Form 3115 Filing

The most frequent question I receive about filing as a Mark to Market ("MTM") trader for the first year is "When do I file Form 3115?"

It is important to remember that Form 3115 is NOT a MTM election form - even though some CPAs believe this is the case!! It is filed with the first year tax return as a MTM trader. The MTM election form is filed with the tax return or extension during the LAST year of filing with the realization method of accounting for securities gains and losses. You will find an election form here.

As the instructions for Form 3115 explain, there are two types of changes in the applicant's method of accounting - (1) an Automatic change request and, (2) a Non-automatic change request. Fortunately, a MTM election is an automatic change request using DCN 64 (DCN stands for "Designated Change Number"). Under "When and Where To File" the applicant is instructed to:

Attach the original Form 3115 to the filer's timely filed (including extensions) federal income tax return for the year of change.

So, if you make the election with your tax return or extension (remember, the election itself cannot be extended) on 4/15/2026 for tax year 2025, your first MTM tax year is 2026. When you file your 2026 tax return you will attach Form 3115 to your 2026 return. Thus, 2026 is "the year of change".

What if you are a new entity or simply just starting out as a trader, do you need to file Form 3115? The answer is "No" since you are not changing your accounting method but "electing" MTM from the start. However, if you are forming a trading entity - which lends credence to your trading as a trade or business - I would place a Resolution with your Organizational documents indicating that you are electing to be taxed as a MTM trader from the outset. You should also make sure you "qualify" as a Trader in Securities which typically translates to volume and consistency of trading.