The requirements for virtually all taxpayers to file one or more IRS 3115 Forms to comply with Tangible Property Regulations have created a high level of confusion and frustration for property owners and their tax advisors. These Regulations are complex in nature and have placed additional layers of evaluation and analysis for tax return preparation this season. Many in the industry have expressed their frustration with the additional responsibilities placed on the CPA to ensure compliance with these Regulations.
In response to what has been a barrage of complaints by industry associations, the IRS released Rev. Proc. 2015-20, on February 13, 2015, which modifies their latest release on the Tangible Property Regulations (TPRs) Rev. Proc. 2015-14. In this release the IRS has allowed small taxpayers to avoid filing a Form 3115 when adopting the TPRs for tax years beginning on or after January 1, 2014.
This is limited to small taxpayers defined for this purpose as those having less than $10 million of assets on the first day of their taxable year, or having a three year average gross receipts of $10 million or less for a separate and distinct trade or business. Only one part of the test need be met. Once qualified, the small taxpayer does not have to file a Form 3115 to adopt and does not have to attach a statement electing the TPRs. The change cannot be made to apply to any year before 2014, it is applied on a cut-off basis with any § 481(a) change only for the 2014 tax year. Given this there is no audit protection for years preceding 2014.
The more common methods covered in this Rev. Proc. include the items in the following list. Please note that the list is not all-inclusive.
- Amounts paid or incurred for non-incidental materials or supplies.
- Amounts paid or incurred for incidental materials or supplies.
- A change to deducting amounts paid or incurred to acquire or produce non-incidental rotable and temporary spare parts.
- A change to the optional method of accounting for rotable and temporary spare parts.
- A change to deducting amounts paid or incurred for repair and maintenance in accordance with § 1.162-4, including a change, if any, in identifying the Unit of Property.
- A change to capitalizing amounts paid or incurred for improvements to tangible property in accordance with § 1.263(a)-3 and, if depreciable, to depreciating such property under § 167 or § 168, including a change, if any, in identifying the Unit of Property.
- A change by a dealer in property to deduct amounts paid or incurred for commissions and other costs that facilitate the sale of property.
- A change by a non-dealer in property to capitalizing amounts paid or incurred for commissions and other costs that facilitate the sale of property.
- A change to capitalizing amounts paid or incurred to acquire or produce property in accordance with § 1.263(a)-2, and if depreciable, to depreciating such property under § 167 or § 168.
If a return has been filed with a Form 3115, it can be withdrawn by filing an amended tax return before the due date of the return or the extended due date. The same limitations apply; it cannot be applied to prior years and there is no audit protection for prior years.