Small businesses excused from filing Form 3115 to comply with repair regs.

By Sally P. Schreiber, J.D.

IRS provides relief requested by AICPA and numerous others for accounting method changes.

Small business taxpayers will be allowed to make certain accounting method changes under the tangible property (or “repair”) regulations without filing Form 3115, Application for Change in Accounting Method, in their first tax year beginning on or after Jan. 1, 2014, the effective date of the repair regulations, the IRS announced in Rev. Proc. 2015-20. The revenue procedure also allows small businesses to make certain accounting method changes on a cutoff basis, that is, with a Sec. 481(a) adjustment that only takes into account amounts paid or incurred, and dispositions, in tax years beginning on or after Jan. 1, 2014.

For purposes of the revenue procedure, a small business is defined as one with total assets of less than $10 million on the first day of the tax year for which the accounting method change is effective or with average annual gross receipts of $10 million or less for the prior three tax years. The IRS reports that since issuing the final repair regulations, it received numerous requests to make the process of applying the regulations simpler for small businesses and especially to allow them to apply the new rules on a cutoff basis and without filing Form 3115 (see, e.g., the AICPA’s letters of Oct. 8, 2014, and Nov. 7, 2014, and prior coverage, Tax Matters: AICPA: Repair Regulations’ De Minimis Safe Harbor Is Set Too Low,” JofA, Jan. 2015, page 72).

In response to this feedback, the IRS is allowing small businesses that choose to prospectively apply the tangible property regulations to amounts paid or incurred, and dispositions, in tax years beginning on or after Jan. 1, 2014, to make tangible property accounting method changes with a Sec. 481(a) adjustment covered by the revenue procedure on their federal tax return without including a separate Form 3115 or separate statement. Taxpayers that wish to file Form 3115 may do so, however.

In addition, the IRS is asking taxpayers to comment on whether the de minimis safe harbor under the tangible property regulations for taxpayers without applicable financial statements, which is currently $500, should be increased. Comments should be submitted to the IRS by April 21 to the addresses in the revenue procedure.

In a prepared statement, Barry Melancon, president and CEO of the AICPA, welcomed the changes announced in the revenue procedure, saying, “The AICPA and the state CPA societies have made numerous requests on behalf of our members and their small business clients for this relief over several months. We appreciate that the IRS understood how burdensome the regulations are for small business and acted to provide relief for 2014 and future year tax returns.”

  • Rev. Proc. 2015-20

By Sally P. Schreiber, J.D., a JofA senior editor.

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