On February 13, 2015, the IRS released Rev. Proc. 2015-20, which provided a new simplified procedure for small businesses. Under this simplified method, a small business may adopt the final tangible property regulations on a prospective basis and Form 3115 is not required.
The IRS and U.S. Treasury have issued final tangible property regulations (TPRs) that govern when taxpayers must capitalize and when they can deduct expenditures for acquiring, producing or improving tangible property.
These regulations are fully effective for tax years beginning on or after January 1, 2014. Under certain circumstances, however, these regulations may also be applied retroactively back to the start of 2012 and are required to be applied to items on the taxpayer’s tax depreciation schedule or that should be on the taxpayer’s depreciation schedule based upon the criteria on the final TPRs. The final regulations have created new annual elections, and while certain safe harbors and elections are implemented through filing statements or treatment of an item on a timely filed federal tax return, the IRS considers the remaining provisions to be a change in method of accounting, which may require a taxpayer to file Form 3115, Application for Change in Accounting Method.
The IRS has simplified procedures that will allow small businesses (defined as businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less) to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after January 1, 2014. The IRS is also waiving the requirement to complete and file IRS Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.
If you have any questions regarding the application of these new regulations to your company, or your company’s specific qualifications for one of the safe harbors or new method changes, please ask us for advice in that regard.