Form 3115 - Depreciation catch up

[Gretel]

I just attended a replay of a seminar for form 3115 and was not able to ask questions. I also have a booklet with a sample 3115. In the example nothing was entered for part II/12&13, which I believe this information needs to be provided, nor on Schedule E. I filed a 3115 before and have provided information for part II/12&13. Is this not necessary? How about Schedule E? I looked at the instructions that point to Reg.Proc. 2011-14 but then I got lost.

[Snaggletooth]

Form 3115 in most cases unnecessary

Gretel, most situations involving depreciation changes should not require a 3115. There are plenty of folks who will disagree, as if they perceive issuance of 3115 is the summum achievement instead of simply changing methodology.

There are three broad areas encountered with depreciation that are NOT a change in accounting:

a. Error correction. This is not a change in accounting, but instead is a failure to follow accounting to begin with. This is particularly abundant if you take on a new client, where the previous preparer didn't know what to do. Often you encounter wrong lives, wrong classifications, wrong applications of s.179, etc. In my less-than-perfect practice, unless the errors are substantial, I would correct future amounts prospectively and not preparer an amended return. This is not a pure approach, but the IRS is not really interested in amended returns for trivial timing differences, and very few IRS auditors would even make the corrections themselves, unless substantial money is involved.

b. Elections. There exist a broad range of elections available for the taxpayer, such as s.179, mid-year convention, quarterly conventions, non-MACRS lives, etc. Some preparers don't understand that these elections are NOT BINDING on FUTURE YEARS. If a taxpayer elects s. 179 in one year and does not do so in the next year, this is simply the exercise of an election, and NOT a change in accounting method.

c. Change from a practice not supported by Code/Regs to a practice which IS supported by Code/Regs. In many cases this can be a special case of a. above. An example might be in one year a taxpayer purchases a commercial building and takes s. 179 on it. If he buys another such building the next year and properly depreciates it over 39 years, this should not require a 3115. But in this case, an error of this magnitude would require an amended return because of its huge significance. This is not an accounting method failure, but a gross error.

Others will disagree with some of what I've said, but many preparers unnecessarily proliferate the usage of 3115, when the only thing intended is a change in accounting methodology, especially when it comes to depreciation.

[taxea]

I also don't file a 3115 when depreciation wasn't taken. I make a depreciation adjustment on the Sch E by inputting the asset on the original date then adding the prior not taken to the current year. Have been doing this for years and have yet to have the IRS question it.

[TaxGuyBill]

Yes, those sections do need to be filled out (by including an attachment with the descriptions and calculations) to 'catch up' on any missed depreciation.

While I disagree with some of what Snaggletooth says (so do the Regulations and Revenue Procedures), he does make a very good point about avoiding 3115 for minor things. Even if it's technically required, if it's a very minor adjustment, I would just 'fudge it' and make the 481(a) adjustment (or other changes) without Form 3115.

[Gretel]

Thanks, guys, what a misleading seminar. I am still confused why both sections are required, seems a little bit like giving some of the information twice.

[Snaggletooth]

Excessive use of Form 3115

[QUOTE=TaxGuyBill;175119]While I disagree with some of what Snaggletooth says (so do the Regulations and Revenue Procedures),/QUOTE]

Thanks for your post TaxGuy. Please tell me more about the Regs that are referenced. I will admit to being aggressive with the IRS, but I try not to cross the line into blatant disregard of Code/Regs. I would appreciate being informed of any of my conversation which is at odds with Code/Regs, because I do bend the rules but don't really wish to break them.

You can respond here on the forum or send me a private message, whatever your preference. But I would appreciate knowing.

Best regards, Snag

[appelman]

A question of common sense?

I also don't file a 3115 when depreciation wasn't taken. I make a depreciation adjustment on the Sch E by inputting the asset on the original date then adding the prior not taken to the current year. Have been doing this for years and have yet to have the IRS question it.

If we're talking a year or two of missed depreciation, sure, just make an adjustment. But if someone has owned property for a decade and has never claimed depreciation, I'd go for the 3115.