IRS Makes Adoption of the Tangible Property Regulations a Little Easier

In part one of our two-part blog post series on Tangible Property Regulations, Stephen Bishop, a Senior Manager with SC&H Group’s Tax Services team, provides insights into the new Revenue Procedure recently announced by the IRS.    

On Friday, February 13, 2015, the IRS released Revenue Procedure 2015-20. This Revenue Procedure provides very broad relief to taxpayers who must adopt the new Tangible Property Regulations (TPRs) in 2014.

Prior to this release, it was anticipated that almost every business taxpayer that owned tangible property would need to file a Form 3115 with their 2014 tax return in order to adopt and be in full compliance with the TPRs.

This new simplified adoption method is available for qualified taxpayers with total assets of less than $10 million as of January 1, 2014 – or average annual gross receipts in the previous three tax years of $10 million or less. The qualified taxpayer would be permitted to adopt the TPRs prospectively beginning in 2014, and would consider only amounts paid, or incurred and disposed of, in 2014 and beyond.

The qualified taxpayer will not be required to file a Form 3115, and will not need to give any other notice to the IRS.   The mere act of not filing a Form 3115 will indicate that the taxpayer intends on adopting the TPRs starting in 2014 as allowed under Revenue Procedure 2015-20.

The final Tangible Property Regulations were released Friday, September 13, 2013, and established sweeping changes to the rules businesses must follow when deciding when to capitalize assets. For the most part, the new regulations are taxpayer friendly and provide several safe harbors. Taxpayers were mandated to adopt the new regulations on or before January 1, 2014. Furthermore, because of the way they were drafted, the regulations required the taxpayer in most instances to have to file a Form 3115, Change in Accounting Method.

Because of the complexity of the form, the IRS has been overwhelmed with requests to provide some sort of relief for small taxpayers wishing to comply with the new regulations, but unable to deal with the complicated Form 3115 and related annual elections under the TPRs.

How will the newly released Revenue Procedure 2015-20 impact your 2014 return? Stay tuned for our next blog post in this series, which will provide deeper insights into how the newly adopted TPRs are not for everyone as they come with certain costs.

If you have any questions about TPRs, Revenue Procedure 2015-20, or the Form 3115, we welcome you to contact Steve here.