It isn’t quite as carved in stone as it sounds, however. You can reach out to the IRS in advance and request permission to change accounting methods. But, if you fail to make the request, you could end up suffering tax penalties imposed by the IRS.
Requesting IRS Approval To Change Accounting Methods
If you want or need to change your accounting method for your business any time after you’ve set up your accounting method and filed your first business income tax return, you must file a current Form 3115 to request the change. Form 3115 is used when you want to change your overall accounting method and also if you need to change the accounting treatment of any particular item. Changes in accounting methods that require approval from the IRS include switching from a cash basis method to an accrual basis method or vice versa. You must also request an official OK from the IRS to make a change in the method or basis used to value your inventory. Changes in your depreciation or amortization methods generally require approval, but some changes in the straight-line method are permitted without special permission from the IRS. If you’re unsure if your situation qualifies for this special dispensation, consult a business tax professional to make sure because the rules are complex.
How To File Form 3115
There are two types of change requests: automatic and non-automatic. Businesses typically follow the automatic change request process, but it will depend on several factors for your business. File Form 3115 in duplicate (two copies) for an automatic change request. Attach the original Form 3115 to your federal income tax return for the year of the change, including extensions. A copy of Form 3115 must also be filed with the IRS National Office no earlier than the first day of the year of the change and no later than when the original is filed with the federal income tax return for the year of change. The process for a non-automatic change request is similar, but you’ll need to meet certain eligibility requirements, and you’ll need to pay a fee. Automatic change requests do not require a fee. There’s no specific deadline to file the form—the sooner the better. For automatic changes, you’ll attach one copy to your tax return and send a copy to the address below:
Non-automatic change request: Internal Revenue Service, Attn: CC:PA:LPD:DRU, P.O. Box 7604, Benjamin Franklin Station, Washington, DC 20044Automatic change request: Internal Revenue Service, Ogden, UT 84201, M/S 6111
If you’re sending Form 3115 by private delivery service, mail it to one of these addresses:
Non-automatic change request: Internal Revenue Service, Attn: CC:PA:LPD:DRU, Room 5336, 1111 Constitution Ave. NW, Washington, DC 20224Automatic change request: Internal Revenue Service, 1973 N. Rulon White Blvd., Ogden, UT 84201, Attn: M/S 6111
