Sorry, but Bob Jennings is wrong. Scott MacKay (then of Treasury) actually went out of his way at the 2014 ABA Tax Section Mid-year meeting to address some of the misinformation Jennings has been spreading. It's rare to hear a governmental panelist so upset by what's going on in the marketplace.
The only time a Form 3115 would not be necessary is if the taxpayer has never had any repairs or improvements, has no materials or supplies impacted by the new regs, and so on. (This always happens with new taxpayers, such as via a valid 351 drop-down.) In applying section 446, every circuit that has ruled on the issue agrees that taxpayers must file method changes even when going from an impermissible method. (The 10th Circuit had a different approach applying the predecessor statute from the '39 Code, but the revised language of section 446 trumps that approach.) Changing its long-standing regulations for ambiguous statutes, even if contrary to prior judicial precedents, is within the power of Treasury in the post-Mayo world. So any year that a taxpayer has material, supply, repair, improvement, or other costs that are treated differently under their current method and under the new regs, the taxpayer would need to file a Form 8725-R. Now, from a practical standpoint, many small taxpayers will be able to use the new de minimis safe harbor and the new small taxpayer safe harbor and avoid most issues going forward.
From this perspective, the filing of Forms 3115 with zero-dollar section 481(a) adjustments, prospective application of the regulations as of 1/1/14, and use of the safe harbors is generally the safest course. Treasury and Chief Counsel have been going around saying that review of section 481(a) adjustments is a Field issue and no one is aware of a situation where the lack of a negative adjustment unwinds an otherwise valid method change. The problem for many small clients, however, is that if there is no method change, they reported repair expenses on their pre-'14 returns, and they have no improvements on their fixed asset records, the Service might dig deeper and come up with a positive section 481(a) adjustment. So you'd need to do a risk analysis for your clients to see whether they are exposed or have an opportunity under the regs. Of course, for many small clients, like those that use most property management companies, you won't even have enough info to apply the de minimis and small taxpayer safe harbors, so you'll have to look at the regs (and method changes) for other options.
-Brian
Director of Tax Accounting Methods & Credits
SourceAdvisors.com
Opinions my own.