If your business files tax returns using IRS Form 3115 to change accounting methods, especially for R&D costs or depreciation, there’s a new set of rules you need to know. On June 9, 2025, the IRS released new guidance (Revenue Procedure 2025-23) that updates how businesses can make automatic changes to their tax accounting methods.
Whether you’re managing fixed assets, updating how you treat research expenses, or switching to a new cost method, this rule may affect your next filing.
What Is Form 3115 and Why Should You Care?
Form 3115 is used to request IRS approval to change your accounting method (how you report income and expenses on your tax return). Many businesses file it automatically without IRS permission when rules allow. Common reasons include:
- Changing how R&D costs are treated (Section 174)
- Updating inventory or cost capitalization methods
- Revising depreciation schedules
These changes can impact taxable income, cash flow, and how much tax you owe.
What’s New in 2025?
Here’s what the June 2025 update means:
- New Rules Apply Now: Any Form 3115 filed on or after June 9, 2025 must follow the updated procedures.
- Improved Transition Options: If you already filed under the previous rules (Rev. Proc. 2024-23), you might not need to refile, but you can choose to refile under the updated version for simplicity or better alignment.
- New Guidance on R&D: For businesses claiming deductions for research and experimentation expenses, the rules now offer clearer and more flexible paths for method changes.
- Obsolete Methods Removed: Some older accounting methods are no longer permitted, so it’s important to confirm your method is still valid.
What You Should Do Now
If you’re planning to file or amend Form 3115 this year (or did recently) here’s how to stay compliant:
- Check Whether Your Business Is Affected
If you’ve claimed R&D deductions, made major capital investments, or adjusted inventory methods, these new rules likely apply to you. - Review Your Filing Strategy
If you filed a Form 3115 before June 9, confirm whether you want to stick with the old process or refile under the new one. - Consult Your Tax Advisor
This update can impact how your business reports income and deductions. A professional can help you weigh the options and reduce audit risk.
We’re Here to Help
Changing accounting methods can be a powerful tool for improving cash flow and aligning your tax strategy with your operations, but it must be done right.
Need help navigating the new IRS rules? Contact our team today for a consultation to ensure your accounting method changes are filed accurately and advantageously.
