Taxpayer purchased a rental property in 2009 for $1.6 million and another property in 2016 for $2.7 million. The purchase price for the 2009 property was allocated $400,000 to land and $1.2 million to building. The purchase price for the 2016 property was allocated $28,000 to land and $2.672 million to 5 year Distributive trade and services property. Taxpayer claimed depreciation on the property beginning in the year of acquisition. 

Taxpayer's 2018 income tax return was audited by the IRS. The IRS determined that $1.4 million of the 2009 acquisition purchase price should have been allocated to land and the balance to building (the property was a small beachfront house on a highly desirable beach). Further, it determined that $300,000 of the 2016 acquisition purchase price should have been allocated to land and $2.4 million to building. It was determined that depreciation claimed was an improper method of accounting.

The audit resulted in an overstatement of depreciation deductions in 2018 of $456,000. In addition, the IRS determined the difference between depreciation claimed and depreciation allowed after the change in life for all years prior to 2018 as follows:

Claimed As Adjusted

2009 $ 30,000 $ 5,000

2010 $ 30,000 $ 5,000

2011 $ 30,000 $ 5,000

2012 $ 30,000 $ 5,000

2013 $ 30,000 $ 5,000

2014 $ 30,000 $ 5,000

2015 $ 30,000 $ 5,000

2016 $ 565,000 $ 285.000

2017 $1,030,000 $ 285,000

Total $1,805,000 $ 605,000

A. What is the amount of the 481(a) adjustment and the year of change? Will it increase or decrease taxable income in the year of change?

B. When will the 481(a) adjustment be recognized by Taxpayer?

C. When would the 481(a) adjustment be recognized if Taxpayer had voluntarily changed its method of accounting in 2018 before being notified of the audit?

D. What other factors should Taxpayer have considered regarding the filing of a request for a voluntary change in accounting method vs. waiting for the IRS to identify it on examination?