John Smith 123-45-6789 Attachment to Form 3115 Part II, Line 12a, Description of Items Being Changed Statement 1 The taxpayer is proposing to change the method of depreciation for assets used in JS Construction Part II, Line 12b, Description of Present Method for Items Being Changed The taxpayer erroneously applied the MACRS depreciation method under the General Depreciation System (GDS) to his business assets in the JS Construction business in Paris, France. Part II, Line 12c, Description of Proposed Method for Items Being Changed The taxpayer is requesting an automatic change under Section 6.01 of the Appendix of Revenue Procedure 2011-14 to business assets owned by JS Construction business in Paris, France depreciated under MACRS Alternative Depreciation System (ADS) which is required for assets used predominantly outside the United States. Part II, Line 12d, Description of Present Overall Method of Accounting The taxpayer presently uses the cash method of accounting. Part II, Line 13, Description of the Trade or Business Statement 2 The taxpayer owns and operates JS Construction, a sole proprietorship that is in the business of site construction in Paris France, business code 238910. Page 1 of 5
Statement 3 Part IV, Line 25, Computation of section 481(a) Adjustment Under his present method, taxpayer erroneously depreciated his business assets using the MACRS General Depreciation System, using accelerated methods over the allowed recovery period for the asset class. The following illustrates the depreciation claimed and what should have been claimed using the proper straight-line method and Alternative Depreciation System recovery periods. As Filed Corrected Basis $4000 $4000 Date Placed in Service 02/02/08 02/02/08 Method Section 179 Straight-Line Recovery Period 5 Years 5 Years Convention Half Year Half Year 2008 depreciation $4000 $400 2009 depreciation $0 $800 2010 depreciation $0 $800 Total $4000 $2000 Office Furniture Basis $12000 $12000 Date Placed in Service 03/03/2009 03/03/09 Method 200% Declining Balance Straight-Line Recovery Period 7 Years 10 Years Convention Half Year Half Year 2009 depreciation $1714 $600 2010 depreciation $2939 $1200 Total $4653 $1800 Basis $25000 $25000 Date Placed in Service 0/10/10 0/10/10 Method Special Depreciation Allowance Straight-Line Recovery Period 5 years 6 years Convention Mid-Quarter Mid-Quarter 2010 depreciation $25000 $521 Total $25000 $521 Total Depreciation Deducted $33653 $4321 Overstated Depreciation ($33653 - $4321) = +$29332 Section 481(a) Adjustment to Schedule C for 2011 is $29,332 Page 2 of 5
Revenue Procedure 2011-14, Section 5.04: If a positive adjustment is over $25000, taxpayer may recognize the adjustment over a four year period, starting in the year the change is effective. Therefore, the taxpayer proposes to take the adjustment into income as follows: 2011 $7333 2012 $7333 2013 $7333 2014 $7333 Page 3 of 5
Statement 4 Schedule E, Line 7a, Code Section for Depreciation or Amortization Under the taxpayer s present impermissible method of depreciation, the property is being depreciated under Code Section 168(b)(1) GDS. Under the proposed permissible method of depreciation, the property will be depreciated under Code Section 168(g)(1) ADS, property used predominantly outside the United States. Schedule E, Line 7b, Section 168 Depreciation Applicable to Asset Class The applicable asset class from Revenue Procedure 87-56 for each asset depreciated under Code Section 168 is as follows: Description Basis Asset Class $4000 00.12 Office Furniture $12000 00.11 $25000 15.0 Schedule E, Line 7c, Facts to Support Asset Class Tangible property used predominantly outside the United States is subject to the recovery periods under ADS depreciation Schedule E, Line 7d, Depreciation or Amortization Method of the Property The ADS method of depreciation is straight-line over the ADS recovery periods. Schedule E, line 7e, Useful Life, Recovery or Amortization Period Description Office Equipment Recovery Period ADS 5 years 10 years 6 years Schedule E, line 7f, Applicable Convention of the Property Page 4 of 5
The half year or mid-quarter convention applies to the property depending upon when it is placed in service Description Office Furniture Convention HY HY MQ Schedule E, line 7g, Information on Additional First-Year Special Depreciation Allowance The special depreciation allowance is not available for assets used predominantly outside the United States Page 5 of 5