Accounting Periods
Accounting Methods
Adopting, Electing, Changing and Revoking
Generally, you may choose to adopt any permitted accounting period when you file your first tax return. You generally do not need to obtain IRS approval to choose the initial accounting period. You must, however, generally use that same accounting period going forward.
Generally, you may choose to adopt any permitted accounting method when you file your first tax return. You do not need to obtain IRS approval to choose the initial accounting method. You must, however, use the method consistently from year to year and it must clearly reflect your income.
To change your accounting method you generally must obtain to consent from the IRS Commissioner, which generally is done by filing From 3115. The Commissioner is authorized to prescribe administrative procedures setting forth the limitations, terms and conditions that the Commissioner deems necessary to obtain such consent. Some consents to change are then automatically granted.
In order to adopt the §475 Mark-to-Market accounting method, a written election statement must be included with the initial tax return.
In order to change to the §475 Mark-to-Market accounting method, (1) a written election statement must be included with the prior year’s timely filed tax return or timely filed application for extension, as appropriate, and then (2) the following year Form 3115 for the year of change must be filed in duplicate.
In order to revoke the §475 Mark-to-Market accounting method, (1) a written Notification Statement and statement of revocation must be included with the prior year’s timely filed tax return or timely filed application for extension, as appropriate, and then (2) the following year Form 3115 for the year of change must be filed in duplicate.
In order to change from the §475 Mark-to-Market accounting method to a realization method, (1) a written Notification Statement must be included with the prior year’s timely filed tax return or timely filed application for extension, as appropriate, and then (2) the following year Form 3115 for the year of change must be filed in duplicate.
Note that the IRS has stated that even if the items (2) above are not done, that the filing of the items (1) will suffice to bind the accounting method. As of this writing (2015), it is not clear what the other consequences may result when failing to file the items (2) above.