elections

[TAX4US]

If you make the election for the new repair and safe harbor rule are we still required to file the 3115 where there is no 481 adjustments?

[TXEA]

Apparently, yes we are - we have to tell them we are abiding by the new rules via Form 3115. Specifically, R & M and M & S (among many others depending on the client).

[BHoffman]

I've done some research and here are my results - take them or leave them:

Regarding the safe harbor for materials and supplies 1.263(a)-1(f)

"1.263(a)-1(g) Accounting method changes. Except for paragraph (f) of this section (the de minimis safe harbor election), a change to comply with this section is a change in method of accounting to which the provisions of sections 446 and 481 and the accompanying regulations apply. A taxpayer seeking to change to a method of accounting permitted in this section must secure the consent of the Commissioner in accordance with §1.446-1(e) and follow the administrative procedures issued under §1.446-1(e)(3)(ii) for obtaining the Commissioner's consent to change its accounting method."

I think this clearly states that no one has to file form 3115 in order to comply with the regulations if all we are doing is making the 2014 safe harbor election for materials and supplies.

[BHoffman]

Here is the text from Rev Proc 2015-14 pg 200 that refers to the need to file a change in accounting method. See especially (iii) and (v)

"(b) Inapplicability. This change does not apply to:
(i) A taxpayer that wants to change its method of accounting for dispositions of depreciable property, including a change in the asset disposed of (but see sections 6.29, 6.30, 6.31, 6.33, 6.34, and 6.35 of this revenue procedure);
(ii) Amounts paid or incurred for certain materials and supplies that the taxpayer has elected to capitalize and depreciate under § 1.162-3(d);
(iii) Amounts paid or incurred to which the taxpayer has elected to apply the de minimis safe harbor under § 1.263(a)-1(f);
(iv) Amounts paid or incurred for employee compensation or overhead that the taxpayer has elected to capitalize under § 1.263(a)-2(f)(2)(iv)(B);
(v) Amounts paid or incurred to which the taxpayer has elected to apply the safe harbor for small taxpayers under § 1.263(a)-3(h);
(vi) Amounts paid or incurred for repair and maintenance costs that the taxpayer has elected to capitalize under § 1.263(a)-3(n); or
(vii) Amounts paid or incurred to facilitate the acquisition or disposition of assets that constitute a trade or business (but see section 10.05 of this revenue procedure"

I'm reading this to mean that simply making the elections 1.263(a)-1(f) and/or 1.263(a)-3(h) which will be the most common for small businesses and small rentals means that there is no need to file form 3115 since a change of method does not apply.

[S T]

Yes, the safe harbor elections under 1.263 (f) or (h) are giving me some concern, as well as the Form 3115

Thanks B Hoffman for posting your findings, and they seem to be on point and clearer than most of what I have been reading since the release of the recent Rev Procs issued on 1/16/2015.

[TXEA]

For a different perspective, take a look at the article by Ms. Erb (Tax Girl) on Forbes today. It is not as simple as just filing elections.

[TomJ]

Link to the Forbes post referenced above: http://www.forbes.com/sites/kellyphi...ired-for-2015/

[Corduroy Frog]

Avoid the 3115

My pea-sized brain resists filing a 3115 unless there is a change in accounting method triggered by the client.

This would include a resistance to filing 3115 under a redundancy. If a change in accounting method is mandated by new tax regulations, then a 3115 is overkill. An election attached to the return which is nothing more than an election should not require a 3115, unless the election reverses a position previously taken by the taxpayer. An amended return correcting a mistake is not a change in accounting method - the method itself is not changing.

In recent weeks, this forum has had numerous discussions about Form 3115, particularly in reference to the new capitalization rules where the IRS (and not the taxpayer) has been the causitive agent of change and not the taxpayer.

Gang up on me if you wish, but I will use Form 3115 only if there is a real change in accounting method, and NOT for something foisted upon us by the gubbermint.

[Jiggers]

I have been confused by questions concerning the new repair regs and the 3115. I have attended 3 separate seminars that spent about 2 hours each on these issues. And I left there more confused than when I arrived. As did everyone else.

I really think that the instructors did not have a true grasp on the issues and real life situtations.

I just heard blanket statements about a policy, safe harbors, and you must file a 3115 for every client.

And no real esplanation on filing a 3115 for every client.

I have done lots of research on numerous websites, ordered publications. I developed a regs and capitalization policy that fit my clients and we will discuss during the interview. I really doubt if there will be many 3115's that I have to file.

Just my comments and my rant. Heck, those seminars cost money.

[Burke]

We need a CCA on this. I hope someone, somewhere submits one.

[TaxGuyBill]

I posted this on another forum a few days ago, but this is my VIEWPOINT and OPINION why 3115 is NOT required for most clients:


These are the most common cited changes due to the new Capitalization Regulations and why in MY OPINION, MOST of our clients DO NOT need a Form 3115. I'm positive some people strongly disagree with me, but for those who are 'on the fence' I hope this will give you some things to think about.



#184 Part 1: A change to deducting amounts paid or incurred for repair and maintenance or a change to capitalizing amounts paid or incurred for improvements to tangible property and, if depreciable, to depreciating such property under section 167 or section 168.

If we find something that we have previously deducted something that should have been capitalized, or if we have been capitalizing something that should have been deducted, this needs to be done (possibly in conjunction with Change #7). If you analyze the depreciation schedule and the taxpayer’s previous deducted repairs, and they conform to the new Capitalization Regulations, you are not making a change, then #184 does not apply (see link for a “decision tree” to help you make that determination).


#184, Part 2: Includes a change, if any, in the method of identifying the unit of property, or in the case of a building, identifying the building structure or building systems for the purpose of making this change.

Some people say we need to do this just to ‘adopt’ the definition of “unit of property". However, that is not true. It is only for a SPECIFIC change in identifying the Unit of Property “FOR THE PURPOSE of making this change”. Revenue Procedure 2015-14 specifically says it is “for purposes of making the change to deducting the amounts” and “for purposes of making the change to capitalizing the amounts”. ). If you analyze the depreciation schedule and the taxpayer’s previous deducted repairs, and they conform to the new Capitalization Regulations, you are not making a change, then #184 does not apply (see link for a “decision tree” to help you make that determination).



#186: Change to deducting non-incidental materials and supplies when used or consumed.

Incidental supplies are defined as: “Amounts paid to acquire or produce incidental materials and supplies (as defined in paragraph (c) of this section) that are carried on hand and for which no record of consumption is kept or of which physical inventories at the beginning and end of the taxable year are not taken, are deductible in the taxable year in which these amounts are paid, provided taxable income is clearly reflected.”

If no inventory is taken of materials and supplies [inventory of items held for sale do not count as materials and supplies] , all supplies are “incidental”. If that is the case, #186 does not apply.


#187: Change to deducting incidental materials and supplies when paid or incurred.

Have we ever not deducted the expenses when paid? If we’ve always deducted it when paid, #187 does not apply.

HOWEVER, if we’ve previously been deducting amount other than $200, it could possibly be viewed as a change. I don’t buy it, but it’s arguable. But if you make the $500 ‘de minimis’ election, it would basically negates any ‘change’ from $200 because the $500 is already covering that, therefore #187 would probably not apply.


#188 and #189: Change to deducting non-incidental rotable and temporary spare parts when disposed of and Change to the optional method for rotable and temporary spare parts.

Most of our clients don’t have “rotable spare parts” or “temporary spare parts”. If that is the case, #188 and #189 do not apply.





Also, as I’ve mentioned before, the Paperwork Reduction Act in Revenue Procedure 2014-16 show that the IRS expects only 7,330 “respondents”, for the 21 change numbers addressed in the Revenue Procedure (which includes all of the ones I discussed).


Again, I am positive some people strongly disagree with me, but for those who are 'on the fence' I hope I have you some things to think about.