Rev. Proc. 2015-13

Where this comes from

The tax law treats how you depreciate an asset as a method of accounting. Once you have used a method for two years, you generally cannot just switch on your own. Section 446(e) requires the IRS's consent.

For decades the IRS has published procedures that grant that consent in a standard way. Revenue Procedure 2015-13, issued in January 2015, is the current general framework. It explains who can file, how, and what happens to the catch-up amount, which the law calls a section 481(a) adjustment.

What it established

The procedure splits changes into automatic ones, which need no user fee and no advance ruling, and non-automatic ones, which do. For automatic changes, you file Form 3115 with your return for the year of change and send a copy to the IRS.

The catch-up math is the heart of it. Under section 7.03, a negative section 481(a) adjustment, which means the deductions you should have taken but did not, is taken into account entirely in the year of change. A positive adjustment, which means income you have to give back, is spread over four tax years. A taxpayer with a positive adjustment under $50,000 can elect to take it all in one year instead.

Section 8 adds audit protection. In general, once you properly file the change, the IRS will not require you to redo the same item for the years before the change. There are exceptions, including limits for taxpayers already under examination.

How it shows up in a study

This procedure is what makes a look-back cost segregation study work. If you have owned a building for years and depreciated everything over 27.5 or 39 years, the study identifies the shorter-life property, and a Form 3115 filed under Rev. Proc. 2015-13 brings all the missed depreciation into the current year as one negative adjustment.

That is why no amended returns are needed. The catch-up lands on this year's return. The study's classification schedule becomes the support for the section 481(a) computation attached to the Form 3115.

What it does not mean

Filing a method change does not make the underlying numbers right. The IRS consents to the change in method, not to the dollar amounts. If the study behind the Form 3115 is weak, the deductions can still be challenged.

The audit protection is also not absolute. It generally does not apply if you are already under exam for the item, and it does not cover issues other than the method you changed. And not every fix is a method change. An error on a single year's return, used only once, is usually corrected by amending, not by Form 3115.