Great News—Actually, Make that AMAZING News:
The IRS is Simplifying Taxes and Repealing its Prior Decision that Would Require that Most Small Businesses File a Form 3115!
You read that right—the IRS is actually doing something to make all of our lives easier. Mind you, this act is, in our humble opinion, simply undoing a big mess of their own making, but we’ll take what we can get!
On Friday, February 13, 2015, we sent an email to all of our clients alerting them of the need to file Form 3115—the eight-page form that was required to adopt the new Tangible Property Regulations (TPR) that IRS passed in 2014 as part of the Affordable Care of 2010.
ALSO on Friday, February 13, 2015, the Internal Revenue Service waived the requirements to complete and file Form 3115 for certain small businesses. (You can read their announcement here: http://www.irs.gov/uac/Newsroom/IRS-Makes-it-Easier-for-Small-Businesses-to-Apply-Repair-Regulations-to-2014-and-Future-Years)
We didn’t jump to conclusions, just like we didn’t jump to conclusions when they first announced the need to file a Form 3115. Instead, we investigated and researched and consulted with other CPAs to be certain, and now that we are, we are delighted to share this news with you!
Mind you, this does not repeal the new regulations; it only waives the requirement to file Form 3115 to adopt them. The new regulations related to depreciation and capitalization of expenses is still mandatory.
If this weren’t tax season, and we weren’t already working double-overtime, you can bet we’d be having one heck of a party. But since it is tax season, we need to get back to work. Before we do that, however…
Here are the answers to a few questions you might be asking:
“Why did the IRS change its mind?” We believe the IRS realized that they were going to receive millions of these 3115 forms and not have the manpower to process them. Their solution (and we think it was a good one!) was to make the new TPR an automatic adoption just by filing your 2014 return.
“What does this mean to me, and to my taxes?” You will automatically adopt the new TPR just by filing your 2014 return. For most people this means no extra paperwork, no additional fee for having to process and file the eight-page monstrous IRS Form 3115, no possibility of a $7000 fee for not filing the 3115 at the allotted time, and no possibility of our being fined or disbarred if we didn’t do our due diligence in overseeing your filing of the form. (Hooray!)
“Does this change the increased compliance with the new rules related to what I can expense and what I must capitalize and depreciate?” No, it does not ease the burden of accounting for business owners and real estate lessors. This was merely an automatic adoption of the new rules. This is still going to increase the time you spend reconciling receipts and the time we spend each month having to apply the new standards to any purchase your business makes over $500. Every repair, improvement, office supply, material expense must be scrutinized under the new TPR to determine how it is to be coded. These are the new rules and there appears to be no reform in sight to abolish these new regulations. (Boo.)
“The IRS doesn’t give anything away for free, so what’s the catch?” It appears that the only drawbacks to not filing the Form 3115 is that A.), you have no audit protection for asset dispositions for tax returns prior to 2014, and B.), you would not be able to use the partial asset disposition rules (if you scrap a transmission on a car, you wouldn’t get to expense the new transmission or write off the portion of the original car price that was allocated to the transmission). That’s about it.
“What about the $500 De Minimis Election?” This is an unrelated issue and not an Accounting Method Change requiring Form 3115. This is an annual election and still must be filed with your return if you want to expense items under $500. If you do not file, then anything over $200 must be analyzed to determine if it must be capitalized and depreciated.
“You guys must be pretty excited and relieved.” Yes, yes we are. We hope you are, too.
As always, our goal is to protect you and your business from unnecessary tax, penalties and fines. If you would like to discuss your return or this blog post with us, please do not hesitate to contact us at 352-333-7880.