In Rev. Proc. 96-31, the IRS outlined a new automatic procedure to deduct unclaimed deductions otherwise allowable under IRC Secs. 167 (depreciation), 168 (accelerated and modified cost recovery system), and 197 (amortization of intangibles). The procedure allows taxpayers to deduct depreciation and amortization that should have been claimed in both open and closed years. Without this procedure, taxpayers wishing to make these accounting method changes needed to pay a user fee.

Taxpayers take advantage of Rev. Proc. 95-31 by filing a Form 3115, Change in Accounting Method, completing only certain lines on pages one and two plus Schedule D, Part II. The caption "AUTOMATIC METHOD CHANGE UNDER REV. PROC. 95-31" should be typed or printed at the top of the form. Because there is no user fee, there is no acknowledgment of the method change by the IRS. The taxpayer must use a permissible method after the change. The year of change is the year for which the Form 3115 is considered timely. Therefore, if the change covers a closed year, the year of change is for the year the form is filed, so long as it is filed during the first 180 days of the taxable year.

This method change will result in a negative adjustment under IRC sec. 481(a). The adjustment must be offset by any excess depreciation taken on other assets owned by the taxpayer. While adjustments under this procedure are to be taken into income in the year of change, they are not subject to the three-year spread for most accounting changes covered by Rev. Proc. 92-20, the pronouncement governing accounting method changes generally.

Rev. Proc. 96-31 is effective May 13, 1996. Taxpayers with accounting method change requests of the type covered by the procedure in process on that date may notify the IRS by August 15, 1996, if they wish to have their change requests covered by Rev. Proc. 96-31 or Rev. Proc. 92-20. Failure to so notify the IRS will result in the request being processed under Rev. Proc. 92-20. *