Steve,
It is my understanding that if you don’t file the 3115 even if you don’t have any 481 adjustments then in a audit you have no protection, therefore you could lose a deduction if it was classifed incorrectly. The only reason I would file these is for that reason, audit protection only. And I am still somewhat confused on the partial disposition, would this pertain say if someone had damage to a foundation, repaired it so then the existing portion that was already on depreciation would have to be removed? Sorry I am still confused on this does the E book cover this?

You would probably actually file a set of 3115s for a taxpayer. So if a taxpayer files a 1040 with seven rental properties, you would probably prepare one set of 3115s for the return. I think this answers your question.

BTW, if you don’t have any Sec. 481 adjustment–not even for late partial dispositions–then you probably don’t need to file the 3115s.

Most importantly does the E book give an example of how to complete this form with no 481 adjustment for filing the form for audit protection? If so I will download it and pay for it and love the blog post by the way very informative!!

Sorry Laura, I tried to send out an email to everybody with a link you could use to download the updated copy. What happened in a number of cases, though, is that people used a different email address for their PayPal account than they really “use” on a daily basis.

I have just sent you another email with a link you can use. Sorry for the lag.

The book is updated… E.g., there’s a section that uses the label Rev Proc 2015-20… take another peek.

You’ve got a lot of detail packed into your scenarios–and really more than I can address in a brief comment. But I think this general statement answers your questions: Revenue Procedure 2015-20 lets you skip the 3115s if you don’t need to do a Sec. 481 adjustment… but you still need to make sure the taxpayer changes their accounting methods to conform to the new TPRs.

Regarding your other two questions, I think you do in a sense have an adjustment that stems from your accounting method change… I guess. But you’re not going back into previous years and need to fix stuff there. So assuming Revenue Procedure 2015-20 gives you permission to skip the 3115s, you should do that. (In the last two examples you give, BTW, I don’t think if you were preparing a 3115 that you’d even put the adjustment on the 3115 as a Sec. 481 value.)

Scenario #1: A small business taxpayer has historically filed returns in compliance with the old tangible property regulations. Ten years ago, the taxpayer has capitalized a building used in trade or business and treated the building structure and building systems as a single unit of property for the purpose of determining whether to capitalize or expense improvement/repair costs (in other words, treated the building the same way any reasonable human being treated it at the time for small taxpayers). Throughout the last ten years, several improvements were capitalized and depreciated. Under the final TPR, these improvements are still deemed improvements, therefore no section 481(a) adjustment is available. First, my understand has been that in this situation, prior to Rev. Proc. 2015-20, a Form 3115 (code 184) is required to change the method of identifying the building structure or building systems (i.e. from an impermissible to a permissible method of accounting for the building). Is this correct? Second, under Rev. Proc. 2015-20, since there is no Section 481(a) adjustment in this situation, does the act of filing a 2014 return without Form 3115 and without a 481(a) expense caption mean the taxpayer is magically in compliance with the code 184 change? And for that matter, is the taxpayer magically in compliance with all applicable changes (e.g., code 184, 186, 187, 192)?

Scenario #2: Same as #1, except the nature of the old improvements is not easily discerned from the captions on the depreciation schedule, and thus further information is needed from the client to determine whether they would be eligible for a 481(a) adjustment. However, in lieu of asking the client to describe in detail the nature of the old improvements and spending extra time on the client, we opt to forego a section 481(a) adjustment for prior year improvements. Same three questions as Scenario #1. My initial thought is the answers would be unchanged from Scenario #1.

Two other questions as well:

Under Rev. Proc. 2015-20, how would a section 481(a) adjustment be generated if it applies only to amounts paid or incurred on or after January 1, 2014? For example, if I had a transaction in 2014 that under the old regs was an improvement but under the new regs is a repair, wouldn’t that just go to repair expense? Or would this type of thing be the section 481(a) adjustment.

I think I understand how a section 481(a) adjustment could be generated from the materials & supplies changes (for example, incidental materials & supplies were previously held in a prepaid supplies account, so in 2014 the taxpayer chooses to expense incidental materials & supplies when paid, thus generating a section 481(a) adjustment for the beginning balance of prepaid supplies. Is this accurate?