IR-2015-29: IRS Makes it Easier for Small Businesses to Apply Repair Regulations

[CVTax]

Media Relations Office Washington, D.C. Media Contact: 202.317.4000
www.irs.gov/newsroom Public Contact: 800.829.1040
IRS Makes it Easier for Small Businesses to Apply Repair Regulations to 2014 and Future Years

IR-2015-29, Feb. 13, 2015

WASHINGTON —The Internal Revenue Service today made it easier for small business owners to comply with the final tangible property regulations.

Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season. The new procedure allows small businesses to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after Jan. 1, 2014.

Also, the IRS is waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.

“We are pleased to be able to offer this relief to small business owners and their tax preparers in time for them to take advantage of it on their 2014 return,” said IRS Commissioner John Koskinen. “We carefully reviewed the comments we received and especially appreciate the valuable feedback provided by the professional tax community on this issue.”

The new simplified procedure is generally available to small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less. Details are in Revenue Procedure 2015-20, posted today on IRS.gov.

The revenue procedure also requests comment on whether the $500 safe-harbor threshold should be raised for businesses that choose to deduct, rather than capitalize, certain capital expenses.

[TXEA]

Revenue Procedure 2015-20 permits small business taxpayers to make certain tangible property changes in methods of accounting with a § 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014. In addition, for their first taxable year that begins on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property changes without filing a Form 3115. The revenue procedure also requests comments on whether it is appropriate to increase the de minimis safe harbor limit provided in § 1.263(a)-1(f)(1)(ii)(D) for a taxpayer without an applicable financial statement (AFS) to an amount greater than $500, and, if so, what amount should be used and the justification for considering that amount appropriate.
Revenue Procedure 2015-20 will be in IRB 2015-09, dated Mar. 2, 2015.

[Lion]

Just heard that while in a Repair Reg webinar for the last couple of hours. Great news. Now, I'll finally finish the return I'm on and maybe even pick up speed.

[Maribeth]

But now the question is how do I recoup all my time & energy spent on dealing with these repair regs. I have hours and hours of cpe, setting up templates, letters and consultations with clients. Was looking forward to billing for the 3115.

[Lion]

Bill for the Elections.

[TaxprepP]

Revenue Procedure 2015-20 permits small business taxpayers to make certain tangible property changes in methods of accounting with a § 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014. In addition, for their first taxable year that begins on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property changes without filing a Form 3115. The revenue procedure also requests comments on whether it is appropriate to increase the de minimis safe harbor limit provided in § 1.263(a)-1(f)(1)(ii)(D) for a taxpayer without an applicable financial statement (AFS) to an amount greater than $500, and, if so, what amount should be used and the justification for considering that amount appropriate.
Revenue Procedure 2015-20 will be in IRB 2015-09, dated Mar. 2, 2015.

So this means that no form 3115 is required for those to accept the new regs that would have a '0' 481(a) adj?

[ttbtaxes]

Section 2.06 states:

"Accordingly, for the first taxable year that begins on or after January 1, 2014, small business taxpayers that choose to prospectively apply the tangible property regulations to amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014, have the option of making certain tangible property changes in method of accounting on the federal tax return without including a separate Form 3115 or separate statement."

[Maribeth]

Yes, will do that. And maybe something for "Compliance with the new IRS repair and property regulations". My business clients are all aware of these new regs so will bill something and somehow.

[Lion]

You do lose the audit protection for years prior to 1 January 2014 if applying the new repair regs prospectively on 2014 returns without Form 3115, so decide case by case. For instance, I have some higher income businesses where we didn't depreciate anything under $1,000 that I still might urge 3115s to bring them into compliance.

This is a huge relief for me for many of my very small businesses. I hope I can pick up speed now with this simplification. A simplification that took the IRS 16 pages to explain! But, what do you expect when their last two rev procs to consolidate several changes into a single 3115 took nearly 500 pages.

[mactoolsix]

Just to clarify - is the following correct?

In 2013 a new carpet was capitalized ($750).
Since an improper accounting method has not yet been established (requires two years), an amended return will be required - no 3115.

OR

If installed in 2012 (or prior years) an improper accounting method has been established and a 3115 will be required in 2014 with a 481(a) adjustment to change this to an expense.

Thus it will be to our clients benefit to look back at items on the depreciation schedule where we were conservative and capitalized, to file a 3115 with a 481(a) adjustment.
If fact we can't simply ignore these items - filing a 2014 return without addressing these items - as those prior years would not be in compliance.

I've read the new Rev. Proc 2015-20 and see nothing that changes these two situations.

Thanks - Mike