|February 10, 2015 – Volume 22 No. 7 |
|Note from Edward Karl, CPA, CGMA, VP — Taxation, AICPA |
|Developments related to the tangible property "repair" regulations are changing in real time and we are experiencing an unprecedented level of calls, emails and member inquiries for guidance, information, and resources. This special News Update is intended to address growing member concern surrounding the implementation of these new regulations. |
|Special Update from the AICPA Tax Section |
| ||AICPA Addresses Primary Concerns Surrounding Implementation of Tangible Property "Repair" Regulations |
| ||We are reaching out to members to address issues and concerns with the tangible property "repair" regulations. Over the last few weeks, we have heard from an unprecedented number of members with questions, concerns and requests for resources. The two biggest questions we are hearing are: Will the IRS be issuing guidance or relief? What should we do right now? |
What is the Status of IRS Guidance or Relief?
We understand that the IRS and Treasury are considering our recommendations to provide relief from the reporting requirements related to the repair regulations. We are hopeful they will release some form of relief for small businesses in the next couple of weeks. We understand that time is of the essence. If any relief is granted or if the IRS releases additional information, we will notify members immediately.
Our advocacy efforts on this issue date back to the release of the proposed regulations. Since that time, the AICPA Tax Executive Committee and the Tax Methods and Periods Technical Resource Panel have continued to provide comments and feedback to Treasury and the IRS to express our concerns about the administrative burdens associated with the regulations and request relief on behalf of members and small businesses. We have asked for the following forms of relief:
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|• ||Make Form 3115, as well as the section 481 adjustment, optional. |
|• ||Allow for the adoption of a “cut-off method” and apply the rules prospectively. |
|• ||Accept a statement in lieu of Form 3115 to acknowledge compliance with the regulations. |
|• ||Raise the de minimis safe harbor from $500 to $2,500. |
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What Should We Do Right Now?
We find ourselves in a challenging predicament. On the one hand, we are hopeful that the IRS will issue relief which would ease the burden for small businesses. On the other hand, there is no guarantee that relief will come in time (if at all). As we move further into tax season, tensions continue to mount as rumors spread regarding what the IRS may or may not provide in terms of guidance, relief, support or enforcement. We have heard that many practitioners are deferring the preparation of Form 3115 in anticipation of possible relief. For members struggling with the question of what to do right now, there are only two options to consider:
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|• ||Option 1: Continue under current rules and adapt if/when the IRS issues relief. The risk with this option is that work performed today may need to be revised or may prove obsolete. So, members who choose this option should consider their capacity to perform work that ultimately may not be necessary and potentially not billable. |
|• ||Option 2: Temporarily suspend all related work in hopes of near-term the IRS relief. The risk with this option is that the IRS may not issue relief at all. So, members who choose this option should consider their broader workload and that certain returns may need to be extended. |
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We cannot formally advise members to disregard existing law and regulations and simply not comply. Ultimately, firms must make an informed decision based on their unique circumstances, client mix, and resources.
Please visit our Tangible Property Resources page for the latest information and resources. We recommend you bookmark this page and visit it often, as we will continue to update this page as new information and resources become available. Members have asked for a sample Form 3115, however the applicability of the regulations vary so widely that a single illustrative example would offer limited value. We are working to compile a list of resources available online from a variety of sources, both for free and for sale, to provide members with a one-stop resource for guidance, tools, and practice aids related to understanding and complying with the repair regulations.
Related articles from the Journal of Accountancy and the Tax Adviser:
Final Guidance Related to Tangible Property Regulations Provides Time-Limited Opportunities (02/01/2015)
Taxpayers will want to determine how the new rules provided in the regulations may affect their current methods of grouping assets and recovery of basis upon disposition of property and then determine which changes require a Form 3115 under the revenue procedure or an election.
Sampling to Efficiently Implement the New Tangible Property Regulations: The Clock is Ticking (02/01/2015)
Implementation of the new rules will require careful consideration of each taxpayer’s facts and circumstances. Taxpayers may need to devise new collection procedures to capture the necessary data to implement these regulations.
IRS updates accounting method change procedures (01/16/2015)
The new rules apply to automatic and nonautomatic accounting method changes and include a list of automatic changes that do not require IRS consent.
AICPA: Repair regulations’ de minimis safe harbor set too low (01/01/2015)
The AICPA asks the IRS for an increase in the threshold.
AICPA asks for raise in repair regulations’ de minimis safe harbor threshold (10/09/2014)
Jeffery Porter, CPA, chair of the AICPA’s Tax Executive Committee, wrote to Andrew Keyso, IRS associate chief counsel, on Wednesday, raising the AICPA’s concerns about the low amount of the de minimis safe harbor threshold in the tangible property regulations (T.D. 9636) that were issued in September 2013.
Dispositions of property get automatic accounting method change procedures (09/19/2014)
The IRS on Thursday issued Rev. Proc. 2014-54, providing procedures for taxpayers to obtain automatic consent to accounting method changes involving dispositions of tangible depreciable property. The guidance outlines how taxpayers may obtain the IRS’s automatic consent to change to certain methods provided in recently finalized regulations (T.D. 9689, issued Aug. 14).