Anatomy of the Form 3115

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There is no client-facing page for this one; the client sees the result on Schedule E. Form 3115 (Rev. December 2022) and its instructions, Rev. Proc. 2015-13 (procedures) and Rev. Proc. 2025-23 (the list of automatic changes) are the sources (verify the current list revenue procedure before filing; it is reissued every year or two). Line references are to the December 2022 form (verify).

Step 0: Error or method?

§446(e) and Reg. §1.446-1(e)(2)(ii): a change in method of accounting needs IRS consent, on Form 3115. A correction of an error does not — it is an amended return, within the statute. The line between them is the whole question.

• A method is a consistent treatment of a material item affecting timing — when income or a deduction is taken, not whether. Reg. §1.446-1(e)(2)(ii)(a). Consistency is established by using the treatment on two or more consecutively filed returns (Rev. Rul. 90-38; Reg. §1.446-1(e)(2)(ii)(d)(3)(iii)? (verify cite)). One return is an error; two is a method, even a wrong one, even if the “method” was doing nothing.
• Depreciation specifically (Reg. §1.446-1(e)(2)(ii)(d)): changing from an impermissible to a permissible method is a change in method — this includes claiming no depreciation on an asset for two or more years, a wrong recovery period, a wrong convention, a wrong class, or treating a capital item as a repair. Not a method change, so amend: a math error, a posting error, a change in the placed-in-service date, a change in use, or an asset depreciated for only one year wrongly (amend that year if open).
• Why it matters: an amended return reaches only open years (three from filing). A method change on Form 3115 brings the whole cumulative difference — all ten years of the duplex — into the year of change through the §481(a) adjustment, closed years included. That is the whole value of the form for a depreciation catch-up, and the whole exposure for a positive adjustment.
• Allowed or allowable, §1016(a)(2): basis is reduced by depreciation allowable whether or not claimed, so the never-depreciated duplex has a lower basis and a bigger gain on sale regardless; without the 3115 the client loses the deductions and still pays the recapture. The 3115 must be filed by the year of sale at the latest (DCN 7 is allowed in the year of disposition; the adjustment is taken that year).

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Step 1: Automatic vs. non-automatic

Rev. Proc. 2015-13 sets the procedures for both. The list revenue procedure (currently Rev. Proc. 2025-23) names the changes that are automatic, each with a designated change number (DCN).

• Automatic: no user fee, no advance ruling; file the original with the timely filed return for the year of change (including extensions) and a duplicate with the IRS in Ogden no later than the return; consent is granted by filing if the terms are met. The IRS may still review and deny, but in practice it is a filing, not an application.
• Non-automatic (advance consent): everything not on the list. Filed during the year of change with a user fee (about $12,600 for 2026 (verify Rev. Proc. 2026-1 Appendix A; reduced fee for gross receipts under $1 million / $250,000 tiers)), the IRS rules, and the change is effective only when the ruling letter arrives. A small practice almost never needs one; a method change not on the list is a reason to call the attorney.
• Eligibility limits for automatic changes (Rev. Proc. 2015-13 §5.01): not available if the applicant is under examination for the item (with the 120-day window and other exceptions in §8), is in the final year of a trade or business (with exceptions), or has made or requested the same change in the prior five years (§5.01(1)(f)) — the five-year rule is waived for several depreciation changes including DCN 7 (verify the current list’s §6.01 inapplicability paragraph).
• Audit protection (§8): once a change is filed, the IRS will not require the same item to be changed for an earlier year — the taxpayer locks in the catch-up on their own terms rather than the examiner’s. Lost if the item was already under exam.

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Step 2: The DCNs a small practice files

Of the 250-odd automatic changes, these are the ones that come through this office. Numbers are from the current list (verify each DCN against Rev. Proc. 2025-23 before filing; numbers are stable but descriptions and conditions move).

DCN	Change	When we use it
7	Impermissible to permissible method of depreciation or amortization (Reg. §1.446-1(e)(2)(ii)(d)); list §6.01	Never depreciated the rental; wrong life (39 instead of 27.5, or 27.5 on a nonresidential building); wrong convention; land improvements never set up; a vehicle depreciated as 5-year that was listed property. Available in the year of disposition. Reduced filing requirement.
184	Tangible property regulations: repairs vs. improvements, unit of property, de minimis conformity (Reg. §§1.162-3, 1.162-4, 1.263(a)-1 to -3); list §11.08	A rental owner who capitalized every repair, or expensed a roof; adopting the routine-maintenance safe harbor. The adjustment can go either way.
196	Late partial disposition election / dispositions of a portion of a building (Reg. §1.168(i)-8); list §6.33 (verify)	Replaced a roof or HVAC and the old one is still on the depreciation schedule: write off the remaining basis of the component instead of carrying two roofs.
233	Small business taxpayer (gross receipts under $31 million for 2026 (verify §448(c) indexed amount)) changing to the overall cash method; list §15.18	A Schedule C or S corp that has been on accrual (often because the software defaulted to it) and qualifies for cash.
235	Small business taxpayer inventory: treating inventory as non-incidental materials and supplies, or conforming to the books (§471(c)); list §22.19	A small retailer or contractor dropping formal inventory accounting under the 2017 act.
244	Small business taxpayer exemption from §263A uniform capitalization; list §12.16 (verify)	Same taxpayer, stopping UNICAP.
8 / 88	Permissible to permissible depreciation changes; late or revoked §168(k) elections in the windows the IRS opens	Rare; usually a year-specific revenue procedure.
265	§174 research expenditures (post-2021 and the 2025 act restoration) (verify the current §174A transition DCNs under Rev. Proc. 2025-28)	A software or product business catching up to the new rules.

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Step 3: The §481(a) adjustment

The cumulative difference, as of the beginning of the year of change, between what was reported under the old method and what would have been reported under the new one. It is what makes the form worth filing.

• Computing it for depreciation: allowable depreciation under the correct method from the placed-in-service date through the end of the year before the year of change, minus depreciation actually claimed over the same period. Not the current year — the year of change takes its own correct depreciation on Form 4562 as usual. Watch the first-year convention, the correct basis (cost less land, plus improvements), and bonus/§179 that would have applied (not deemed taken unless elected — the catch-up uses the method that would have applied absent an election, so no bonus on the missed years for property that was eligible but unelected? (verify: Reg. §1.168(k)-2(f) and the list §6.01(1)(c) on bonus in a DCN 7 catch-up)).
• Negative adjustment (taxpayer-favorable, more deduction): taken entirely in the year of change (Rev. Proc. 2015-13 §7.03(1)). The never-depreciated duplex is a negative adjustment: one big deduction in the year of change.
• Positive adjustment (more income): spread ratably over four years beginning with the year of change (§7.03(1)), unless the taxpayer elects to take it in one year because it is under the de minimis amount of $50,000 (§7.03(3)(c)) or because the year of change is the year the business ends or the asset is sold (then it is all in that year, §7.03(3)(a)).
• Where it goes: Part IV line 26 of the form; on the return, as an “other” deduction or income item on the schedule that reports the activity — Schedule E line 19 (“Other”) for a rental, Schedule C line 27a, Form 1120-S line 19, Form 1065 line 20 — labeled “§481(a) adjustment, Form 3115 DCN 7.” Not on Form 4562.
• Character and limits: it takes the character of the item: a rental’s negative adjustment is a passive deduction subject to Form 8582 (so a high-income owner with no passive income gets a suspended loss, not a refund — still worth it, because the basis is reduced either way and the suspended loss releases on sale). NOL rules apply if it creates a loss. Not subject to the excess business loss limit? — it is a business deduction, so it is (verify §461(l) interaction).
• Cut-off instead of §481(a): some changes on the list are made on a cut-off basis (only prospective); the list says which. Depreciation changes are §481(a) changes.

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Step 4: The header and Part I

• Header: the applicant is the taxpayer whose method changes — the individual for a Schedule E rental, the S corporation or partnership for an entity (not the shareholder). Name, address, EIN or SSN, principal business activity code, the tax year of change (beginning and ending dates), the type of applicant, and the name and number of the contact person. The filer and applicant can differ (a parent corporation for a subsidiary); for us they are the same.
• Type of change boxes: depreciation or amortization; financial products; other. Check depreciation for DCN 7, 196; “other” for the small-business changes.
• Part I, line 1a: the DCN(s). Several changes can go on one form if the list allows concurrent filing (DCNs 233, 235 and 244 are designed to be filed together for a small business dropping accrual, inventory and UNICAP at once).
• Line 2: any scope limitation of Rev. Proc. 2015-13 §5.01 that applies? For DCN 7 the five-year rule is inapplicable; answer with reference to the list section.
• Line 3: the applicant has not made or requested a change for the same item in the five prior years, or explain. Not applicable to DCN 7.
• Reduced filing requirement: the list’s section for each DCN says what must be completed. For DCN 7 (list §6.01(?)): the header; Part I lines 1a and (if applicable) 2 and 3? ; Part II lines 4?, 5?, 6?, 7?, 8?, 11?, 13?, 14?, 15?, 16?, 17? ; Part IV lines 25, 26 and 27?; and Schedule E (verify the exact reduced-filing lines in the current list — the numbers shifted with the December 2022 form). Everything else is left blank, and the form says so.

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Step 5: Part II, information for all requests

• Under examination? (lines 4–7): if any return is under exam, before Appeals, or before a federal court, the automatic procedure is restricted; the 120-day window after an exam ends, and the director-consent routes, are in §8 of Rev. Proc. 2015-13. For a Schedule E owner with no exam, “no” down the column.
• Prior and pending changes (lines 8–10): any other 3115 pending; any change for the same item in the last five years (DCN 7 exempt).
• Description of the item (lines 11–16): the present method (“no depreciation claimed on residential rental building placed in service 3/1/2016”), the proposed method (“MACRS 27.5-year straight line, mid-month convention, under §168(a)”), the legal basis (Reg. §1.446-1(e)(2)(ii)(d); §168), whether the item is being changed for all assets of the type, and whether the change is for the entire trade or business. Plain declarative sentences; this is the part a reviewer reads.
• Line 17? — gross receipts for the small-business DCNs (the three prior years’ average under §448(c)).
• Line 18 / signature: the applicant signs under penalties of perjury; the preparer signs the preparer block. For a joint return with a jointly owned rental, both spouses sign? — the applicant is the taxpayer filing the return; one signature per the instructions (verify).

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Step 6: Part IV and Schedule E

• Part IV, line 25: is a §481(a) adjustment required? Yes for depreciation changes. Line 26: the amount, positive or negative, with the computation attached (a schedule: asset, placed-in-service date, basis, allowable method and depreciation by year, claimed depreciation by year, difference). Line 27: the one-year election for a positive adjustment under $50,000, or the year-of-disposition rule. Line 28?: whether the adjustment is being taken into account entirely in the year of change because the applicant is ceasing the business.
• Schedule E (Change in depreciation or amortization), lines 1–7: required for DCN 7 and 196. Whether the property is §168 property (yes), the applicant’s basis for the change (the reg cite), the placed-in-service year, the present and proposed depreciation method, recovery period and convention for each asset or class, whether the property is public utility property (no), whether §168(k) applied, and whether the change is from or to an impermissible method. One line per asset class; a separate attachment for a long list.
• Schedules A–D are for the cash/accrual (A), advance payments (B), inventory (C) and UNICAP (D) changes: DCN 233 uses Schedule A Part I (the balance-sheet-style adjustment: receivables, payables, prepaid items, accrued liabilities as of the first day of the year of change — that is the §481(a) computation for a cash-method change); DCN 235 uses Schedule C; DCN 244 Schedule D.

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Step 7: Filing it

• The original goes with the timely filed (including extensions) original federal return for the year of change — attached to the e-filed return as a PDF (the software supports Form 3115 as an attachment; it is not a transmitted form) or stapled to a paper return. Filed with an amended return only within the six-month window under Reg. §301.9100-2 (“Filed pursuant to §301.9100-2” across the top) if the original was timely.
• The duplicate copy, signed, goes to the IRS in Ogden no later than the date the original is filed: by mail to Internal Revenue Service, 1973 Rulon White Blvd., Mail Stop 6111, Ogden, UT 84201 (Attn: M/S 6111), or by fax to 844-249-8134 (the fax option became permanent after 2020; it is the one we use, with the confirmation sheet in the file) (verify current address and fax in the form instructions). The duplicate is what the IRS logs; a missing duplicate is the most common defect, and the letter rulings granting §301.9100-3 relief to taxpayers who filed the original but forgot Ogden are a genre (PLR 202… — the office keeps two in the file as a reminder that relief costs a user fee and a year).
• The year of change is the year the return is being prepared — a 3115 cannot be filed for a closed year, and does not need to be: the §481(a) adjustment reaches back for you. A missed-depreciation 3115 for 2026 catches up 2016–2025 on the 2026 return.
• No user fee for an automatic change; no acknowledgment letter either. Silence is consent. Keep the proof of timely filing of both copies.
• Entities: an S corporation or partnership files its own 3115 for its own assets; the §481(a) adjustment flows through the K-1 as part of the ordinary income or loss (or as a separately stated item if the activity is).

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Step 8: What happens on the return

• Form 4562 for the year of change shows the asset on the correct method with the correct prior accumulated depreciation (as if it had always been right); current-year depreciation is normal.
• Schedule E line 19 carries the negative §481(a) adjustment as “other expense — §481(a) adjustment per Form 3115”; it combines with the year’s rental result and goes through Form 8582 as a passive loss. With the $25,000 active-participation allowance (phased out $100,000–$150,000 AGI) or passive income it is deductible now; otherwise suspended, released on a fully taxable disposition (§469(g)) — which is why the catch-up filed in the year of sale works even for a high-income owner: the suspended loss and the sale gain land in the same year.
• Basis is now what §1016(a)(2) always said it was; the gain on sale is unchanged by the 3115, but the deductions that offset it now exist.
• Audit protection for the item for the years before the year of change (Rev. Proc. 2015-13 §8.01), subject to the exceptions (under exam, prior-year issue raised, change not made in compliance).
• Colorado: follows federal taxable income; the adjustment flows through. No separate Colorado filing.

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A worked example: the never-depreciated duplex

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Questions at the desk

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Written for the Tax Shop desk; figures are for the 2026 tax year unless stated. Items marked (verify) are to be confirmed against primary sources before they are relied on. Private reference, not client advice.