461(h)(3)? . . . . . . . Yes No3 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. Also attach a statement specifying 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 Federal income tax return or other return (e.g., tax-exempt organization returns) for that period. If the amounts in Part I, lines1a through 1g, do not agree with those shown on both the profit and loss statement and the balance sheet, attach a statement explaining the differences.

Part II Change to the Cash Method For Advance Consent Request (see instructions) Applicants requesting a change to the cash method must attach the following information:

1 A description of inventory items (items whose production, purchase, or sale is an income-producing factor) and materials and supplies used in carrying out the business.

2 An explanation as to whether the applicant is required to use the accrual method under any section of the Code or regulations.

Schedule B—Change to the Deferral Method for Advance Payments (see instructions)

1 If the applicant is requesting to change to the Deferral Method for advance payments described in section 5.02 of Rev. Proc. 2004-34, 2004-1 C.B. 991, attach the following information:

a A statement explaining how the advance payments meet the definition in section 4.01 of Rev. Proc. 2004-34.b If the applicant is filing under the automatic change procedures of Rev. Proc. 2008-52, the information required by section

8.02(3)(a)-(c) of Rev. Proc. 2004-34.c If the applicant is filing under the advance consent provisions of Rev. Proc. 97-27, the information required by section

8.03(2)(a)-(f) of Rev. Proc. 2004-34.2 If the applicant is requesting to change to the deferral method for advance payments described in Regulations section

1.451-5(b)(1)(ii), attach the following.a A statement explaining how the advance payments meet the definition in Regulations section 1.451-5(a)(1).b A statement explaining what portions of the advance payments, if any, are attributable to services, whether such services are

integral to the provisions of goods or items, and whether any portions of the advance payments that are attributable tonon-integral services are less than five percent of the total contract prices. See Regulations sections 1.451-5(a)(2)(i) and (3).

c A statement explaining that the advance payments will be included in income no later than when included in gross receipts for purposes of the applicant's financial reports. See Regulations section 1.451-5(b)(1)(ii).

d A statement explaining whether the inventoriable goods exception of Regulations section 1.451-5(c) applies and if so, when substantial advance payments will be received under the contracts, and how the exception will limit the deferral of income.

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 5

Schedule C—Changes Within the LIFO Inventory Method (see instructions)

Part I 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.

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

a Valuing inventory (e.g., unit method or dollar-value method). b Pooling (e.g., by line or type or class of goods, natural business unit, multiple pools, raw material content, simplified dollar-

value method, inventory price index computation (IPIC) pools, vehicle-pool method, etc.). c Pricing dollar-value pools (e.g., double-extension, index, link-chain, link-chain index, IPIC method, etc.). d Determining the current-year cost of goods in the ending inventory (i.e., most recent acquisitions, earliest acquisitions during

the current year, average cost of current-year acquisitions, or other permitted method). 2 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. 3 If the proposed change is not requested for all the LIFO inventory, attach a statement specifying the inventory to which the

change is and is not applicable. 4 If the proposed change is not requested for all of the LIFO pools, attach a statement specifying the LIFO pool(s) to which the

change is applicable.

5 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, identify which inventory itemsare valued under each method.

6 If changing to the IPIC method, attach a completed Form 970.

Part II Change in Pooling Inventories 1 If the applicant is proposing to change its pooling method or the number of pools, attach a description of the contents of, and

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

2 If the applicant is 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 A description of the types of products produced by the applicant. If possible, attach a brochure. b A description of the types of processes and raw materials used to produce the products in each proposed pool.

c If all of the products to be included in the proposed NBU pool(s) are not produced at one facility, state the reasons for theseparate facilities, the location of each facility, and a description of the products each facility produces.

d 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.

e 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.

f 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.

g A statement addressing whether, within the proposed NBU pool(s), there are items both sold to unrelated parties and transferred to a different unit of the applicant to be used as a component part of another product prior to final processing.

3 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).

4 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. See Regulations section 1.472-8(c).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 6 Schedule D—Change in the Treatment of Long-Term Contracts Under Section 460, Inventories, or Other Section 263A Assets (see instructions)

Part I Change in Reporting Income From Long-Term Contracts (Also complete Part III on pages 7 and 8.) 1 To the extent not already provided, attach a description of the applicant’s present and proposed methods for reporting income

and expenses from long-term contracts. Also, attach a representative actual contract (without any deletion) for the requestedchange. If the applicant is a construction contractor, attach a detailed description of its construction activities. Are the applicant’s contracts long-term contracts as defined in section 460(f)(1) (see instructions)? . . Yes No2aIf “Yes,” do all the contracts qualify for the exception under section 460(e) (see instructions)? . . . . Yes Nob If line 2b is “No,” attach an explanation.

c If line 2b is “Yes,” is the applicant requesting to use the percentage-of-completion method using cost-to-cost under Regulations section 1.460-4(b)? . . . . . . . . . . . . . . . . . . . . Yes No

d If line 2c is “No,” is the applicant requesting to use the exempt-contract percentage-of-completionmethod under Regulations section 1.460-4(c)(2)? . . . . . . . . . . . . . . . . . . . Yes NoIf line 2d is “Yes,” attach an explanation of what cost comparison the applicant will use to determine a contract’s completion factor. If line 2d is “No,” attach an explanation of what method the applicant is using and the authority for its use.

3a Does the applicant have long-term manufacturing contracts as defined in section 460(f)(2)? . . . . . Yes Nob If “Yes,” attach an explanation of the applicant’s present and proposed method(s) of accounting for long-

term manufacturing contracts. c Attach a description of the applicant’s manufacturing activities, including any required installation of manufactured goods.

4 To determine a contract’s completion factor using the percentage-of-completion method: a Will the applicant use the cost-to-cost method in Regulations section 1.460-4(b)? . . . . . . . . Yes Nob If line 4a is “No,” is the applicant electing the simplified cost-to-cost method (see section 460(b)(3) and

Regulations section 1.460-5(c))? . . . . . . . . . . . . . . . . . . . . . . . . Yes No5 Attach a statement indicating whether any of the applicant’s contracts are either cost-plus long-term

contracts or Federal long-term contracts. Part II Change in Valuing Inventories Including Cost Allocation Changes (Also complete Part III on pages 7 and 8.) 1 Attach a description of the inventory goods being changed. 2 Attach a description of the inventory goods (if any) NOT being changed. 3 a Is the applicant subject to section 263A? If "No," go to line 4a . . . . . . . . . . . . . . Yes Nob Is the applicant's present inventory valuation method in compliance with section 263A (see instructions)?

If "No," attach a detailed explanation . . . . . . . . . . . . . . . . . . . . . . . Yes No

4 a Check the appropriate boxes below. Identification methods:

Inventory Being Changed Inventory Not

Being Changed

Present method Proposed method Present method

Specific identification . . . . . . . . . . . . . . . .FIFO . . . . . . . . . . . . . . . . . . . . .LIFO . . . . . . . . . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

Valuation methods: Cost . . . . . . . . . . . . . . . . . . . . .Cost or market, whichever is lower . . . . . . . . . . .Retail cost . . . . . . . . . . . . . . . . . . .Retail, lower of cost or market . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

b Enter the value at the end of the tax year preceding the year of change 5 If the applicant is changing from the LIFO inventory method to a non-LIFO method, attach the following information (see

instructions). a Copies of Form(s) 970 filed to adopt or expand the use of the method. b Only for applicants requesting advance consent. A statement describing whether the applicant is changing to the method

required by Regulations section 1.472-6(a) or (b), or whether the applicant is proposing a different method. c Only for applicants requesting an automatic change. The statement required by section 22.01(5) of the Appendix of Rev.

Proc. 2008-52 (or its successor).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 7 Part III Method of Cost Allocation (Complete this part if the requested change involves either property subject

to section 263A or long-term contracts as described in section 460 (see instructions)). Section A—Allocation and Capitalization Methods 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 real or tangible personal property produced and property acquired for resale, or to allocate and, where appropriate, capitalize direct and indirect costs properly allocable to long-term contracts. 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 long-term contracts, real or tangible personal property produced, and property acquired for resale. The description must include the following:

1 The method of allocating direct and indirect costs (i.e., specific identification, burden rate, standard cost, or other reasonable allocation method).

2 The method of allocating mixed service costs (i.e., direct reallocation, step-allocation, simplified service cost using the labor-based allocation ratio, simplified service cost using the production cost allocation ratio, or other reasonable allocation method).

3 The method of capitalizing additional section 263A costs (i.e., simplified production with or without the historic absorption ratio election, simplified resale with or without the historic absorption ratio election including permissible variations, the U.S. ratio, or other reasonable allocation method).

Section B—Direct and Indirect Costs Required To Be Allocated Check the appropriate boxes showing the costs that are or will be fully included, to the extent required, in the cost of real or tangible personal property produced or property acquired for resale under section 263A or allocated to long-term contracts under section 460. Mark “N/A” in a box if those costs are not incurred by the applicant. If a box is not checked, it is assumed that those costs are not fully included to the extent required. Attach an explanation for boxes that are not checked.

Present method Proposed method

1 Direct material . . . . . . . . . . . . . . . . . . . . . . . . .2 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . .3 Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . .4 Officers’ compensation (not including selling activities) . . . . . . . . . . . .5 Pension and other related costs . . . . . . . . . . . . . . . . . . .6 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . .7 Indirect materials and supplies . . . . . . . . . . . . . . . . . . . .8 Purchasing costs . . . . . . . . . . . . . . . . . . . . . . . .9 Handling, processing, assembly, and repackaging costs . . . . . . . . . . .

10 Offsite storage and warehousing costs . . . . . . . . . . . . . . . . .11 Depreciation, amortization, and cost recovery allowance for equipment and facilities

placed in service and not temporarily idle . . . . . . . . . . . . . . . .12 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Taxes other than state, local, and foreign income taxes . . . . . . . . . . . .15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Maintenance and repairs that relate to a production, resale, or long-term contract activity 18 Engineering and design costs (not including section 174 research and experimental

expenses) . . . . . . . . . . . . . . . . . . . . . . . . . .19 Rework labor, scrap, and spoilage . . . . . . . . . . . . . . . . . .20 Tools and equipment . . . . . . . . . . . . . . . . . . . . . . .21 Quality control and inspection . . . . . . . . . . . . . . . . . . . .22 Bidding expenses incurred in the solicitation of contracts awarded to the applicant . .23 Licensing and franchise costs . . . . . . . . . . . . . . . . . . . .24 Capitalizable service costs (including mixed service costs) . . . . . . . . . .25 Administrative costs (not including any costs of selling or any return on capital) . . . .26 Research and experimental expenses attributable to long-term contracts . . . . . .27 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Other costs (Attach a list of these costs.) . . . . . . . . . . . . . . . .

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 8 Part III Method of Cost Allocation (see instructions) (continued)

Section C—Other Costs Not Required To Be Allocated (Complete Section C only if the applicant is requesting to change its method for these costs.)

Present method Proposed method

1 Marketing, selling, advertising, and distribution expenses . . . . . . . . . . .2 Research and experimental expenses not included in Section B, line 26 . . . . . .3 Bidding expenses not included in Section B, line 22 . . . . . . . . . . . .4 General and administrative costs not included in Section B . . . . . . . . . .5 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .6 Cost of strikes . . . . . . . . . . . . . . . . . . . . . . . . .7 Warranty and product liability costs . . . . . . . . . . . . . . . . . .8 Section 179 costs . . . . . . . . . . . . . . . . . . . . . . . .9 On-site storage . . . . . . . . . . . . . . . . . . . . . . . . .

10 Depreciation, amortization, and cost recovery allowance not included in Section B, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Schedule E—Change in Depreciation or Amortization (see instructions)

Applicants requesting approval to change their method of accounting for depreciation or amortization complete this section. Applicants must provide this information for each item or class of property for which a change is requested.

Note. See the List of Automatic Accounting Method Changes in the instructions for information regarding automatic changes under sections 56, 167, 168, 197, 1400I, 1400L, or former section 168. Do not file Form 3115 with respect to certain late elections and election revocations (see instructions).

1 Is depreciation for the property determined under Regulations section 1.167(a)-11 (CLADR)? . . . . Yes NoIf “Yes,” the only changes permitted are under Regulations section 1.167(a)-11(c)(1)(iii).

2 Is any of the depreciation or amortization required to be capitalized under any Code section (e.g., section 263A)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” enter the applicable section ▶

3 Has a depreciation, amortization, or expense election been made for the property (e.g., the election under sections 168(f)(1), 179, or 179C)? . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” state the election made ▶

4 a To the extent not already provided, attach a statement describing 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.

b If the property is residential rental property, did the applicant live in the property before renting it? . . Yes Noc Is the property public utility property? . . . . . . . . . . . . . . . . . . . . . . Yes No

5 To the extent not already provided in the applicant’s description of its present method, attach a statement explaining how theproperty 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.).

6 If the property is not currently treated as depreciable or amortizable property, attach a statement of the facts supporting theproposed change to depreciate or amortize the property.

7 If the property is currently treated and/or will be treated as depreciable or amortizable property, provide the following information for both the present (if applicable) and proposed methods:

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

b The applicable asset class from Rev. Proc. 87-56, 1987-2 C.B. 674, for each asset depreciated under section 168 (MACRS) or under section 1400L; the applicable asset class from Rev. Proc. 83-35, 1983-1 C.B. 745, for each asset depreciated under former section 168 (ACRS); an explanation why no asset class is identified for each asset for which an asset class has not been identified by the applicant.

c The facts to support the asset class for the proposed method. d The depreciation or amortization method of the property, including the applicable Code section (e.g., 200% declining balance

method under section 168(b)(1)). e The useful life, recovery period, or amortization period of the property. f The applicable convention of the property. g A statement of whether or not the additional first-year special depreciation allowance (for example, as provided by section

168(k), 168(l), 168(m), 168(n), 1400L(b), or 1400N(d)) was or will be claimed for the property. If not, also provide an explanationas to why no special depreciation allowance was or will be claimed.

Form 3115 (Rev. 12-2009)

FORM 3115 ATTACHMENTS

3115 SAMPLE COMPANY, EIN 12-3456789 (DCN 186)

ATTACHMENT 1

FORM 3115, PART II, LINE 12

ITEM BEING CHANGED: MATERIALS AND SUPPLIES

NO IDENTIFICATION OF UNITS OF PROPERTY ARE BEING CHANGED UNDER §1.263(a) – 3(e)

PRESENT METHOD: IN GENERAL, AMOUNTS PAID FOR TANGIBLE ASSESTS ARE DEDUCTED:

WHEN THE LIFE OF THE ASSET IS EXPECTED TO BE ONE YEAR OR LESS

WHEN THE AMOUNT PAID FOR THE PROPERTY MAY BE PROPERLY EXPENSED UNDER IRS §179

PROPOSED METHOD: CHANGE TO DEDUCTING NON-INCIDENTAL MATERIALS AND SUPPLIES WHEN USED OR CONSUMED. [§1.162(a)(1), (c) (1)]

PRESENT OVERALL ACCOUTING METHOD CASH

ATTACHMENT 2

FORM 3115, PART II, LINE 13

APPLICANT PROVIDES GENERAL BUSINESS CONSULTING SERVICES. BUSINESS CODE IS 541990. THE APPLICANT HAS ONLY ONE TRADE OR BUSINESS

ATTACHMENT 3

FORM 3115, PART V, LINE 25

TAXPAYER BELIVES THERE IS NO §481 ADJUSTMENT DUE TO EXTENSIVE PAST USE OF §179 DEDUCTION AND BONUS DEPRECIATION DEDUCTION TO EXPENSE THE COST OF ACQUIRED, PRODUCED, OR IMPROVED PROPERTY. TAXPAYER HAS NO CAPITALIZED COSTS THAT WOULD BE DEDUCTIBLE UNDER PROPOSED ACCOUTING METHOD

Exhibit D: Examples of Form 3115 with DCN 192

24

Form 3115(Rev. December 2009) Department of the Treasury Internal Revenue Service

Application for Change in Accounting Method OMB No. 1545-0152

Name of filer (name of parent corporation if a consolidated group) (see instructions) Identification number (see instructions)

Principal business activity code number (see instructions)

Number, street, and room or suite no. If a P.O. box, see the instructions. Tax year of change begins (MM/DD/YYYY)

Tax year of change ends (MM/DD/YYYY)

City or town, state, and ZIP code Name of contact person (see instructions)

Name of applicant(s) (if different than filer) and identification number(s) (see instructions) Contact person’s telephone number

If the applicant is a member of a consolidated group, check this box . . . . . . . . . . . . . . . . ▶

If Form 2848, Power of Attorney and Declaration of Representative, is attached (see instructions for when Form 2848 is required), check this box . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ Check the box to indicate the type of applicant.

Individual Corporation Controlled foreign corporation (Sec. 957) 10/50 corporation (Sec. 904(d)(2)(E)) Qualified personal service corporation (Sec. 448(d)(2)) Exempt organization. Enter Code section ▶

Cooperative (Sec. 1381) Partnership S corporation Insurance co. (Sec. 816(a)) Insurance co. (Sec. 831) Other (specify) ▶

Check the appropriate box to indicate the type of accounting method change being requested. (see instructions)

Depreciation or Amortization Financial Products and/or Financial Activities of Financial Institutions Other (specify) ▶

Caution. To be eligible for approval of the requested change in method of accounting, the taxpayer must provide all information that is relevant to the taxpayer or to the taxpayer's requested change in method of accounting. This includes all information requested on this Form 3115 (including its instructions), as well as any other information that is not specifically requested.

The taxpayer must attach all applicable supplemental statements requested throughout this form.

Part I Information For Automatic Change Request1 Enter the applicable designated automatic accounting method change number for the requested automatic change. Enter

only one designated automatic accounting method change number, except as provided for in guidance published by the IRS. If the requested change has no designated automatic accounting method change number, check "Other," and provide both a description of the change and citation of the IRS guidance providing the automatic change. See instructions.

Yes No

▶ (a) Change No. (b) Other Description ▶

2 Do any of the scope limitations described in section 4.02 of Rev. Proc. 2008-52 cause automatic consent to beunavailable for the applicant's requested change? If "Yes," attach an explanation. . . . . . . . . . . .

Note. Complete Part II below and then Part IV, and also Schedules A through E of this form (if applicable). Part II Information For All Requests Yes No

3 Did or will the applicant cease to engage in the trade or business to which the requested change relates, or terminate its existence, in the tax year of change (see instructions)? . . . . . . . . . . . . . . . . . . .If “Yes,” the applicant is not eligible to make the change under automatic change request procedures.

4 a Does the applicant (or any present or former consolidated group in which the applicant was a member during theapplicable tax year(s)) have any Federal income tax return(s) under examination (see instructions)? . . . . . If “No,” go to line 5.

b Is the method of accounting the applicant is requesting to change an issue (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) either (i) under consideration or (ii) placed in suspense (see instructions)? . . . . . . . . . . . . . .

Signature (see 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, the application contains all the relevant facts relating to the application, and it is true, correct, and complete. Declaration of preparer (other than applicant) is based on all information of which preparer has any knowledge.

Filer Preparer (other than filer/applicant)

Signature and date

Name and title (print or type)

Signature of individual preparing the application and date

Name of individual preparing the application (print or type)

Name of firm preparing the application

For Privacy Act and Paperwork Reduction Act Notice, see the instructions. Cat. No. 19280E Form 3115 (Rev. 12-2009)

3115 SAMPLE COMPANY

100 YALE BOULEVARD

LONG ISLAND CITY, NY 11101

12-3456789

54199001-01-201412-31-2014

CRAIG DOE

908-555-5555

DO NOT COMPLETE FOR AUTOMATIC CHANGES

X

X

Form 3115 (Rev. 12-2009) Page 2 Part II Information For All Requests (continued) Yes No

4 c Is the method of accounting the applicant is requesting to change an issue pending (with respect to either the applicant or any present or former consolidated group in which the applicant was a member during the applicable tax year(s)) for any tax year under examination (see instructions)? . . . . . . . . . . . . . . . .

d Is the request to change the method of accounting being filed under the procedures requiring that the operating division director consent to the filing of the request (see instructions)? . . . . . . . . . . . . . . .If “Yes,” attach the consent statement from the director.

e Is the request to change the method of accounting being filed under the 90-day or 120-day window period? . .If “Yes,” check the box for the applicable window period and attach the required statement (see instructions).

90 day 120 day: Date examination ended ▶

f

Name ▶ Telephone number ▶ Tax year(s) ▶

If you answered “Yes” to line 4a, enter the name and telephone number of the examining agent and the tax year(s) under examination.

g Has a copy of this Form 3115 been provided to the examining agent identified on line 4f? . . . . . . . .5 a Does the applicant (or any present or former consolidated group in which the applicant was a member during the

applicable tax year(s)) have any Federal income tax return(s) before Appeals and/or a Federal court? . . . .If “Yes,” enter the name of the (check the box) Appeals officer and/or counsel for the government,

telephone number, and the tax year(s) before Appeals and/or a Federal court. Name ▶ Telephone number ▶ Tax year(s) ▶

b Has a copy of this Form 3115 been provided to the Appeals officer and/or counsel for the government identified on line 5a? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c Is the method of accounting the applicant is requesting to change an issue under consideration by Appeals and/or a Federal court (for either the applicant or any present or former consolidated group in which the applicant was a member for the tax year(s) the applicant was a member) (see instructions)? . . . . . . . . . . . . .If “Yes,” attach an explanation.

6 If the applicant answered “Yes” to line 4a and/or 5a with respect to any present or former consolidated group,attach a statement that provides each parent corporation’s (a) name, (b) identification number, (c) address, and (d) tax year(s) during which the applicant was a member that is under examination, before an Appeals office, and/or before a Federal court.

7 If, for federal income tax purposes, the applicant is either an entity (including a limited liability company) treated as a partnership or an S corporation, is it requesting a change from a method of accounting that is an issue under consideration in an examination, before Appeals, or before a Federal court, with respect to a Federal income tax return of a partner, member, or shareholder of that entity? . . . . . . . . . . . . . . . . . . .

If “Yes,” the applicant is not eligible to make the change. 8a Does the applicable revenue procedure (advance consent or automatic consent) state that the applicant does not

receive audit protection for the requested change (see instructions)? . . . . . . . . . . . . . . .b If “Yes,” attach an explanation.

9a Has the applicant, its predecessor, or a related party requested or made (under either an automatic change procedure or a procedure requiring advance consent) a change in method of accounting within the past 5 years (including the year of the requested change)? . . . . . . . . . . . . . . . . . . . . . . .

b If "Yes," for each trade or business, attach a description of each requested change in method of accounting (including the tax year of change) and state whether the applicant received consent.

c If any application was withdrawn, not perfected, or denied, or if a Consent Agreement granting a change was not signed and returned to the IRS, or the change was not made or not made in the requested year of change, attachan explanation.

10 a Does the applicant, its predecessor, or a related party currently have pending any request (including any concurrently filed request) for a private letter ruling, change in method of accounting, or technical advice? . . .

b If “Yes,” for each request attach a statement providing the name(s) of the taxpayer, identification number(s), the type of request (private letter ruling, change in method of accounting, or technical advice), and the specific issue(s) in the request(s).

11 Is the applicant requesting to change its overall method of accounting? . . . . . . . . . . . . .If “Yes,” check the appropriate boxes below to indicate the applicant’s present and proposed methods of accounting. Also, complete Schedule A on page 4 of this form.

Present method: Cash Accrual Hybrid (attach description)

Proposed method: Cash Accrual Hybrid (attach description)

Form 3115 (Rev. 12-2009)

X

X

X

X

Form 3115 (Rev. 12-2009) Page 3 Part II Information For All Requests (continued) Yes No

12 If the applicant is either (i) not changing its overall method of accounting, or (ii) is changing its overall method ofaccounting and also changing to a special method of accounting for one or more items, attach a detailed and complete description for each of the following:

a The item(s) being changed. b The applicant’s present method for the item(s) being changed. c The applicant’s proposed method for the item(s) being changed. d The applicant’s present overall method of accounting (cash, accrual, or hybrid).

13 Attach a detailed and complete description of the applicant’s trade(s) or business(es), and the principal businessactivity code for each. If the applicant has more than one trade or business as defined in Regulations section1.446-1(d), describe: whether each trade or business is accounted for separately; the goods and services provided by each trade or business and any other types of activities engaged in that generate gross income; theoverall method of accounting for each trade or business; and which trade or business is requesting to change its accounting method as part of this application or a separate application.

14 Will the proposed method of accounting be used for the applicant’s books and records and financial statements? For insurance companies, see the instructions . . . . . . . . . . . . . . . . . . . . . .If “No,” attach an explanation.

15a Has the applicant engaged, or will it engage, in a transaction to which section 381(a) applies (e.g., a reorganization, merger, or liquidation) during the proposed tax year of change determined without regard to anypotential closing of the year under section 381(b)(1)? . . . . . . . . . . . . . . . . . . . .

b If “Yes,” for the items of income and expense that are the subject of this application, attach a statement identifying the methods of accounting used by the parties to the section 381(a) transaction immediately before the date of distribution or transfer and the method(s) that would be required by section 381(c)(4) or (c)(5) absent consent to the change(s) requested in this application.

16 Does the applicant request a conference with the IRS National Office if the IRS proposes an adverse response? 17 If the applicant is changing to either the overall cash method, an overall accrual method, or is changing its method

of accounting for any property subject to section 263A, any long-term contract subject to section 460, or inventories subject to section 474, enter the applicant's gross receipts for the 3 tax years preceding the tax year ofchange.

1st preceding year ended: mo. yr.

2nd preceding year ended: mo. yr.

3rd preceding year ended: mo. yr.

$ $ $ Part III Information For Advance Consent Request Yes No18 Is the applicant’s requested change described in any revenue procedure, revenue ruling, notice, regulation, or

other published guidance as an automatic change request? . . . . . . . . . . . . . . . . . .If “Yes,” attach an explanation describing why the applicant is submitting its request under advance consent request procedures.

19 Attach a full explanation of the legal basis supporting the proposed method for the item being changed. Include a detailed and complete description of the facts that explains how the law specifically applies to the applicant’s situation and that demonstrates that the applicant is authorized to use the proposed method. Include all authority (statutes, regulations, published rulings, court cases, etc.) supporting the proposed method. Also, include either a discussion of the contrary authorities or a statement that no contrary authority exists.

20 Attach a copy of all documents related to the proposed change (see instructions). 21 Attach a statement of the applicant’s reasons for the proposed change. 22 If the applicant is a member of a consolidated group for the year of change, do all other members of the

consolidated group use the proposed method of accounting for the item being changed? . . . . . . . .If “No,” attach an explanation.

23 a Enter the amount of user fee attached to this application (see instructions). ▶ $

b If the applicant qualifies for a reduced user fee, attach the required information or certification (see instructions). Part IV Section 481(a) Adjustment Yes No24 Does the applicable revenue procedure, revenue ruling, notice, regulation, or other published guidance require the applicant to

implement the requested change in method of accounting on a cut-off basis rather than a section 481(a) adjustment? . . .If “Yes,” do not complete lines 25, 26, and 27 below.

25 Enter the section 481(a) adjustment. Indicate whether the adjustment is an increase (+) or a decrease (-) in income. ▶ Attach a summary of the computation and an explanation of the methodology used to determine the section 481(a) adjustment. If it is based on more than one component, show the computation for each component. If more than one applicant is applying for the method change on the same application, attach a list of the name, identification number, principal business activity code (see instructions), and the amount of the section 481(a) adjustment attributable to each applicant.

$

Form 3115 (Rev. 12-2009)

X

Form 3115 (Rev. 12-2009) Page 4 Part IV Section 481(a) Adjustment (continued) Yes No26 If the section 481(a) adjustment is an increase to income of less than $25,000, does the applicant elect to take the

entire amount of the adjustment into account in the year of change? . . . . . . . . . . . . . . .27 Is any part of the section 481(a) adjustment attributable to transactions between members of an affiliated group, a

consolidated group, a controlled group, or other related parties? . . . . . . . . . . . . . . . .If “Yes,” attach an explanation.

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

Part I Change in Overall Method (see instructions) 1 Enter the following amounts as of the close of the tax year preceding the year of change. If none, state “None.” Also, attach a

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

a Income accrued but not received (such as accounts receivable) . . . . . . . . . . . . . . $

b Income received or reported before it was earned (such as advanced payments). Attach a description ofthe income and the legal basis for the proposed method . . . . . . . . . . . . . . . .

c Expenses accrued but not paid (such as accounts payable) . . . . . . . . . . . . . . .d Prepaid expenses previously deducted . . . . . . . . . . . . . . . . . . . . . .e Supplies on hand previously deducted and/or not previously reported . . . . . . . . . . . .f Inventory on hand previously deducted and/or not previously reported. Complete Schedule D, Part II .g Other amounts (specify). Attach a description of the item and the legal basis for its inclusion in the

calculation of the section 481(a) adjustment. ▶

h Net section 481(a) adjustment (Combine lines 1a–1g.) Indicate whether the adjustment is an increase (+) or decrease (-) in income. Also enter the net amount of this section 481(a) adjustment amount on Part IV, line 25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

2 Is the applicant also requesting the recurring item exception under section 461(h)(3)? . . . . . . . Yes No3 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. Also attach a statement specifying 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 Federal income tax return or other return (e.g., tax-exempt organization returns) for that period. If the amounts in Part I, lines1a through 1g, do not agree with those shown on both the profit and loss statement and the balance sheet, attach a statement explaining the differences.

Part II Change to the Cash Method For Advance Consent Request (see instructions) Applicants requesting a change to the cash method must attach the following information:

1 A description of inventory items (items whose production, purchase, or sale is an income-producing factor) and materials and supplies used in carrying out the business.

2 An explanation as to whether the applicant is required to use the accrual method under any section of the Code or regulations.

Schedule B—Change to the Deferral Method for Advance Payments (see instructions)

1 If the applicant is requesting to change to the Deferral Method for advance payments described in section 5.02 of Rev. Proc. 2004-34, 2004-1 C.B. 991, attach the following information:

a A statement explaining how the advance payments meet the definition in section 4.01 of Rev. Proc. 2004-34.b If the applicant is filing under the automatic change procedures of Rev. Proc. 2008-52, the information required by section

8.02(3)(a)-(c) of Rev. Proc. 2004-34.c If the applicant is filing under the advance consent provisions of Rev. Proc. 97-27, the information required by section

8.03(2)(a)-(f) of Rev. Proc. 2004-34.2 If the applicant is requesting to change to the deferral method for advance payments described in Regulations section

1.451-5(b)(1)(ii), attach the following.a A statement explaining how the advance payments meet the definition in Regulations section 1.451-5(a)(1).b A statement explaining what portions of the advance payments, if any, are attributable to services, whether such services are

integral to the provisions of goods or items, and whether any portions of the advance payments that are attributable tonon-integral services are less than five percent of the total contract prices. See Regulations sections 1.451-5(a)(2)(i) and (3).

c A statement explaining that the advance payments will be included in income no later than when included in gross receipts for purposes of the applicant's financial reports. See Regulations section 1.451-5(b)(1)(ii).

d A statement explaining whether the inventoriable goods exception of Regulations section 1.451-5(c) applies and if so, when substantial advance payments will be received under the contracts, and how the exception will limit the deferral of income.

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 5

Schedule C—Changes Within the LIFO Inventory Method (see instructions)

Part I 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.

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

a Valuing inventory (e.g., unit method or dollar-value method). b Pooling (e.g., by line or type or class of goods, natural business unit, multiple pools, raw material content, simplified dollar-

value method, inventory price index computation (IPIC) pools, vehicle-pool method, etc.). c Pricing dollar-value pools (e.g., double-extension, index, link-chain, link-chain index, IPIC method, etc.). d Determining the current-year cost of goods in the ending inventory (i.e., most recent acquisitions, earliest acquisitions during

the current year, average cost of current-year acquisitions, or other permitted method). 2 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. 3 If the proposed change is not requested for all the LIFO inventory, attach a statement specifying the inventory to which the

change is and is not applicable. 4 If the proposed change is not requested for all of the LIFO pools, attach a statement specifying the LIFO pool(s) to which the

change is applicable.

5 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, identify which inventory itemsare valued under each method.

6 If changing to the IPIC method, attach a completed Form 970.

Part II Change in Pooling Inventories 1 If the applicant is proposing to change its pooling method or the number of pools, attach a description of the contents of, and

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

2 If the applicant is 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 A description of the types of products produced by the applicant. If possible, attach a brochure. b A description of the types of processes and raw materials used to produce the products in each proposed pool.

c If all of the products to be included in the proposed NBU pool(s) are not produced at one facility, state the reasons for theseparate facilities, the location of each facility, and a description of the products each facility produces.

d 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.

e 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.

f 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.

g A statement addressing whether, within the proposed NBU pool(s), there are items both sold to unrelated parties and transferred to a different unit of the applicant to be used as a component part of another product prior to final processing.

3 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).

4 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. See Regulations section 1.472-8(c).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 6 Schedule D—Change in the Treatment of Long-Term Contracts Under Section 460, Inventories, or Other Section 263A Assets (see instructions)

Part I Change in Reporting Income From Long-Term Contracts (Also complete Part III on pages 7 and 8.) 1 To the extent not already provided, attach a description of the applicant’s present and proposed methods for reporting income

and expenses from long-term contracts. Also, attach a representative actual contract (without any deletion) for the requestedchange. If the applicant is a construction contractor, attach a detailed description of its construction activities. Are the applicant’s contracts long-term contracts as defined in section 460(f)(1) (see instructions)? . . Yes No2aIf “Yes,” do all the contracts qualify for the exception under section 460(e) (see instructions)? . . . . Yes Nob If line 2b is “No,” attach an explanation.

c If line 2b is “Yes,” is the applicant requesting to use the percentage-of-completion method using cost-to-cost under Regulations section 1.460-4(b)? . . . . . . . . . . . . . . . . . . . . Yes No

d If line 2c is “No,” is the applicant requesting to use the exempt-contract percentage-of-completionmethod under Regulations section 1.460-4(c)(2)? . . . . . . . . . . . . . . . . . . . Yes NoIf line 2d is “Yes,” attach an explanation of what cost comparison the applicant will use to determine a contract’s completion factor. If line 2d is “No,” attach an explanation of what method the applicant is using and the authority for its use.

3a Does the applicant have long-term manufacturing contracts as defined in section 460(f)(2)? . . . . . Yes Nob If “Yes,” attach an explanation of the applicant’s present and proposed method(s) of accounting for long-

term manufacturing contracts. c Attach a description of the applicant’s manufacturing activities, including any required installation of manufactured goods.

4 To determine a contract’s completion factor using the percentage-of-completion method: a Will the applicant use the cost-to-cost method in Regulations section 1.460-4(b)? . . . . . . . . Yes Nob If line 4a is “No,” is the applicant electing the simplified cost-to-cost method (see section 460(b)(3) and

Regulations section 1.460-5(c))? . . . . . . . . . . . . . . . . . . . . . . . . Yes No5 Attach a statement indicating whether any of the applicant’s contracts are either cost-plus long-term

contracts or Federal long-term contracts. Part II Change in Valuing Inventories Including Cost Allocation Changes (Also complete Part III on pages 7 and 8.) 1 Attach a description of the inventory goods being changed. 2 Attach a description of the inventory goods (if any) NOT being changed. 3 a Is the applicant subject to section 263A? If "No," go to line 4a . . . . . . . . . . . . . . Yes Nob Is the applicant's present inventory valuation method in compliance with section 263A (see instructions)?

If "No," attach a detailed explanation . . . . . . . . . . . . . . . . . . . . . . . Yes No

4 a Check the appropriate boxes below. Identification methods:

Inventory Being Changed Inventory Not

Being Changed

Present method Proposed method Present method

Specific identification . . . . . . . . . . . . . . . .FIFO . . . . . . . . . . . . . . . . . . . . .LIFO . . . . . . . . . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

Valuation methods: Cost . . . . . . . . . . . . . . . . . . . . .Cost or market, whichever is lower . . . . . . . . . . .Retail cost . . . . . . . . . . . . . . . . . . .Retail, lower of cost or market . . . . . . . . . . . . .Other (attach explanation) . . . . . . . . . . . . . .

b Enter the value at the end of the tax year preceding the year of change 5 If the applicant is changing from the LIFO inventory method to a non-LIFO method, attach the following information (see

instructions). a Copies of Form(s) 970 filed to adopt or expand the use of the method. b Only for applicants requesting advance consent. A statement describing whether the applicant is changing to the method

required by Regulations section 1.472-6(a) or (b), or whether the applicant is proposing a different method. c Only for applicants requesting an automatic change. The statement required by section 22.01(5) of the Appendix of Rev.

Proc. 2008-52 (or its successor).

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 7 Part III Method of Cost Allocation (Complete this part if the requested change involves either property subject

to section 263A or long-term contracts as described in section 460 (see instructions)). Section A—Allocation and Capitalization Methods 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 real or tangible personal property produced and property acquired for resale, or to allocate and, where appropriate, capitalize direct and indirect costs properly allocable to long-term contracts. 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 long-term contracts, real or tangible personal property produced, and property acquired for resale. The description must include the following:

1 The method of allocating direct and indirect costs (i.e., specific identification, burden rate, standard cost, or other reasonable allocation method).

2 The method of allocating mixed service costs (i.e., direct reallocation, step-allocation, simplified service cost using the labor-based allocation ratio, simplified service cost using the production cost allocation ratio, or other reasonable allocation method).

3 The method of capitalizing additional section 263A costs (i.e., simplified production with or without the historic absorption ratio election, simplified resale with or without the historic absorption ratio election including permissible variations, the U.S. ratio, or other reasonable allocation method).

Section B—Direct and Indirect Costs Required To Be Allocated Check the appropriate boxes showing the costs that are or will be fully included, to the extent required, in the cost of real or tangible personal property produced or property acquired for resale under section 263A or allocated to long-term contracts under section 460. Mark “N/A” in a box if those costs are not incurred by the applicant. If a box is not checked, it is assumed that those costs are not fully included to the extent required. Attach an explanation for boxes that are not checked.

Present method Proposed method

1 Direct material . . . . . . . . . . . . . . . . . . . . . . . . .2 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . .3 Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . .4 Officers’ compensation (not including selling activities) . . . . . . . . . . . .5 Pension and other related costs . . . . . . . . . . . . . . . . . . .6 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . .7 Indirect materials and supplies . . . . . . . . . . . . . . . . . . . .8 Purchasing costs . . . . . . . . . . . . . . . . . . . . . . . .9 Handling, processing, assembly, and repackaging costs . . . . . . . . . . .

10 Offsite storage and warehousing costs . . . . . . . . . . . . . . . . .11 Depreciation, amortization, and cost recovery allowance for equipment and facilities

placed in service and not temporarily idle . . . . . . . . . . . . . . . .12 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Taxes other than state, local, and foreign income taxes . . . . . . . . . . . .15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Maintenance and repairs that relate to a production, resale, or long-term contract activity 18 Engineering and design costs (not including section 174 research and experimental

expenses) . . . . . . . . . . . . . . . . . . . . . . . . . .19 Rework labor, scrap, and spoilage . . . . . . . . . . . . . . . . . .20 Tools and equipment . . . . . . . . . . . . . . . . . . . . . . .21 Quality control and inspection . . . . . . . . . . . . . . . . . . . .22 Bidding expenses incurred in the solicitation of contracts awarded to the applicant . .23 Licensing and franchise costs . . . . . . . . . . . . . . . . . . . .24 Capitalizable service costs (including mixed service costs) . . . . . . . . . .25 Administrative costs (not including any costs of selling or any return on capital) . . . .26 Research and experimental expenses attributable to long-term contracts . . . . . .27 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Other costs (Attach a list of these costs.) . . . . . . . . . . . . . . . .

Form 3115 (Rev. 12-2009)

Form 3115 (Rev. 12-2009) Page 8 Part III Method of Cost Allocation (see instructions) (continued)

Section C—Other Costs Not Required To Be Allocated (Complete Section C only if the applicant is requesting to change its method for these costs.)

Present method Proposed method

1 Marketing, selling, advertising, and distribution expenses . . . . . . . . . . .2 Research and experimental expenses not included in Section B, line 26 . . . . . .3 Bidding expenses not included in Section B, line 22 . . . . . . . . . . . .4 General and administrative costs not included in Section B . . . . . . . . . .5 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .6 Cost of strikes . . . . . . . . . . . . . . . . . . . . . . . . .7 Warranty and product liability costs . . . . . . . . . . . . . . . . . .8 Section 179 costs . . . . . . . . . . . . . . . . . . . . . . . .9 On-site storage . . . . . . . . . . . . . . . . . . . . . . . . .

10 Depreciation, amortization, and cost recovery allowance not included in Section B, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Schedule E—Change in Depreciation or Amortization (see instructions)

Applicants requesting approval to change their method of accounting for depreciation or amortization complete this section. Applicants must provide this information for each item or class of property for which a change is requested.

Note. See the List of Automatic Accounting Method Changes in the instructions for information regarding automatic changes under sections 56, 167, 168, 197, 1400I, 1400L, or former section 168. Do not file Form 3115 with respect to certain late elections and election revocations (see instructions).

1 Is depreciation for the property determined under Regulations section 1.167(a)-11 (CLADR)? . . . . Yes NoIf “Yes,” the only changes permitted are under Regulations section 1.167(a)-11(c)(1)(iii).

2 Is any of the depreciation or amortization required to be capitalized under any Code section (e.g., section 263A)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” enter the applicable section ▶

3 Has a depreciation, amortization, or expense election been made for the property (e.g., the election under sections 168(f)(1), 179, or 179C)? . . . . . . . . . . . . . . . . . . . . . . . . Yes NoIf “Yes,” state the election made ▶

4 a To the extent not already provided, attach a statement describing 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.

b If the property is residential rental property, did the applicant live in the property before renting it? . . Yes Noc Is the property public utility property? . . . . . . . . . . . . . . . . . . . . . . Yes No

5 To the extent not already provided in the applicant’s description of its present method, attach a statement explaining how theproperty 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.).

6 If the property is not currently treated as depreciable or amortizable property, attach a statement of the facts supporting theproposed change to depreciate or amortize the property.

7 If the property is currently treated and/or will be treated as depreciable or amortizable property, provide the following information for both the present (if applicable) and proposed methods:

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

b The applicable asset class from Rev. Proc. 87-56, 1987-2 C.B. 674, for each asset depreciated under section 168 (MACRS) or under section 1400L; the applicable asset class from Rev. Proc. 83-35, 1983-1 C.B. 745, for each asset depreciated under former section 168 (ACRS); an explanation why no asset class is identified for each asset for which an asset class has not been identified by the applicant.

c The facts to support the asset class for the proposed method. d The depreciation or amortization method of the property, including the applicable Code section (e.g., 200% declining balance

method under section 168(b)(1)). e The useful life, recovery period, or amortization period of the property. f The applicable convention of the property. g A statement of whether or not the additional first-year special depreciation allowance (for example, as provided by section

168(k), 168(l), 168(m), 168(n), 1400L(b), or 1400N(d)) was or will be claimed for the property. If not, also provide an explanationas to why no special depreciation allowance was or will be claimed.

Form 3115 (Rev. 12-2009)

FORM 3115 ATTACHMENTS

3115 SAMPLE COMPANY, EIN 12-3456789 (DCN 192)

ATTACHMENT 1

FORM 3115, PART II, LINE 12

ITEM BEING CHANGED: FIXED ASSETS ACQUIRED OR PRODUCED

NO IDENTIFICATION OF UNITS OF PROPERTY ARE BEING CHANGED UNDER §1.263(a) – 3(e)

PRESENT METHOD: IN GENERAL, AMOUNTS PAID FOR TANGIBLE ASSESTS ARE CAPITALIZED AS FIXED ASSET.

AMOUNTS PAID FOR TANGIBLE ASSETS ARE DEDUCTED:

WHEN THE LIFE OF THE ASSET IS EXPECTED TO BE ONE YEAR OR LESS

WHEN THE AMOUNT PAID FOR THE PROPETY MAY BE PROPERLY EXPENSED UNDER IRS §179

PROPOSED METHOD: CHANGE TO CAPITALIZING ACQUISITION OR PRODUCTION COSTS AND, IF DEPRECIABLE, TO DEPREACIATING SUCH PROPERTY UNDER SECTION 167 OR SECTION 168 [§1.263(a) – 2]

PRESENT OVERALL ACCOUTING METHOD CASH

ATTACHMENT 2

FORM 3115, PART II, LINE 13

APPLICANT PROVIDES GENERAL BUSINESS CONSULTING SERVICES. BUSINESS CODE IS 541990. THE APPLICANT HAS ONLY ONE TRADE OR BUSINESS

ATTACHMENT 3

FORM 3115, PART V, LINE 25

TAXPAYER BELIVES THERE IS NO §481 ADJUSTMENT DUE TO EXTENSIVE PAST USE OF §179 DEDUCTION AND BONUS DEPRECIATION DEDUCTION TO EXPENSE THE COST OF ACQUIRED, PRODUCED, OR IMPROVED PROPERTY. TAXPAYER HAS NO CAPITALIZED COSTS THAT WOULD BE DEDUCTIBLE UNDER PROPOSED ACCOUTING METHOD

Exhibit D: Rev Proc. 2015-20

2525

SECTION 1. PURPOSE This revenue procedure modifies Rev. Proc. 2015-14, 2015-5 I.R.B 450, to permit a small business taxpayer, defined as a business with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years, to make a certain tangible property changes in methods of accounting with an adjustment under § 481(a) of the Internal Revenue Code (the Code) that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014. In addition, for their first taxable year that begins on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property changes without filing a Form 3115. This revenue procedure also requests comments on whether it is appropriate to increase the de minimis safe harbor limit provided in § 1.263(a)-1(f)(1)(ii)(D) of Income Tax Regulations for a taxpayer without an applicable financial statement (AFS) to an amount greater than $500, and, if so , what amount should be used and the justification for considering that amount appropriate.

.05 To further ease the administrative burden faced by small business taxpayers in prospectively applying the final tangible property regulations beginning in 2014, this revenue procedure modifies certain procedures provided in Rev. Proc. 2015-14 to permit small business taxpayers to make changes in methods of accounting with a § 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014. This modification means that, effectively, small business taxpayers making these changes in method of accounting for the first taxable year that begins on or after January 1, 2014, may elect to make the change on a cut-off basis.

.08 A small business taxpayer choosing the option of calculating a § 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014, does not receive audit protection under section 8.01 of Rev. Proc. 2015-13 (or any successor) for taxable years beginning prior to January 1, 2014.

SECTION 8. TRANSITION RULE A taxpayer that (a) meets the scope requirements of this revenue procedure, (b) wants to use this revenue procedure for its first taxable year beginning on or after January 1, 2014, and (c) previously filed its federal tax return for that taxable year with a Form 3115 to change to a method of accounting specified in this revenue procedure may withdraw its Form 3115 by filing an amended federal tax return using this revenue procedure. The amended federal tax return must be filed on or before the due date of the taxpayer’s federal tax return for its first taxable year beginning on or after January 1, 2014, including extensions. The withdraw Form 3115 will not be taken into account for purposes of applying section 5.05 of Rev. Proc. 2015-13.

26

What it means:

The Internal Revenue Service made it easier for small business owners to comply with the final tangible property regulations.

Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season. The new procedure allows small businesses to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after January 1, 2014.

Also, the IRS is waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.

“We are pleased to be able to offer this relief to small business owners and their tax preparers in time for them to take advantage of it on their 2014 return,” said IRS Commissioner John Koskinen.”We carefully reviewed the comments we received and especially appreciate the valuable feedback provided by the professional tax community on this issue.”

The new simplified procedure is generally available to small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less. Details are in Revenue Procedure 20115-20.

The IRS noted that some small business taxpayers may choose to file a Form 3115 in order to retain a clear record of a change in method of accounting or to make permissible concurrent automatic changes on the same form, whereas other small business taxpayers may prefer the administrative convenience of being able to comply with the final tangible property regulations in their first tax year that begins on or after January 1, 2014, solely through the filing of a federal tax return, The concern remains that those businesses which do not file a Form 3115 may not be protected in the event of an IRS audit.

Accordingly, for the first tax year that begins on or after January 1, 2014, small business taxpayers that choose to apply the tangible property regulations prospectively to amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014, have the option of making certain tangible property and dispositions changes in method of accounting on the federal tax return without including a separate Form 3115 or separate statement.

Therefore, the relief is only available for those assets purchased after January 1, 2014 and only applies to the 2014 tax year. A taxpayer does not receive audit protection if the changes were applied on a cutoff basis (does not have a § 481 (a) adjustment) for amounts subject to change for tax years beginning prior to January 1, 2014.

Also, those taxpayers not filing the Form 3115 may not make a late partial disposition election. The late partial disposition election allows a taxpayer to claim a retirement loss on the undepreciated basis of previously retired structural components, such of the roof of a building. These losses can be significant for even small taxpayers. Consequently, many taxpayers who otherwise qualify for the relief provided in the new revenue procedure may choose not to exercise it. Similarly, taxpayers who would compute sizeable net negative (favorable) Code Sec.

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481(a) adjustments for implementing the repair regulations by finding significant capitalized expenditures that are deductible under the repair regulations may decline the relief.

Rev. Proc. 2015-20 is effective for tax years beginning on or after January 1, 2014. It also includes a transition rule, providing that a taxpayer may withdraw its Form 3115 by filing an amended federal tax return using this revenue procedure if the taxpayer:

Meets the scope requirements of this revenue procedure Wants to use this revenue procedure for its first tax year beginning on or after January 1,

2014 Previously filed its federal tax return for that tax year with a Form 3115 to change to a

method of accounting specified in Rev. Proc. 2015-20

The amended federal tax return mist be filed on or before the due date of the taxpayer’s federal tax return for its first tax year beginning on or after January 1, 2014, including extensions. The withdrawn Form 3115 will not be taken into account for purposes of applying section 5.05 Rev. Proc. 2015-13.

The revenue procedure also requests comment on whether the $500 safe-harbor threshold should be raised for businesses that choose to deduct, rather than capitalize, certain capital expenses.

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