As you know from our recent conversation, you have a depreciation error that needs correction.
We have some good news on this error: First, you don’t have to pay the IRS user fees (which can vary from around $2,000 to $10,000), because your depreciation change is going to qualify as an automatic change that is not subject to user fees.
Second, because you failed to claim your correct depreciation in prior years, you are going to have what’s called a negative Section 481(a) adjustment (negative for the government, but positive for you) equal to the total amount of your missed depreciation. This means you will take all the missed depreciation in one lump sum in the tax year when you make your automatic accounting change.
Third, we can do some planning as to the year you make the automatic change so that you realize the best possible tax benefits from your missed depreciation.
To make this change for you, we need to complete an eight-page IRS Form 3115 and a one-to-two-page Section 481(a) adjustment worksheet attachment, in which we calculate the dollar adjustment and answer some questions for the IRS about the depreciation adjustment.
We then attach one copy of the Form 3115, along with the Section 481(a) worksheet, to your tax return and create a duplicate copy for you to file with another office of the IRS. We’ll make sure our instructions to you are crystal clear.