Form 3115

[barzillai]

I have a new client with a small security business. While looking at last year's return, I noticed his previous accountant claimed depreciation for his vehicle in addition to taking the standard mileage rate for Car and Truck Expenses. This had also been done for previous years with other trucks as well. I explained to him how this could be corrected. He indicated he probably would take his chances and not correct the mistake. I don't think it's my place to force someone to amend prior years mistakes, so I agreed to go ahead and prepare this year's return. However, he traded this vehicle for another one in 2007 so I have to prepare Form 8824 for the exchange, which requires figuring the basis information for the previous vehicle. Now I think that I have to file Form 3115 to correct the previous mistakes in order calculate basis correctly. Am I correct in this interpretation? How many years do I have to go back and correct, just three, or all of the years of incorrect depreciation? I know of at least one other vehicle that was used previously for business that would affect the calculation.

[Bees Knees]

I would not do it if your client does not agree to file amended returns to correct the errors. If he wants tax free like kind exchange treatment on the trade-in of a business vehicle, he has to agree to do things correct. I think trying to mess with a 3115 only draws attention to the fact the previous years are wrong and need to be amended.

[barzillai]

From my research, the only way to correct multiple years of incorrect depreciation is by filing Form 3115. The reasoning is that if you have taken depreciation on an item for more than one year, you have chosen a method of accounting and Form 3115 is the only way to correct it.(TTB 9-19)

[Bees Knees]

I would not call your situation an incorrect amount of depreciation. NO depreciation is allowed when the standard mileage rate is used. Therefore, you are not trying to change an accounting method. You are simply amending a return for a deduction that was never allowed.

[Davc]

I would not call your situation an incorrect amount of depreciation. NO depreciation is allowed when the standard mileage rate is used. Therefore, you are not trying to change an accounting method. You are simply amending a return for a deduction that was never allowed.

That should be NO ADDITIONAL depreciation is allowed. The SMR includes depreciation until adjusted basis reaches zero.