Accounting method changes related to new repair regulations

grocery bag and shoebox school of accounting

Lol

.....and page 9!

Personally, I wouldn't file a 8275 and state I'm not in compliance; I don't see how that could get anyone out of the "non compliance" part of the repair reg's.

In my practice (my approach as of today - could change as I see fit), the only 3115's I'm considering at the moment are those with rental properties, own and operate machinery (trucks, construction equip), and own/lease their office space and have made improvements/repairs in the past. I've already completed a few returns with just the DMSH election because they didn't fall into the buckets I've designed for my clients.

Personally, I wouldn't file a 8275 and state I'm not in compliance; I don't see how that could get anyone out of the "non compliance" part of the repair reg's.

8275 is not designed to get them out of compliance with the repair reg. It gets them out of preparer penalties.

Preparer penalties are part of the repair reg's. Why go thru the process of prepping 8275's for all clients that need (emphasis on need) a 3115 when you could apply the repair reg's?

Even if you apply the repair regs you might need Forms 8275 if, for example, the section 481(a) adjustments are based on oral testimony (Cohan rule) uncorroborated by accounting records.

Brian, any comments on the 3115 I outlined? Interested to get your opinion on my verbiage. I have a feeling I will have a bunch of 3115's, specifically with a 184 method for R&M and adopting the improvement standards, and would enjoy feedback on how to properly address the 3115

Golfinz wrote he would leave Schedules A-D blank. But what about Sch E and possible statements for items 5-7? Left blank as well?

Is this a good sample of Form 3115?

http://www.uscostsegregation.com/sample-irs-form-3115/

Currently I have Sch E blank when adopting the RMSH. Still unsure about Sch E if we are adopting the improvement standards on a prospective basis, or if we are not identifying the UoP (like we would for a building for example).

I think this is a good debate, whether or not to file a 3115. I'm going to file it because at this point it seems unclear from all the different things I read.

I've got one client with 11 rental homes. Up until the end of 2013 we depreciated all assets with over a 1 year life expectancy using straight line depreciation. In 2014 we are using the safe harbor di minimus method and we'll make that election and we plan to go with the safe harbor election for small taxpayers when we make improvements.

Given I've decided to file the 3115, which change number to you recommend I use on 3115? Does any one have a list of the change numbers?

Change numbers from webinars I've attended:

184, 186, 192 are all filed on one combined 3115; 184 would cover RMSH, unit of property & RABI rules, 186 enables you to adopt the write off of units of property under $200 & the non-incidental m&s method change.
7 is for impermissible to permissible depreciation changes (wrong class life for example)
196 (partial asset) or 205 (complete asset) are for building prior year asset disposition (little confused on this one)
206 for non building assets PAD
205 and 206 can be filed on the same 3115
196, 205 and 206 are only good for 2014

196 is only good through the 2014 tax year.

205 and 206 are good until the Service takes them out of the automatic method change list.

Change numbers from webinars I've attended:

184, 186, 192 are all filed on one combined 3115; 184 would cover RMSH, unit of property & RABI rules, 186 enables you to adopt the write off of units of property under $200 & the non-incidental m&s method change.
7 is for impermissible to permissible depreciation changes (wrong class life for example)
196 (partial asset) or 205 (complete asset) are for building prior year asset disposition (little confused on this one)
206 for non building assets PAD
205 and 206 can be filed on the same 3115
196, 205 and 206 are only good for 2014

Do you know of any website that has more details on those new change numbers?

I'm dealing with rental property going from using straight line depreciation of any asset greater than one year to Safe Harbor Di Minimis rule with a $500 limit. That to me seems like a change in the accounting method and would trigger a 3115. I'm using that rule for the materials and supplies too. So I don't see the change number as 184 or 186.

What is your take on this?

That to me seems like a change in the accounting method and would trigger a 3115.

It's not.

Thank you. I'm going to switch to Safe Harbor De Minimus Safe Harbor for depreciation with the $500 threshold. That will cover supplies and materials too. When it comes to improvements, I'm going with the Safe Harbor for Small Taxpayers. If neither triggers the requirement of a form 3115, I get a free pass on that one. I'll make a statement on Safe Harbor De Minimus and Safe Harbor Small Taxpayer, and I guess I'm done.

The new repair regulations state that a change to comply with the regulations is a change in method of accounting to which the provisions of IRC §§446 and 481 and accompanying regulations apply. They state that a taxpayer seeking to change to a method of accounting permitted in those sections must secure the consent of the Commissioner, i.e., file Form 3115. This language is in the following sections of the new repair regulations:

§1.167(a)-4(b)(4) (leased property)
§1.162-4(b) (repairs)
§1.162-3(i) (materials and supplies)
§1.168(i)-7(d)(4) (accounting for MACRS property)
§1.263(a)-1(g) (capital expenditures)
§1.263(a)-3(q) (amounts paid to improve tangible property)
§1.263(a)-2(i) (a)Amounts paid to acquire or produce tangible property)

So, I think it’s pretty clear that the regulations are saying that any taxpayer who decides to adopt the new repair regulations must file Form 3115.

So, I think it’s pretty clear that the regulations are saying that any taxpayer who decides to adopt the new repair regulations must file Form 3115.

What you put down on it to elect the $500 de minimis rule?

That's an annual election, not a method of accounting, correct?

My understanding is the De Minimis Safe Harbor Election and the Safe Harbor for Small Taxpayers are both annual elections and do not require an accounting method change. The Routine Maintenance Safe Harbor however requires accounting method change number 184.

That's an annual election, not a method of accounting, correct?

Dave said it was "pretty clear" that we needed to file a 3115 to adopt these new regulations...