Rev. Proc. 2015-13: Changing Your Accounting Method

The Internal Revenue Service (IRS) provides a framework for taxpayers who need to change their method of accounting for federal income tax purposes. This guidance is consolidated within Revenue Procedure 2015-13, which establishes the processes for obtaining the necessary consent from the IRS for such a change. An accounting method is a set of rules used to determine when and how income and expenses are reported, and a change involves altering the treatment of any material item.

Rev. Proc. 2015-13 outlines two distinct pathways for taxpayers to follow. One path offers a streamlined process for certain pre-approved changes, while the other involves a more formal application and review. Understanding which path applies is the first step in navigating the requirements.

Determining Your Path: Automatic vs. Non-Automatic Changes

Under Internal Revenue Code (IRC) Section 446, a taxpayer must secure consent before computing taxable income under a new accounting method. A change in accounting method is any alteration in the overall plan for gross income or deductions, or a change in the treatment of any material item. This includes shifts such as moving from the cash basis of accounting to the accrual basis, adopting a different method for valuing inventory, or changing how depreciation is calculated for a particular asset.

Once a taxpayer adopts a method, whether permissible or impermissible, they must use it consistently until IRS consent to change is received. Rev. Proc. 2015-13 provides two ways to obtain consent: the automatic and non-automatic change processes. The automatic process is for changes on the IRS’s “List of Automatic Changes,” found in Revenue Procedure 2025-23. If a desired change is on this list, the taxpayer can proceed without direct IRS approval if all procedural requirements are met.

Any change not on the automatic list is a non-automatic change. These requests require an application and advance consent from the IRS National Office, which involves a more detailed review.

Even if a change is on the automatic list, a taxpayer may be ineligible due to “scope limitations.” These rules can apply if the taxpayer is under an IRS examination or has made a similar change for the same item within the past five tax years. If a scope limitation applies, the taxpayer must use the non-automatic filing process.

Information and Documentation for an Accounting Method Change

The document for requesting any change in accounting method is Form 3115, Application for Change in Accounting Method. This form is required for both automatic and non-automatic changes and requires the taxpayer to detail the old method, the new method, and the reasons for the change.

A component of Form 3115 is the calculation of the Section 481 adjustment. This adjustment is the net difference between the income that would have been reported under the new method and what was reported under the old method for all prior years. Its purpose is to prevent the duplication or omission of income or deduction items.

The Section 481 adjustment can be positive or negative. A positive adjustment increases taxable income, while a negative adjustment decreases it. For instance, a business changing from the cash to the accrual method would calculate the adjustment by starting with accounts receivable (income earned but not yet received), adding inventory, and then subtracting accounts payable (expenses incurred but not yet paid).

Form 3115 may also require supplemental information depending on the change. For non-automatic change requests, a user fee of $11,500 must be submitted with the application.

Filing Procedures and Deadlines

For an automatic change, the taxpayer must follow a dual-filing rule. The original, signed Form 3115 must be attached to the federal income tax return for the year of change, filed by its due date, including extensions. A signed copy of the same Form 3115 must also be filed with the IRS office in Ogden, Utah, no earlier than the first day of the year of change and no later than when the original is filed with the tax return.

For automatic changes, consent is considered granted if the taxpayer files correctly and complies with all provisions.

The process for a non-automatic change is different. The original Form 3115 and user fee must be filed with the IRS National Office in Washington, D.C., during the tax year for which the change is requested. For example, a calendar-year taxpayer requesting a change for 2025 must file by December 31, 2025.

The IRS reviews the application and issues a Private Letter Ruling (PLR) that either grants or denies consent. The taxpayer cannot implement the new method until receiving a favorable PLR, which contrasts with the automatic process where consent is implied upon proper filing.

Key Terms and Conditions of Consent

Once consent is granted, a benefit is audit protection. If a taxpayer complies with Rev. Proc. 2015-13, the IRS will not require a change for the same item for any tax year prior to the year of change. This protection prevents the IRS from imposing adjustments for the same issue in earlier years that are still open to examination.

The “year of change” is the first taxable year the taxpayer uses the new accounting method, and all calculations and deadlines are based on this year. For example, if a change is effective for the 2025 tax year, 2025 is the year of change, and the Section 481 adjustment is calculated as of January 1, 2025.

The treatment of the Section 481 adjustment depends on whether it is positive or negative. A negative adjustment, which decreases taxable income, is taken into account entirely in the year of change. A positive adjustment, which increases taxable income, is spread over four tax years, beginning with the year of change, to mitigate the immediate tax burden.

A taxpayer who changes an accounting method must maintain books and records to support the change. This includes keeping a copy of the filed Form 3115 and any related correspondence or letter rulings.