More than 40 state CPA societies have written to IRS Commissioner John Koskinen asking him to provide relief for small businesses from the Internal Revenue Service’s (IRS) new tangible property regulations, better known as the repair regulations.
They explained that the repair regulations (T.D. 9636) are especially challenging for many small businesses because they are required to reexamine repair and maintenance expenses and other costs associated with tangible property purchased in prior years. Such an analysis is extremely difficult, if not almost impossible, when these records no longer exist, thereby imposing a constraint to businesses’ daily operations without providing an offsetting benefit to tax administration.
Consequently, the state CPA societies, as well as the American Institute of CPAs, have pushed the IRS to modify the regulations so the retrospective application is voluntary for small businesses.
The state CPA societies have also emphasized that most businesses electing the $500 de minimis safe harbor provision, which exempts electing businesses from applying the complex rules when deducting costs up to $500, needs to be increased to $2,500 and then adjusted in the future for inflation. The $500 threshold is inadequate because common expenditures on tangible property (e.g., laptops, smartphones) easily surpass the $500 threshold.
“This is a hot issue for CPAs in Arizona, and I’m sure it’s true for CPAs across the country,” said Cindie Hubiak, CPA, CGMA, President & CEO of the Arizona Society of CPAs. “The regulations do not take into account the practicalities of the circumstances under which many small businesses operate. It’s very frustrating for the businesses, as well as for the CPAs who serve them.”
It is important that the IRS act quickly, the state CPA societies stressed in their letters, because businesses must complete the prior-year analysis and file related forms by the end of the upcoming tax filing season.
While the IRS has not yet responded, the profession will continue pressing for relief.