Kelly Lopez, CPA

The IRS Provides New Guidance on Tangible Property Regulations

The New Repair Rules have been a hot topic in the tax community since their release. While they provided much needed guidance regarding the capitalization and disposal of tangible property, they also required businesses to file numerous change of accounting method forms (3115) in order to adopt them. This put a significant burden on businesses.

Fortunately, the IRS released Rev. Proc. 2015-20 a few days ago. This revenue procedure eases the process of adopting the new regulations for small business. Essentially, the IRS will now allow small business taxpayers to change a method of accounting under the tangible regulations on a prospective basis for the first taxable year beginning on or after January 1, 2014. The IRS is also waiving the requirement to file Form 3115 for small businesses that choose to use this simplified procedure for 2014.

For purposes of Rev. Proc. 2015-20, a “small business” is a taxpayer with assets of less than $10 million; or average annual gross receipts of $10 million or less for the prior three tax years.

Rev. Proc. 2015-20 comes a little too late for qualifying small business that have already filed their tax return with the initially required Form 3115. The IRS indicated that those taxpayers may withdraw their 3115’s by filing an amended federal return using this new revenue procedure.

Please keep in mind that small business taxpayers still have the option to file Form 3115 if they wish to do so. We recommend you talk to your tax advisor to see if and when one would be beneficial for your business.