More IRS guidance: further details on tangible property 'repair' regs.

• Author: Josephs, Stuart R.
• Position: Fed Tax

Rev. Proc. 2015-20 (IRB 2015-9, Feb. 13, 2015) permits small business taxpayers to make certain tangible property accounting method changes with an IRC Sec. 481(a) adjustment that takes into account only amounts paid or incurred and dispositions in tax years beginning after 2013. In addition, for their first tax year beginning after 2013, these taxpayers are permitted to make those changes without filing IRS Form 3115.

Small-business Taxpayer

Rev. Proc. 2015-20 applies to a taxpayer with one or more separate and distinct trade(s) or businesses), within the meaning of Regs. Sec. 1.446-1 (d), that has:

* Total assets of less than $10 million as of the first day of the tax year for which an accounting method change under the final tangible property regulations and corresponding procedures regarding related accounting method changes are effective (e.g. Jan. 1, 2014 for a calendar year taxpayer); or

* Average annual gross receipts of $10 million or less for the prior three tax years, determined under Regs. Sec. 1.263(a)-3(h)(3), but substituting "separate and distinct trade or business" for "taxpayer."

Observation: Gross receipts are not reduced by cost of goods sold. For other detailed definitions of gross receipts, see Regs Sec. 1.263(a)-3(h)(3)(iv).

Frequently Asked Questions

The IRS released FAQs March 4 regarding the tangible property "repair" regs and Rev. Proc. 2015-20. Selected highlights follow:

1. Taxpayers using Rev. Proc. 2015-20's simplified procedures and not filing Form 3115 will not have audit protection for pre-2014 years.

2. The IRS suggests, but does not require, that taxpayers following these simplified procedures consider including a statement in their 2014 return indicating that they are following those procedures. Comment: Such a statement may be advisable.

3. The IRS suggests taxpayers who do not file Form 3115 and do not intend to use the simplified procedures should consider filing a statement of their intentions. The IRS notes this will help for recordkeeping and substantiation of the taxpayer's accounting method actions.

4. The FAQs point out that taxpayers using these procedures must follow them for all changes specified in Rev. Proc. 2015-20.

5. A taxpayer without an Applicable Financial Statement (AFS) is not required to have a written accounting procedure at the beginning of its tax year to qualify for the de minimis safe harbor election for that year. However, the taxpayer must expense amounts on its books and records...