Group receives 60 days to attach its omitted Form 3115

Plain-English summary

A consolidated group decided to change its accounting method for computer-software development costs under the automatic-change procedures. Its tax adviser timely filed the required copy of Form 3115 with the IRS and reflected the change on the consolidated return, but inadvertently failed to attach the original form to that return. After discovering the error, the group requested discretionary relief. The IRS granted 60 calendar days to file an amended consolidated return with the original Form 3115 and a copy of the ruling, or the permitted electronic-filing statement. The ruling did not decide whether the method change qualified under the revenue procedures or whether the group's software-cost accounting method was correct.

Ruling snapshot

• Question: Could the group file the original Form 3115 late after timely filing the duplicate copy and implementing the accounting-method change on its return?
• Outcome: approved
• Key authorities: IRC §§ 446(e) and 481(a); Treas. Reg. §§ 1.446-1(e), 301.9100-1, and 301.9100-3; Rev. Proc. 2015-13

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201726008                                            Third Party Communication: None
Release Date: 6/30/2017                                      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-134191-16
                                                             Date: April 5, 2017




In re: Request For An Extension Of Time To
File a Form 3115, Application for Change in
Accounting Method

LEGEND

Parent =---------------------------- -------------------------
S1 = ------------------------------------------------------------
S2 = ----------------------------------------------------------------
S3 = -----------------------------------------------------------
S4 = -----------------------------------------------------------
S5 = --------------------------------------------------------
S6 = -----------------------------------------------
Firm = --------------------
Date1 = --------------------------
Date2 = -----------------
Date3 = ---------------------------
Date4 = ---------------------------

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

       This ruling letter responds to a letter dated October 18, 2016, submitted on
behalf of Parent, S1, S2, S3, S4, S5, and S6 (hereinafter, collectively referred to as
Taxpayer). Taxpayer is requesting an extension of time pursuant to §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to file an original Form
3115, Application for Change in Accounting Method, pursuant to section 6.03(1)(a)(i)(A)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, 432, with Parent’s timely filed (including
extension) consolidated federal income tax return for the taxable year ending Date1.
PLR-134191-16                                2

FACTS

      Taxpayer represents that the facts are as follows:
      Parent was the common parent of an affiliated group of corporations, including
S1, S2, S3, S4, S5 and S6, that filed consolidated federal income tax returns on a
calendar year basis.
        In Date2, Taxpayer engaged Firm to evaluate Taxpayer’s method of accounting
for certain costs attributable to the development of computer software and provided
Firm with all the relevant facts. Based on Firm’s recommendation, Taxpayer decided to
request permission from the Commissioner of Internal Revenue to change its method of
accounting for expenditures properly attributable to the development of computer
software to treat those costs in accordance with Rev. Proc. 2000-50, as modified by
Rev. Proc. 2007-16, 2007-1 C.B. 358, beginning with the taxable year ending Date1.
        Taxpayer instructed Firm to take the appropriate steps necessary to make the
accounting method change, including attaching the original Form 3115 to Parent’s
consolidated federal income tax return. Taxpayer relied on Firm to advise it as to all
filings relating to the accounting method change. Taxpayer believed and understood
that Firm had extensive experience in assisting clients in matters relating to changes in
accounting methods.
        Prior to Date3, Firm prepared the Form 3115 application request for permission
to make the accounting method change under section 9.01 of Rev. Proc. 2016-29,
2016-21 I.R.B. 880, 920 (designated automatic method change number (DCN) 18).
Firm timely filed the return and the required copy of the Form 3115 with the appropriate
office of the Internal Revenue Service prior to the due date (including extension) of the
relevant tax return, Date3. See, section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13.

        Firm reflected the desired accounting method change on Parent’s consolidated
federal income tax return for the taxable year ending Date1, but inadvertently failed to
attach the original of the required Form 3115 to that return. On Date4, Firm discovered
its error and informed Taxpayer of the missing filing. Subsequently, Firm submitted this
request for an extension of time to file the original of Taxpayer’s Form 3115.

RULING REQUESTED

        Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and
301.9100-3 to file the original Form 3115 that is required by Rev. Proc. 2015-13 with its
consolidated federal income tax return to obtain the consent of the Commissioner of
Internal Revenue to change to the previously described accounting method (DCN 18)
for the taxable year ending Date1.
PLR-134191-16                                3

LAW AND ANALYSIS

       Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain
automatic consent to change certain accounting methods. Section 9 of Rev. Proc.
2015-13 provides that consent of the Commissioner to change its accounting method
under § 446(e) of the Internal Revenue Code and § 1.446-1(e) of the Income Tax
Regulations is granted only if the taxpayer complies with all the applicable provisions of
the revenue procedure and implements the change in method on its federal income tax
return for the requested year of change to which the original Form 3115 is attached
pursuant to section 6.03.

       Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2015-13 must complete and file a Form 3115
in duplicate. The original Form 3115 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.
       Sections 301.9100-1 through 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 § 301.9100-2.

       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.

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

       Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory
elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in § 1.446-1(e)(3)(i) or the relief requires an adjustment under
§ 481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the
accounting method for which relief is requested in a taxable year subsequent to the
PLR-134191-16                                4

taxable year the election should have been made).

CONCLUSION

        Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 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 original of the Form 3115 pertaining to the previously described accounting
change for the taxable year ending Date1. This filing must be made by Parent filing an
amended consolidated federal income tax return for that year, and attaching a copy of
this letter ruling to the amended return. A copy of this letter ruling is enclosed for that
purpose. Alternatively, a taxpayer filing its federal income tax return electronically may
satisfy this requirement by attaching a statement to the return that provides the date and
control number of the letter ruling.
       Except as expressly set forth above, we express no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code or regulations. Specifically, no opinion is expressed or implied, concerning
whether (1) the accounting method change Taxpayer has made is eligible to be made
under section 9.01 of Rev. Proc. 2016-29 and Rev. Proc. 2015-13, (2) Taxpayer
otherwise meets the requirements of Rev. Proc. 2015-13 to make its accounting method
change using the procedures of Rev. Proc. 2015-13, (3) Taxpayer’s costs of computer
software are eligible for a method of accounting described in Rev. Proc. 2000-50, (4)
Taxpayer’s method of accounting for computer software costs is correct.
      The ruling contained in this letter ruling is based upon information and
representations submitted on behalf of 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
Form 3115, all material is subject to verification on examination.

      This letter ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that this ruling may not be used or cited as precedent.
PLR-134191-16                                5

        In accordance with the Power of Attorney on file with this office, we are sending a
copy of this letter to Parent’s authorized representatives. We also are sending a copy of
this letter ruling to the appropriate operating division director.

                                          Sincerely,

                                          DEENA M. DEVEREUX
                                          Assistant to the Branch Chief, Branch 7
                                          Office of Associate Chief Counsel
                                          (Income Tax & Accounting)
Enclosures (2):
  copy of this letter
  copy for section 6110 purposes