IRS Provides Welcome Relief for Taxpayers to Comply with Tangible Property “Repair” Regulations

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IRS Provides Welcome Relief for Taxpayers to Comply with Tangible Property “Repair” Regulations

The Internal Revenue Service recently issued final tangible property “repair” regulations and disposition regulations. These regulations generally apply to taxable years beginning on or after January 1, 2014. Some of the major provisions in the regulations include the method changes for the following items and provided for elections to make the changes:

• Definition of the repaired or improved asset as a unit of property
• Repair and maintenance expenses versus improvements to property
• Timing of deductions for materials and supplies
• Basic capitalization/expensing thresholds
• Election to follow book capitalization of tax deductible repair and maintenance costs
• Partial dispositions of assets

Representatives from the Internal Revenue Service and Treasury have stated they expect most, if not all, large businesstaxpayers affected by the Regulations to file a Form 3115 (“Application for Change in Accounting Method”). This application is filed with the IRS separately from your tax return, but the regulations provide for automatic approval. The changes made due to these regulations could result in a catch-up deduction in some instances. In some instances, protective filings of Form 3115, for some 2014 filings, may be advised.

The IRS is also waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014. In addition, no formal election is required to be filed with the tax return to request a change in accounting method under this guidance. A small business taxpayer is defined as “a business with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years.”

As always, please your WNDE tax professional if you have any questions or would like to discuss these topics further.

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