The AICPA testified before the IRS and Treasury at the May 9, 2012 public hearing
on proposed and temporary regulations under IRC sections 162(a), 168, and 263(a) regarding the deduction and capitalization of expenditures related to tangible property, (REG-168745-03 and TD 9564), and Revenue Procedures 2012-19 and 2012-20. The testimony was provided by Carol Conjura, chair of the AICPA's Tax Methods & Periods Technical Resource Panel, and focused on several of the comments that were included in the AICPA's comment letter of April 17, 2012
The temporary regulations proposed by the Internal Revenue Service governing the deduction and capitalization of tangible property expenditures are too complex and many taxpayers, especially small businesses, will not have the resources to comply.
Specifically, Conjura said, “the regulations fail to provide sufficiently objective principles, they do not provide as many bright line tests as are needed and they introduce entirely new sources of complexity.” Further "the regulations in their current form, will likely fall short of achieving the government's main goal as stated in the preamble of providing more certainty and less controversy."
The regulations “will place demands on many taxpayers that exceed their limited compliance resources,” she said. “Taxpayers and their advisers will have to devote significant resources to understanding these complex rules and then applying them to common or routine transactions every year, such as the purchase of materials and supplies, and recurring property maintenance activities. The need for simplification is particularly pressing for small businesses, which make up the majority of business taxpayers.”
“The ‘facts and circumstances’ approach on which the temporary regulations rely has led to long-standing controversy and uncertainty” in this area, Conjura said. “The AICPA recommends that the government develop and include in the next set of regulations significantly more bright line tests, objective standards and safe harbors.”
Conjura also said the AICPA believes the de minimis rule in the regulations, which requires an annual financial statement that meets the definition of an Applicable Financial Statement, discriminates against smaller taxpayers. The definition of “Applicable Financial Statement” requires preparation of the statement in accordance with U.S. Generally Accepted Accounting Principles and use of the statement in filings with the U.S. Securities and Exchange Commission or with any federal government agency other than the IRS. Instead, the AICPA recommends the use of an alternative test that would allow smaller taxpayers to meet the eligibility requirement for the de minimis rule. For example, an aggregate dollar ceiling could be set on the taxpayer’s tax deduction; the ceiling could be measured by a defined attribute reported on the tax return, such as a percentage of tax gross receipts.
The AICPA commended the IRS and Treasury for permitting automatic accounting method changes to comply with the regulations, and for the waiver of the scope limitations for two years to allow taxpayers additional time needed to comply with the regulations. The AICPA also noted several of the areas where the transition guidance should be revised or clarified, including:
- amended to permit extrapolation procedures to compute the section 481(a) adjustments;
- additional transitional relief to provide taxpayers with additional time to comply with the written de minimis policy requirement; and,
- clarify the situations in which single or multiple Form 3115 filings are required for related accounting method changes.
For further details on each of the areas included in the AICPA's oral testimony, as well as other areas where the AICPA has provided recommendations to the government on this guidance, please refer back to the April 17th comment letter.