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

[TaxGuyBill]

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

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

[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]

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

[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).

[JON]

3115

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???

[Burke]

1. 3115 is filed with the return. It is on the Form 8453 (9/11/13 edition.) A copy goes to Ogden.

2. Safe Harbor election(s) are filed with the return. I am sure they will be added into the software as one of the many elections which can be made.
My seminar workbook says nothing about sending a copy to another location.

3. I see no reason both of these types of forms cannot be included with an e-filed return.

[JON]

3115

will be filed WITH the return?? Is that right, one seminar said they are filed with Ogden, UT..

The $500 election is filed with the return-electronically or 8453 - how??? PAPER return...

I go to my final 2014 update 12/8 - keep this topic going and I will try to remember to tell you anything I my learn, even if it is accidently learned.

[AZUKHiker]

No 3115 needed for small businesses

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.

[taxea]

see 2014-16 and 2014-17

[TXEA]

The only hope the small taxpayer has is that somehow in the next month, the IRS exempts small business (under some criteria) from filing Form 3115. Otherwise, we all have to do with these regulations. Form 3115 will need to be filed for a substantial number of clients who have materials and supplies, repairs and maintenance, and fixed assets.

Every taxpayer has a set of books and records and if they have filed more than year they have a method of accounting and books and records (It may be a legal pad). I am going to review the prior three years repairs and maintenance, materials and supplies, and depreciation schedule to determine what if any accounting method change is required and the amount of any 481(a) adjustments that will be required. I don't know if three years is enough, but it is a starting point and demonstrates due diligence.

As for the myths -

No, the IRS can't possibly audit everyone.

No, the repair regulations are not just for large companies with audited or reviewed financial statements.

No, as the preparer, you can not ignore these regulations, just as you can't ignore any other material aspect of preparing the tax return.

Yes, Grandma Jones has a set of books and records. She even has a depreciation schedule.

We have a month to review the client's returns that will be impacted. I think the month is better spent doing that as opposed to looking for ways out of it. And, remember, the Form 3115 if not prepared when it should have been, could significantly cost your client in the event of audit. Are you prepared for that consequence?

And, finally, if there is no change, do not file Form 3115.

[Burke]

I think of some concern is the AFS statement and/or lack thereof. It needs to be dated prior to the tax year in which expenses will be coming under the Safe Harbor rules, if such election is to take place. So that means (if not already done) 12/31/14. That's 41 days from now. And how is the TP to know if this will be advantageous or not prior to such expenses being incurred? To put in my 2 cents; just returned from a 2-day Tax Seminar put on by VA Tech, and those instructors do not believe the IRS is capable of, much less inclined to, deal with the 3115 issue except in the case of very large businesses. At least the first year that these regs are in place. The larger firms should have AFS's in place and will probably be taking the $5K deduction and filing the 3115. Samples of the AFS's were in the textbooks.

[Lion]

The speaker began saying things like not everyone will file 3115s and the IRS doesn't examine the forms but just records them as having been filed. Then he started saying things like the LACK of a 3115 in a business return might increase audit risk and signing a return that does not comply with the new repair regs could result in preparer penalties as well as angry clients.... There was a shift during his presentation.

As much as I want to ignore the whole issue, I'm beginning to think that making my best effort on 3115s is the way to go. I would prefer to put as many of my biz clients (including Sch Cs) on extension as possible to see what direction the IRS will go. I think AICPA is still pushing for the IRS to make the change for new assets going forward and not changing existing methods, at least for some definition of small businesses.

[TaxGuyBill]

Just heard it again yesterday in an NATP webinar from someone else.

LOL. That's funny, I know somebody that listened to the NATP webinar yesterday about the Regulations and his interpretation was they said the IRS does NOT like 3115s, and probably DON'T want them from everybody. It's funny how we all hear things differently. :-)

[Lion]

He did not speak about his cases, confidentiality, you know. I didn't do a background check, just took a course he taught via CCH. Maybe his clients applied some but not all of the repair regs on 2013 returns prepared by their then-preparers; 2013 was an optional year (we have 2013 and 2014 to reboot our clients' depreciation schedules, balance sheets, etc.). Maybe he was bragging. Maybe he's been lining up clients for his expert witness services.

Anyway, after seeing preparers post that they heard from the IRS at IRS Forums that the IRS will audit many business returns without Forms 3115, I finally heard the same from an experienced preparer, CPA, tax partner at a large CPA firm in a large city. Just heard it again yesterday in an NATP webinar from someone else.

I'm concerned enough that I'm going to keep reading and start looking at my clients' returns and books.

[New York Enrolled Agent]

He's now testifying as an expert witness AGAINST tax preparers and for tax payers that were audited and had not complied with the new regs, did not file Forms 3115.

How can that possibly be?

IRS Notice 2012-73 said the new regulations would only be required for tax years beginning on or after January 1, 2014. Sorry but something doesn't add up here.