On February 13, the Internal Revenue Service (IRS) issued Rev. Proc. 2015-20, which provides relief for small businesses from the reporting requirements related to implementing the repair regulations. “This is an important victory for both the profession and small businesses and will have an immediate impact on the tax filing season,” said Troy K. Lewis, CPA, CGMA, chair of the American Institute of CPAs’ (AICPA) Tax Executive Committee.
The AICPA has advocated modification of the tangible property regulations, commonly referred to as the repair regulations, for many years. The AICPA renewed its efforts after the IRS released the final regulations in September 2013. Although some advocacy work, such as comment letters and testimony, is visible to the public, Lewis noted that often advocacy efforts are “behind the scenes” in the form of meetings and telephone calls, as was the case with the repair regulations.
Lewis attributed the AICPA’s accomplishment to all of the volunteers, state CPA societies and staff involved in the advocacy effort, including the AICPA Methods and Periods Technical Resource Panel. “This dedicated group of volunteers has been working to improve the rules on behalf of our members since the proposed regulations were released in 2011,” said Lewis. He described the letters from more than 40 state CPA societies urging IRS Commissioner Koskinen to change the administratively burdensome rules as “key in getting the IRS to appreciate and understand the impact the rules have on small businesses and tax preparers across the country.”
Lewis acknowledged that some firms and sole practitioners had already spent time and resources attempting to comply with the new regulations prior to the IRS’s issuance of relief. “We would have preferred to have the relief sooner,” Lewis said. “We repeatedly stressed to the government that time was of the essence as tax practitioners were already preparing and filing Forms 3115.” He said he is hopeful some of the work involved resulted in preferable adjustments that will yield their clients a tax benefit. As for the money spent on CPE and training, Lewis believes that money was well spent. “Taxpayers are still subject to the new repair regulations and it is still, therefore, essential for practitioners to understand these rules,” he remarked.
Rev. Proc. 2015-20 permits small businesses to apply the new regulations on a prospective basis and make certain changes without having to file a Form 3115. These new simplified procedures are 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.
The IRS also requests comments in Rev. Proc. 2015-20 on whether to increase the de minimis safe harbor limit for taxpayers without an applicable financial statement (currently set at $500), and if so, what amount should be used. “Our work is not finished yet,” Lewis explained. “We still need to increase the de minimis safe harbor amount to provide additional relief to small businesses.” The AICPA, which has been urging the IRS to increase the limit to $2,500, plans to submit formal comments early this year in response to the request from the IRS.