Accounting method changes related to new repair regulations

I have been considering- as everyone else-whether or not to file 3115's for my clients this year. In my opinion - to do so without a full examination of expenditures since the beginning of the building placed in service date in order to arrive at correct 481(a) adjustment borders on malpractice. To attempt to do such a review (in most cases) is an impossibility. However, since the purpose of the 481(a) adjustment is to prevent doubling of deductions (or income) is it plausible to show the 481(a) adjustment as zero with an explanation that the lack of a 481(a) adjustment does not cause a double counting of deductions like this:

STATEMENT RE: ZERO BASED SEC 481(a) ADJUSTMENT:
"In all years prior to 2014 taxpayer has attempted to comply with generally accepted accounting principles and with IRS Regulations regarding capitalization and expensing of tangible property. Taxpayer desires to comply with the regulations that are now in effect for the current tax year (2014) regarding the same. No attempt has been made to determine whether or not an item expensed pursuant to prior regulations should be capitalized under the new regulations or whether an item previously capitalized should be expensed under the new regulations because such an adjustment would not be necessary in order to prevent the double counting of a deduction. Taxpayer does not consider the capitalization of assets or expensing of other items under prior law to be an improper method of accounting. Therefore, no change is being requested relating to such assets or expense items if they exist."

Unless engaged to do otherwise we prepared returns from information provided. Unless repairs looks overly large there is no reason to question it. Bottom line is we should use due diligence, but not audit the client's books.

Unless engaged to do otherwise we prepared returns from information provided.

Prepared returns are in the past. They might or might not comport with the New Regs. There's only one way to know for sure, with respect to each past expenditure. And that is to look at each past expenditure.

HERE IS AICPA UPDATE FOR ANYONE INTERESTED

February 10, 2015 – Volume 22 No. 7

Note from Edward Karl, CPA, CGMA, VP — Taxation, AICPA
Developments related to the tangible property "repair" regulations are changing in real time and we are experiencing an unprecedented level of calls, emails and member inquiries for guidance, information, and resources. This special News Update is intended to address growing member concern surrounding the implementation of these new regulations.

Special Update from the AICPA Tax Section

AICPA Addresses Primary Concerns Surrounding Implementation of Tangible Property "Repair" Regulations




We are reaching out to members to address issues and concerns with the tangible property "repair" regulations. Over the last few weeks, we have heard from an unprecedented number of members with questions, concerns and requests for resources. The two biggest questions we are hearing are: Will the IRS be issuing guidance or relief? What should we do right now?

What is the Status of IRS Guidance or Relief?
We understand that the IRS and Treasury are considering our recommendations to provide relief from the reporting requirements related to the repair regulations. We are hopeful they will release some form of relief for small businesses in the next couple of weeks. We understand that time is of the essence. If any relief is granted or if the IRS releases additional information, we will notify members immediately.

Our advocacy efforts on this issue date back to the release of the proposed regulations. Since that time, the AICPA Tax Executive Committee and the Tax Methods and Periods Technical Resource Panel have continued to provide comments and feedback to Treasury and the IRS to express our concerns about the administrative burdens associated with the regulations and request relief on behalf of members and small businesses. We have asked 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 We Do Right Now?
We find ourselves in a challenging predicament. On the one hand, we are hopeful that the IRS will issue relief which would ease the burden for small businesses. 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. We have heard that many practitioners are deferring the preparation of Form 3115 in anticipation of possible relief. For members struggling with the question of what to do right now, 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, members 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, members who choose this option should consider their broader workload and that certain returns may need to be extended.


We cannot formally advise members to disregard existing law and regulations and simply not comply. Ultimately, firms must make an informed decision based on their unique circumstances, client mix, and resources.

Please visit our Tangible Property Resources page for the latest information and resources. We recommend you bookmark this page and visit it often, as we will continue to update this page as new information and resources become available. Members have asked for a sample Form 3115, however the applicability of the regulations vary so widely that a single illustrative example would offer limited value. We are 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.

Related articles from the Journal of Accountancy and the Tax Adviser:

Final Guidance Related to Tangible Property Regulations Provides Time-Limited Opportunities (02/01/2015)
Taxpayers will want to determine how the new rules provided in the regulations may affect their current methods of grouping assets and recovery of basis upon disposition of property and then determine which changes require a Form 3115 under the revenue procedure or an election.

Sampling to Efficiently Implement the New Tangible Property Regulations: The Clock is Ticking (02/01/2015)
Implementation of the new rules will require careful consideration of each taxpayer’s facts and circumstances. Taxpayers may need to devise new collection procedures to capture the necessary data to implement these regulations.

IRS updates accounting method change procedures (01/16/2015)
The new rules apply to automatic and nonautomatic accounting method changes and include a list of automatic changes that do not require IRS consent.

AICPA: Repair regulations’ de minimis safe harbor set too low (01/01/2015)
The AICPA asks the IRS for an increase in the threshold.

AICPA asks for raise in repair regulations’ de minimis safe harbor threshold (10/09/2014)
Jeffery Porter, CPA, chair of the AICPA’s Tax Executive Committee, wrote to Andrew Keyso, IRS associate chief counsel, on Wednesday, raising the AICPA’s concerns about the low amount of the de minimis safe harbor threshold in the tangible property regulations (T.D. 9636) that were issued in September 2013.

Dispositions of property get automatic accounting method change procedures (09/19/2014)
The IRS on Thursday issued Rev. Proc. 2014-54, providing procedures for taxpayers to obtain automatic consent to accounting method changes involving dispositions of tangible depreciable property. The guidance outlines how taxpayers may obtain the IRS’s automatic consent to change to certain methods provided in recently finalized regulations (T.D. 9689, issued Aug. 14).










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I was just about to post this.

Kinda sounds like the AICPA is saying they would like to tell us to disregard it.

Or maybe that is just what I wish it to mean.

It's a bit like you can't advise your client to *not* file a tax return (or at least CPA's can't)...but you can certainly present it as an option:

We cannot formally advise members to disregard existing law and regulations and simply not comply. Ultimately, firms must make an informed decision based on their unique circumstances, client mix, and resources.

Re post #753 above, this is the email that I just sent to the AICPA

“Members have asked for a sample Form 3115, however the applicability of the regulations vary so widely that a single illustrative example would offer limited value.”

This is simply not true. You could provide a format for the more common changes – DCN 184, 186, 196. You could provide verbiage, an example of how to disclose the calculation under a late partial disposition election. The IRS would be forced to respond to your format instead of all of us flailing around separately. Your format would become a standard so that there would be uniformity in the submissions. If the IRS wanted to make a stink about not liking something in the format that you put forth, the IRS would know that they would have a bigger fight than if they just come after any one of us. In other words, you would be leading from the front, not from behind. You have missed the boat on this. You should have provided a format long ago. You should make that right.

I think it's very true.

And I don't think they've missed the boat either.

I know Chris. You have made clear that because the IRS wants us to go back to the beginning, it can't be done perfectly, and therefore, anyone who tries to do anything is guilty of preparing a fraudulent return since he hasn't reviewed every single repair invoice from the date the world began. Got it. It's not helpful. Many of us are working on figuring out a practical and efficient way to get through this that materially complies with these rules.

If I were in charge of the AICPA, I would have created a template, format, language, verbiage, whatever, long ago so that people would have a structure. The IRS would be responding to that instead of us waiting for the IRS to provide further definition. Did you see their offer of a 2 day webcast on this issue at the end of this month? People are so lost that they are signing up for 2 day webcasts at this point during tax season. This was avoidable.

Others have developed templates. Some cost seg firms have a template. I just got an email from my RIA rep, and I think RIA is working on something. The AICPA is our national organization. It should have taken the lead and set the standard.

Maybe I'm cynical, but I doubt the AICPA would do anything. Their tax accounting committee is dominated by the Big 4, who don't exactly want tons of competition in yet another area.

I havent really been following all of this, but this came across my desk today.

http://news.cchgroup.com/index.php/tax- ... perts-say/

It's not helpful.

I think it's totally helpful, because what it does is puts the onus on the IRS to explain their unreasonable and ridiculous implementation of these Regulations. Instead of backing me up on it, you do the opposite and cave in and file the 3115 and check a few boxes, and then you want to blame the AICPA for your rush to judgment.

The fact is, the AICPA isn't caving in and is rigorously advocating for its members. The AICPA is reacting to the somewhat more recent comments that every business and every business only needs to file a 3115 that will never be looked at. The AICPA has labeled this "burdensome."

The AICPA has a ton of guidance out on this issue, has sponsored webinars, seminars, etc. Maybe you ought to look at some of that stuff. I myself could care less about it.

So, here you go again rushing around to fill out that 3115...when, it might turn out, that due to the AICPA's efforts, your decision to rush, was a very poor one...especially in the middle of tax season..and especially when I don't think you can bill your client for useless work.

Maybe you'll find those comments a bit more helpful.

Some of us, however, find your comments about "Hurry up, I need a template! I need to know how to get this 3115 done asap!"...completely unhelpful, and quite frankly, expressive of a lack of good judgment.

but I doubt the AICPA would do anything.

Yeah, I think you're cynical...and wrong.

ho don't exactly want tons of competition in yet another area.

What do you mean, tons of competition in not preparing a form?

I havent really been following all of this, but this came across my desk today.

Wow, that was a really great article...

I really do not see how anyone can rush to judgement in this matter given the state of affairs, given the ongoing discussions, given the debate...

What if you are wrong - And it turns out you *didn't* have to file all those 3115's? Hundreds of clients, hundreds of wasted hours...

Really, there is no excuse for being wrong here.

Now, I'm not saying I'm right...but what I am saying is this: I ain't filing a single 3115 until I get some real assurances that they are actually required.

Maybe I'm cynical, but I doubt the AICPA would do anything. Their tax accounting committee is dominated by the Big 4, who don't exactly want tons of competition in yet another area.

That is a very good point - and one of the reasons that I did not join the AICPA for a long time. The best thing that we, the small practitioners, have going for us is that apparently we have been inundating them with requests for guidance. Their email says that they have "heard from an unprecedented number of members with questions, concerns, and requests for resources." Maybe the numbers will make an impression.

Here's an email update I got today from Eric Wallace (received since I signed up for a trial for the TPRtoolsandtemplates.com site). It has bits of info from his workings with the AICPA:

Dear TPR Toolkit© Subscriber:
You may have read or heard about the communication from the AICPA yesterday on the Tangible Property Regulations. We have produced a copy of it below. I have been talking with the head of the AICPA tax division on the TPR issues over the past several weeks. The main reason I was working with them is because they asked me to do their webinars on the TPRs at the end of this month and the first week of March. Some have argued that the AICPA has been negligent in addressing the TPR issues and now they are in a state of panic and that they are well vested in seeking a “relief” to the TPRs for as many taxpayers as it can in order to cover their lack ofproactivity on this subject. We attempted over the past two years to raise the level of awareness of the crises of the TPRs at many levels.

This is what I know about this possible IRS modification of the TPR rules so far (a) that the IRS is considering some form of relief for small taxpayers; (b) that's a relief that is not going to be at the qualified taxpayer level and below (not 10 million and under) but may instead be at five million in annual revenues and below (or even a million and below will get the relief); (c) as the debate between the IRS and the AICPA is going on I have no idea (nor do they) what the final form is going to take;and (d) that relief is going to be optional, and not mandatory for these small taxpayers. In any case, however, if the taxpayer has a 481a adjustment, it is going to want to file it's 3115s anyway. We will just have to wait to see what happens with this “relief”. Bottom line: if you have small taxpayers that are not going to have any 481(a)s just wait on filing anything for them. All others are game and we need to move forward.

At your request I have prepared a new addition to the TPR Toolkit©. Please see that attached. This is a communication that you may want to issue to your small taxpayers. You may also want to get it out fairly soon. What are small taxpayers? As we do not know the level of “relief”, you are going to have to use your judgment on that.

“All taxpayers capitalizing or depreciating property must be in compliance with the new regulations. So if your business started in 2012 or 2013 and your returns were prepared in full consideration of these regs, you won’t need to file Form 3115,”

I am pretty sure this is a paraphrase of the AICPA statement itself.

What if the everyone must file people are wrong. You have wasted hours of time and charged your clients unnecessarily.

Below is from the tax talk. While it says you may need to file, what I see and what I hear is that they want our clients to be in compliance with the regs.

“All taxpayers capitalizing or depreciating property must be in compliance with the new regulations. So if your business started in 2012 or 2013 and your returns were prepared in full consideration of these regs, you won’t need to file Form 3115,”

What part do think matters most, fixing the past or being compliant going forward. Clients in compliance before and in compliance after it what they want. They are not going to nitpick.

How many of you have represented a bad client and the client is going to move forward in a compliant way. What has been the IRS position? Pay any past due amounts and move forward as a good citizen. Of course the regs have all sorts of penalty positions because for the aggressive non-compliant skirt the rules constantly clients they wish to hammer them. They aren't coming after my small mom and pop clients. They just aren't.

AICPA is practically telling us to take a wait and see attitude. I think we all have our lines in the sand. We have the chicken littles, we have the wait and sees. We have the money opportunists and we have the don't give a damns.

I am with the wait and see for the sky is not falling.

(b) that's a relief that is not going to be at the qualified taxpayer level and below (not 10 million and under) but may instead be at five million in annual revenues and below (or even a million and below will get the relief);

Interesting and what I would expect. I would lay odds the level will be between 1 and 5 million.

It is going to happen people, there will be relief.

If a 481 is required, you need to file, otherwise the sky is not falling.