Concerns Surrounding Implementation of Tangible Property “Repair” Regulations

The following article was published by the AICPA.

Accounting calculatorDevelopments related to the tangible property “repair” regulations are changing in real time, which makes it difficult to know how to prepare this season’s tax returns. The two biggest questions right now are: Will the IRS be issuing guidance or relief? What should we do right now?

What is the Status of IRS Guidance or Relief?
The IRS and Treasury are considering recommendations to provide relief from the reporting requirements related to the repair regulations. It is hopeful they will release some form of relief for small businesses in the next couple of weeks. Time is of the essence.

When the proposed regulations were first released, tax preparers began expressing concerns about the administrative burdens associated with the regulations and requested relief. They asked specifically for the following forms of relief:

  • Make Form 3115, as well as the section 481 adjustment, optional.
  • Allow for the adoption of a “cut-off method” and apply the rules prospectively.
  • Accept a statement in lieu of Form 3115 to acknowledge compliance with the regulations.
  • Raise the de minimis safe harbor from $500 to $2,500.

What Should Be Done Right Now?
Tax preparers are in a challenging predicament. On the one hand, if the IRS issues relief, the burden for small businesses will be eased. On the other hand, there is no guarantee that relief will come in time (if at all). As we move further into tax season, tensions continue to mount as rumors spread regarding what the IRS may or may not provide in terms of guidance, relief, support or enforcement. Many practitioners are deferring the preparation of Form 3115 in anticipation of possible relief. There are only two options to consider:

  • Option 1: Continue under current rules and adapt if/when the IRS issues relief. The risk with this option is that work performed today may need to be revised or may prove obsolete. So, preparers who choose this option should consider their capacity to perform work that ultimately may not be necessary and potentially not billable.
  • Option 2: Temporarily suspend all related work in hopes of near-term the IRS relief. The risk with this option is that the IRS may not issue relief at all. So, preparers who choose this option should consider their broader workload and that certain returns may need to be extended.

Please visit the AICPA’s Tangible Property Resources page for the latest information and resources. The AICPA is working to compile a list of resources available online from a variety of sources, both for free and for sale, to provide members with a one-stop resource for guidance, tools, and practice aids related to understanding and complying with the repair regulations.

For now, our office is preparing returns as usual, including the written capitalization policy, but we’re holding off on finishing Form 3115. We’re hoping the IRS comes out with the small business changes necessary to avoid a lot of additional paperwork, so we’ll likely hold completed returns a week or so to see if the guidance comes out, which we believe will happen sometime this month.

About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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