Preparing Form 3115 for Changes in Accounting Method: Reporting the Section 481(a) Adjustment

Whether by new regulations, accounting method changes, or error, numerous reasons necessitate filing Form 3115 and making the corresponding Section 481(a) adjustments. Generally, if an impermissible method of accounting is used for more than one year, it must be corrected by a change of accounting method. Since a negative adjustment (a reduction in income) is taken immediately, it can generate significant cash flow for a business in the year of change. A positive Section 481(a) adjustment is taken over four years.

Some changes are automatic; these are listed regularly in a Revenue Procedure issued by the IRS (Rev Proc 2024-23 or its successor). These automatic changes provide for certain administrative efficiencies by not requiring consent by the Commissioner prior to making the change in method and not requiring a filing fee paid to the IRS.

Non-automatic changes require IRS consent before changing and payment of a filing fee to the IRS. Both types require the taxpayer to file Form 3115, Application for Change in Accounting Method. Tax practitioners working with businesses need to understand how to complete Form 3115 and report Section 481(a) adjustments on taxpayers' returns.

Listen as our panel of federal income tax experts explains what constitutes a change in accounting method, completing Form 3115, and calculating the necessary adjustment under Section 481(a) for businesses and their advisers.

I. Changes in accounting method: an overview

II. Circumstances requiring a change in accounting method

III. Preparing Form 3115

IV. Automatic and nonautomatic changes

V. Section 481(a) adjustment

VI. Recent legislative changes

VII. Best practices

The panel will cover these and other important issues:

• What constitutes a change in accounting method and requires filing Form 3115?
• How are Section 481(a) adjustments calculated and made?
• How to deal with method changes required to be reported on a cut-off basis
• What recent updates require filing Form 3115?

Learning Objectives

After completing this course, you will be able to:

• Identify recent legislative changes that could require filing Form 3115
• Determine how to report Section 481(a) adjustments
• Decide when an error correction requires filing Form 3115
• Ascertain differences in requirements for automatic and non-automatic changes

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).