The TaxSpeaker's opinion re Repair regs & Form 3115 - What is yours?

[TXEA]

The final regulations make it clear that the $500 de-minimus election is not a change in accounting method and so no 3115 is needed. It is an annual election attached to each year's tax return. The $500 election does not need a written accounting policy, just needs to be in effect from the start of the tax year.

A lot of the confusion on this stems from the proposed regulations which did require a 3115 even for the $500 election. That was removed in the final regulations.

I see lot of scare mongering going on here from vested interests trying to flog CPE courses and other services, a bit like the ACA.

In my opinion for most small businesses it will just be a case of filing the annual $500 election with the return.

The de-minimus election is not the only change created by the TPR. There are about 10 other changes for which Rev Proc 2014-16 prescribes a change in accounting method might apply, and the majority could apply to a small business. I would encourage everyone to review these changes if you have clients that use materials and supplies, make repairs, purchase fixed assets, or have identified UOP's in their business.

The problem seems to be stemming not from the de-minimus elections, but from the expectation that a majority of business may need to file Form 3115. If you have not reviewed Rev Proc 2014-16, then it might be enlightening as to what changes will require a Form 3115.

These TPR's have the potential to impact any business of any size. Not everyone will need to file Form 3115; however, there is absolutely nothing that "exempts" or "applies for most small business". It depends on the nature of the business, the prior accounting procedures, etc.

A business with $5,000 in gross receipts would need to file Form 3115 if they change their procedures on non-incidental materials and supplies (as an example).

[TaxGuyBill]

8453 tells them it is not filed as part of the electronis return, but will go with a copy of the 8453 to Ogden? only

The election for the $500, I thought was made at the client's record - now attach a PDF for the federal return??? Ultra I do not think had any such thing available which was the first year that it was required... Did you file something with the return last year???

Form 3115 is filed with the return (either by attaching a PDF or by mailing it with 8453) AND separately to Ogden.



Most software last year did not choose to include the elections because the Regulation changes were not mandatory until 2014 (I think they were just lazy). Hopefully this year we will just need to check a box and do it. If not, here are the requirements for the election:

A taxpayer makes the election by attaching a statement to the taxpayer's timely filed original Federal tax return (including extensions) for the taxable year in which these amounts are paid. Sections 301.9100-1 through 301.9100-3 of this chapter provide the rules governing extensions of the time to make regulatory elections. The statement must be titled “Section 1.263(a)-1(f) de minimis safe harbor election” and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under §1.263(a)-1(f).

http://www.ecfr.gov/cgi-bin/text-idx?SID=cf8a578dfaa06046a04a9adb1337787c&node=se26.3.1_1263_2a_3_61&rgn=div8

[Lion]

Certain changes go to Ogden and certain changes to another address (DC?), but the directions for 3115 are supposed to include that info for 2014 filings. You can send the 3115s now or as soon as you complete them to Ogden (repair regs) or elsewhere and then file the originals with the 2014 returns during 2015.

Elections just with the returns. Although, both procedures need a vote and recording in corporate minutes for business clients adapting them before 1 January 2014 for their 2014 tax years. Long instructions for 3115. Don't think they've been updated yet for 2014 tax year, but still worth reading now to get ready.

[TaxGuyBill]

Good catch. Actually, MOST go to the Washington DC address.

http://www.irs.gov/pub/irs-pdf/i3115.pdf#page=2

[Burke]

I knew I had seen that somewhere, and couldn't find it. These are the instructions for 3115 dated March 2012. Can't wait for 2014.

[New York Enrolled Agent]

A business with $5,000 in gross receipts would need to file Form 3115 if they change their procedures on non-incidental materials and supplies (as an example).

Perhaps I misunderstand your point but it does seem to run counter to the preamble of the final regulations.

I. Change in accounting procedures not change in method of accounting

Several commenters questioned whether a change in a taxpayer's financial accounting procedures (for example, its financial accounting capitalization policy) is a change in method of accounting for de minimis expenses to which the provisions of sections 446 and 481 and the accompanying regulations apply. The final regulations provide that the use of the de minimis safe harbor is a taxable year election and may not be made by the filing of an application for a change in method of accounting. Thus, if a taxpayer meets the requirements for the safe harbor, which requires, in part, having written accounting procedures in place at the beginning of the taxable year and treating amounts paid for property as an expense in accordance with those procedures, then a change in the procedures, by itself, is not a change in accounting method. For example, if a taxpayer's written financial accounting capitalization policy at the beginning of 2014 states that amounts paid for property costing less than $200 will be treated as an expense, and the taxpayer changes its written policy as of the beginning of 2015 to treat amounts paid for property costing less that $500 as an expense, the taxpayer is not required to file an application for its 2015 taxable year to change its method of accounting for applying the de minimis safe harbor or determining amounts paid to acquire or produce tangible property under § 1.263(a)-1(f).

[TXEA]

[QUOTE=New York Enrolled Agent;167060]Perhaps I misunderstand your point but it does seem to run counter to the preamble of the final regulations.

My point is this. Some things are a change in accounting method and require Form 3115 as per below:

(3) Covered Changes. Section 10.11 of this APPENDIX only applies to the following changes in methods of accounting:
(a) Changes under the final tangible property regulations. (i) A change to deducting amounts paid or incurred to acquire or produce non-
10 incidental materials and supplies in the taxable year in which they are first used in the
taxpayer’s operations or consumed in the taxpayer’s operations in accordance with §§ 1.162-3(a)(1) and 1.162-3(c)(1);

-----From Rev Proc 2014-16

If a taxpayer has previously deducted such items when paid as opposed to when consumed, then they have a change in method of accounting.

Rev Proc 2014-16 is worthy of a review is my overall point. I spend at least an hour or two a day everyday trying to figure this out. It is not as simple as making a de-minimus election for everybody.

[AZUKHiker]

Agreed there is more to RP 2014-16 and 2014-17

I agree that there is more to these two RPs than just the $500 election. I am just focusing on what will apply to most small businesses and rentals which make up the majority of tax preparers' business and rental returns.

It is also interesting to note that there are simplified 3115 requirements for small businesses under these RPs and if I read it correctly cut off 481(a) adjustments, that will make any 3115 filing less onerous for small businesses.

Finally it is interesting that the IRS is only expecting 7,330 filings under RP 2014-16 and 1,600 under RP 2014-17 per the sections 6s of each RP. This implies that they don't think the RPs will apply to a large number of business or rental filers.

Hopefully the IRS will respond to the October AICPA letter in the near future so that we can get some clearer guidance on what is required for most small businesses.

[JON]

The $500

is a yearly election made by and at the client. Has nothing to do with 3115 - Correct??? It needs to be done annually.

[Golden Rocket]

Minimize need for 3115

Most of you are more astute in these areas but with respect to many of you I believe we are creating unnecessary (and unwanted) reasons
to file 3115.

I'm probably prejudiced, because I don't like the 3115 anyway. But the following reasons jump out at me:

1) Much of the new regs with respect to capitalization involve taxpayer elections. A taxpayer election should
NEVER give rise to a 3115. It is not a change in an accounting method.
2) Issuance of new tax laws or regs which FORCE changes in the methods of a taxpayer should not by itself
create a need for a 3115. These are not taxpayer-directed.

Whereas I must agree that depreciation/capitalization policies are essential, they should not be so rigid as to prevent annual elections
which already exist. Selection of a depreciable life, bonus depreciation (if it exists), section 179 amounts, etc. are available on a
broad basis to all taxpayers.

The idea of filing multiple 3115s is really scary, and is a possible giveaway that we are going overboard on issues that may not
require any at all.

[Burke]

And the election is made on an annual basis, correct? It would only apply to the year so elected?

[AZUKHiker]

Election is Annual

And the election is made on an annual basis, correct? It would only apply to the year so elected?

Correct, needs to be done each year. Hopefully most tax software will have a tick box for this.

[JON]

Tax software has nothing to do with the election,

the election has to be made before the beginning of the year. It is made at the clients for the client.. It has nothing to do with the 3115. Now the pros and cons of making it is another topic.

[Gretel]

Agreed

Some additional thoughts. The election at the business place is once unless changed. The election for the tax return is every year. The election does not have to be in writing (unless AFS are required) but the business needs to apply this election. With my businesses I actually don't see anything changed. When they do their own books they post assets anywhere not matter what the policy is and leave it up to me to put it in the right places. I don't see how that could be held against them.

The problem with forms 3115 f.e. for the safe harbor for routine maintenance, I see is that from now on we have to ask for all tax returns (new clients) going back to 2014 or maybe even 2013 to see if this form was filed. How would we know in 2020 that we can use this safe harbor if we don't know if the 3115 was ever filed.

[ttbtaxes]

Has anyone seen what a sample Form 3115 would look like where a taxpayer is filing with a $-0- change. I'd be very interested in seeing the language used.