S corporation received more time to file original accounting-method forms

Plain-English summary

An S corporation hired an accounting firm to implement two automatic accounting-method changes involving its inventory. The firm prepared both Forms 3115, timely filed the required copies with the IRS, and reflected the changes on the corporation's return, but it inadvertently failed to attach the original forms to that return. The IRS concluded that the corporation met the standards for discretionary filing relief because it acted reasonably and in good faith and relief would not prejudice the government. The corporation received 60 days to attach the original forms to an amended return, but the IRS did not rule on whether the accounting-method changes were otherwise eligible or correct.

Ruling snapshot

• Question: Could the corporation receive additional time to file the original Forms 3115 required for two automatic accounting-method changes?
• Outcome: approved, with a 60-day extension
• Key authorities: IRC § 446(e); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2011-14

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201645009                                              Third Party Communication: None
Release Date: 11/4/2016                                        Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.10-00,
              9100.10-01                                       Person To Contact:
                                                               ---------------------------, ID No. ---------------
------------------------------                                 -----------------
-----------------------                                        Telephone Number/Fax Number:
-------------------------------                                ----------------------
----------------------                                         Refer Reply To:
-----------------------------------                            CC:ITA:B7
                                                               PLR-106116-16
                                                               Date:
                                                               August 03, 2016




LEGEND

Taxpayer                              =      ------------------------------
                                             ------- -----------------

Firm                                  =      ----------------------------

Date1                                 =      ----------------------

Date 2                                =      ----------------------------

Activities                            =      ------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
                                             -----------

Date 3                                =      --------------------------

Parts                                 =      ---------------

Date 4                                =      --------------------


Dear ---------------:

This ruling responds to a letter submitted by Taxpayer’s representative, Firm, requesting
that the Commissioner of Internal Revenue grant Taxpayer an extension of time
pursuant to sections 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to file original Forms 3115, Application for Change in Accounting Method
pursuant to section 6.02(3)(a)(i) of Rev. Proc. 2011-14, 2011-4 I.R.B. 330, 346, with its

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timely filed (including extension) federal income tax return for the tax year beginning
Date 1 and ending Date 2.
Taxpayer, an S corporation, conducts Activities and has taken an inventory in
connection with its Activities. On Date 3, Taxpayer engaged Firm to assist in the
preparation of all of its ------- federal tax filings, including any requests to change
accounting methods. Taxpayer believed and understood that Firm had extensive
experience in assisting clients in such matters, including matters relating to changes of
accounting methods. Taxpayer relied on Firm to advise it as to all filings related to its
tax return, including Form 3115.
As part of its engagement, Firm also identified two accounting method changes that
Taxpayer decided to implement. Specifically, (1) a change in method from a non-IPIC
LIFO method to the IPIC method in accordance with all relevant provisions of section
1.472-8(e)(3) of the Income Tax Regulations and (2) a change in method to the
replacement cost method for the valuation of Parts inventory, as provided by Rev. Proc.
2002-17, 2002-1 C.B. 676. Both of these accounting method changes could be
implemented using the automatic consent procedures of Rev. Proc. 2011-14.
Taxpayer instructed Firm to take the appropriate steps to make the accounting method
changes, including attaching the original Forms 3115 to Taxpayer’s federal income tax
return. Firm prepared a Form 3115 for each of the accounting method changes and
timely filed the return and required copy of the Forms 3115 with the appropriate office of
the Internal Revenue Service prior to the due date (including extension) of the relevant
tax return, Date 4. See, section 6.02(3)(a)(ii) of Rev. Proc. 2011-14.

Firm reflected the desired accounting method changes on Taxpayer’s federal income
tax return for the tax year ending Date 2, but inadvertently did not attach the original of
the required Forms 3115 to that return. Later, Firm discovered its error and informed
Taxpayer of the missing filings. Subsequently, Firm submitted this request for an
extension of time to file the original of Taxpayer’s Forms 3115.

RULING REQUESTED

Taxpayer requests an extension of time pursuant to sections 301-9100-1 and 301-9100-
3 to file the original of the two Forms 3115 that are required by Rev. Proc. 2011-14 for it
to obtain the Commissioner’s permission to change the two previously described
accounting methods with its tax return for the tax year ending Date 2.

LAW AND ANALYSIS

Rev. Proc. 2011-14 provides the procedures by which a taxpayer may obtain automatic
consent to change certain accounting methods. A taxpayer complying with all the
applicable provisions of this revenue procedure has obtained the consent of the
Commissioner to change its accounting method under section 446(e) of the Internal

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Revenue Code and the regulations thereunder.
Section 6.02(3)(a) of Rev. Proc. 2011-14 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2011-14 must complete and file a Form 3115
in duplicate. The original must be attached to the taxpayer’s timely filed (including any
extension) original federal income tax return for the year of change, and a copy (with
signature) of the Form 3115 must be filed with the appropriate office of the Service no
earlier than the first day of the year of change and no later than when the original is filed
with the federal income tax return for the year of change.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in sections 301.9100-2 and
301.9100-3 to make certain regulatory elections.

Section 301.9100-1(b) defines a regulatory election as an election whose due date is
prescribed by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.
Sections 301.9100-1 through section 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of section 301.9100-2.
Section 301.9100-3(a) provides that requests for relief subject to section 301.9100-3 will
be granted when the taxpayer provides evidence to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith and that the
granting of relief will not prejudice the interests of the Government.

CONCLUSION

Based solely on the facts and representations submitted, this office concludes that the
requirements of sections 301.9100-1 and 301.9100-3 have been satisfied in Taxpayer’s
case. Accordingly, Taxpayer is granted 60 calendar days from the date of this letter to
file the required originals of the Forms 3115 pertaining to the previously described
accounting changes for the tax year ending Date 2 with an amended federal income tax
return for that year. Please attach a copy of this letter ruling to the amended return.
Except as expressly set forth above, this office expresses no opinion concerning the tax
consequences of the facts described above under any other provision of the Code or
regulations. Specifically, we have no opinion, either expressed or implied, concerning
whether (1) the accounting method changes Taxpayer has made are eligible to be
made under Rev. Proc. 2011-14 or (2) Taxpayer otherwise meets the requirements of
Rev. Proc. 2011-14 to make its accounting method changes using the procedures of
Rev. Proc. 2011-14. Further, no opinion is expressed or implied regarding the

PLR-106116-16                                 4

correctness of Taxpayer’s inventory method. Also, we have no opinion regarding the
effect, if any, of the section 381(a) transaction that occurred in the tax year beginning
Date 1 and ending Date 2.
The ruling contained in this letter ruling is based upon facts and representations
submitted by Firm on behalf of itself and Taxpayer, with accompanying penalty of
perjury statements executed by appropriate parties. While this office has not verified
any of the material submitted in support of this request for an extension of time to file
the required Forms 3115, all material is subject to verification on examination.

Section 6110(k)(3) provides that this ruling may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, we are sending a copy
of this letter to Taxpayer’s authorized representative.


                                                  Sincerely,


                                                  CHERYL L. OSEEKEY
                                                  Senior Counsel, Branch 6
                                                  Office of Associate Chief Counsel
                                                  (Income Tax & Accounting)


Enclosures (2):
      copy of this letter
      copy for section 6110 purposes