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IRS SIMPLIFIES TANGIBLE PROPERTY REGULATIONS FOR SMALL BUSINESSES

February 24, 2015

On Friday, February 13 the IRS released guidance on tangible property regulations (TPR) relief for small businesses. Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 tax return.

New Rules of Rev Proc 2015-20

  • A taxpayer can employ Rev Proc 2015-20 if it’s separate and distinct trade(s) or business(es) is a qualifying taxpayer or has total assets of less than $10M as of the first day of tax year 2014, or if it has average gross receipts of $10M or less. This means that a taxpayer’s total businesses can be more than the limiting dollar criteria and still qualify for Rev Proc 2015-20 if it’s separate and distinct trade(s) or business(es) is a qualifying taxpayer or has total assets of less than $10M as of the first day of tax year 2014.

 

  • A taxpayer that does not file Form 3115s for 2014 defaults to the provisions of Rev Proc 2015-20 which allow the taxpayer to adopt the new regulations without filing Form 3115s for the available accounting methods.

 

  • A taxpayer can amend its tax return for 2014, if it already filed with TPR Form 3115s, to withdraw those filed before the due date of the return including any extension.

 

  • By using Rev Proc 2015-20, a taxpayer reduces the administrative burden associated with implementing the TPRs, but:

    • Does not receive audit protection for its tax years before tax year 2014 for the issues addressed by the TPRs.

    • May not scrub its depreciation schedule as of January 1, 2014 for repairs and maintenance reclassification of prior year expenditures.

    • May not claim any prior year partial asset dispositions under method #196, §6.33 of Rev Proc 2015-14. (Note: Current year dispositions may still be claimed on the tax return without filing a Form 3115.)

Conclusion

 

Rev Proc 2015-20 is optional for qualifying small businesses. Taxpayers can still choose to file the applicable Form 3115s and comply with the TPRs. We recommend small businesses still file the applicable TPR Form 3115s where they will have a favorable §481(a) adjustment.

 

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