Big News for Small Businesses: IRS Simplifies Process for Small Taxpayers
As many of our website visitors and clients know, one of the most significant tax season challenges to come out of the Internal Revenue Service in years has been a new set of Treasury regulations commonly known as the Tangible Property Regulations (TPRs) requiring, retrospectively, for 2013 and ALL earlier years, a complete “scrubbing” of taxpayer depreciation schedules in the current year and calculating cumulative differences in income for prior years had the new rules always been in place. The practical application of the new rules is exceedingly complex and presented a huge problem for smaller businesses.
As a result of these challenges and a perceived impracticality of applying them, many taxpayers and tax practitioners, as well as the American Institute of Certified Public Accountants, have filed grievances with the Internal Revenue Service and requested the rules be applied prospectively without a lot of the impractical administrative requirements embedded in the new rules.
We are pleased to announce that the Internal Revenue Service has answered many of the complaints of the small business community. On Friday, February 13, the Internal Revenue Service issued Revenue Procedure 2015-20 outlining a simplified procedure for small businesses to comply with the final tangible property regulations. The simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season.
In effect, the new rules apply, but only on a “go-forward” basis. This is a very important change and reflects the Internal Revenue Service’s good faith effort to modulate it rules to the common good of America’s small businesses.
The new Revenue Procedure:
- Allows small businesses 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 Jan. 1, 2014; and
- Waives the requirement to complete and file a Form 3115 ( Requests for Change in Accounting Methods, as required by the final regulations) for “small” business taxpayers that choose to use this simplified procedure for 2014.
As noted, the new simplified procedure is generally available only to small businesses. By definition in the new Revenue Procedure, small businesses include businesses with assets totaling less than $10 million or three-year average annual gross receipts totaling $10 million or less.
Note that this definition imposes an “either-or” requirement to qualifying for the new simplified procedure. As such, even if a taxpayer is outside the threshold for either total assets or receipts, they may still qualify on the other threshold.
The Revenue Procedure also requests comments on whether the $500 safe-harbor threshold should be raised for businesses that choose to deduct, rather than capitalize, certain capital expenses.
Many of the important aspects of the final regulations still apply to small businesses but this announcement and Revenue Procedure should be viewed with great relief by those qualifying for the simplified procedure.
Still have questions? Please call Bob Grossman or Rick Dynoske at 412-338-9300 or email us with your inquiries.
