Accounting method changes related to new repair regulations

Technical topics regarding tax preparation.
#341
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Whestsider references a Schedule E, which would involve a building. And my take is that he doesnt want to compute a 481 adjustment.
 

#342
JAD  
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Happy birthday Brian!
 

#343
Coddington  
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The big firms appear to be taking the approach that everyone needs to file a Form 3115 to identify their Units of Property, even if it leads to no changes. That's not an unreasonable approach when a taxpayer may have hundreds or thousands of locations. But if a taxpayer has never had a chance to define its UoP due to the lack of repair/improvement activities in the past, it is theoretically possible to adopt the new regulations prospectively without filing a Form 3115.

Coming from the tax accounting methods industry, the Service's apparent embrace of preventative method change applications to announce conformity seems encouraging and would permit what you suggest. However, I'm going to refrain from commenting further until I've read all of the new rev procs.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#344
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Coddington wrote:The big firms appear to be taking the approach that everyone needs to file a Form 3115 to identify their Units of Property, even if it leads to no changes. That's not an unreasonable approach when a taxpayer may have hundreds or thousands of locations. But if a taxpayer has never had a chance to define its UoP due to the lack of repair/improvement activities in the past, it is theoretically possible to adopt the new regulations prospectively without filing a Form 3115.

Coming from the tax accounting methods industry, the Service's apparent embrace of preventative method change applications to announce conformity seems encouraging and would permit what you suggest. However, I'm going to refrain from commenting further until I've read all of the new rev procs.


"But if a taxpayer has never had a chance to define its UoP due to the lack of repair/improvement activities in the past"

Would you mind elaborating on this statement a bit more? Thank you in advance.
 

#345
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He's saying that if you've never had a need to define the UOP in the past, to which to apply the capitalization vs. expense question, then you don't have any related accounting method yet. So, if this year, for the first time, you encounter the question, you can adopt the new rules without the need to file a 3115 (i.e. because there is no change in method).

Likewise, I would think that if you've essentially followed these new rules in the past, by not applying the capitalization vs. expense question to the building as a whole, you could likewise come to the same conclusion.
 

#346
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If you've always used a UoP smaller than the building, including treating the enumerated building systems as UoPs, then you'd probably have a negative section 481(a) adjustment. In that case, your client would probably want the extra deduction, unless they're in a loss position, lack basis, have passive limitations, etc.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#347
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Yeah, that's where it gets dicey. It depends on how small you treated the UOP. If, by some miracle, you treated it as the exact same size as a new reg building system...
 

#348
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I have been in the business for more than 15 years. And this tax season is going to be by far the most challenging one.
 

#349
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A client, an investment salesman with varied interests in real estate, emails me a pdf of a tax return (and a 7216 authorization from the taxpayer allowing my client to do so) with 34 properties on a Schedule E, some of which appear to be in MMLLCs with his wife.....wants to know if I am taking new clients and wants a prospective cost for the return.

Aside from the time this return will take for my one man practice, and the time just to enter the 2013 return to get up to speed, the elements of these new regulations, and the fact I see some HUGE figures for repairs on the 2013, made my answer 'he couldn't pay me enough money to do what needs to be done in the time frame he wants it.'
 

#350
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JAD - awesome summary, thanks. I do have a question.

You gave an illustration about a parking lot, "The most time-consuming task in filing this form is reviewing prior records to quantify the required adjustment. Again, this involves applying the new rules to prior years. For example, a taxpayer who paid $15,000 to resurface his parking lot and who capitalized the cost under prior rules is entitled to a deduction in 2014 if that resurfacing cost has not been fully depreciated. Let’s say that there is $7,000 in basis remaining. We need to remove that asset from the depreciation schedule and deduct that remaining basis as an expense in 2014."

Why wouldn't the $7,000 be a 481 adjustment reported on the 3115 and spread over 4 years?
 

#351
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I have an individual client that is filling out a 1040. He owns 11 rental properties, so he has an extensive schedule E.

We are electing De Minimis Safe Harbor and Small Taxpayer Safe Harbor only. On form 3115 we are filling out Part II, Part IV and Schedule E because he is changing his depreciation method. Does that sound right so far?

What is the code for his change in method?

Do we have to file a 3115 for each of his 11 rental properties? Or only one 3115 for all properties?

We are keeping it simple and not going back (we capitalized all expenses -- from dishwashers to roofs -- with a life more than one year). We are starting the new methods as of of 1/1/14, so do we have a zero 481(a) adjustment?

Does anyone have a good example of a 3115 filled out for a client like this?

Alex
 

#352
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What depreciation method are you changing to?
 

#353
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Sorry in advance for this post but my head is spinning. It appears that the focus is mainly on real estate regarding the change of accounting issue. It looks like the consensus is that a Form 3115 must be filed whether there is a 481 adjustment or not to cover our tails? Most of my clients are very small with no 481 adjustment. I understand that specific depreciable assets that do have an adjustment must be listed on Schedule E, line 7 (If the property is currently treated and/or will be treated as depreciable or amortizable...). But do I also list ALL assets with NO adjustment (depreciable real and depreciable personal- I am assuming the change number 184 includes both personal and real) on Line 7 of Schedule E? That would be a time consuming nightmare! If the taxpayer has no 481 adjustments, then the Form 3115 becomes an "affirmation" filing rather than a request form and the instructions just don't cover the "affirmation" filing of this form. Moving forward, if in fact the "no adjustment assets" are not required to be listed individually and there are no "adjustment assets", what do we list on Line 7 of Schedule E? Leave it blank? Write "to comply with new regulations? Again, I am truly sorry for this post and thanks in advance for any guidance.
 

#354
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Whestsider,

Please note my comment above about not saying anything until I've had a chance to read the new revenue procedures that came out Friday. It will take a couple of days for everything to gel under the new rules, to the extent there are any changes.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#355
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Thanks a bunch!
 

#356
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It looks like the consensus is that a Form 3115 must be filed whether there is a 481 adjustment or not to cover our tails?

Very debatable.
 

#357
WEISSEA  
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"Does anyone have a good example of a 3115 filled out for a client like this?"

I am right on track with your thinking for my small residential rental clients. Proseries has the 1.263(a)-1(f), 1.263-3(h), and 1.263-3(n) if want, elections built in where I just check a box in the s/w. So its now just finding a filled out 3115 for M&S safe harbor 186 and 187 that I can e file the pdf and attached to the return. No 481(a) adjustment. Then I just print a 3115 copy and mail to IRS just like I do for the 8949 brokerage statement with stock basis.
 

#358
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So its now just finding a filled out 3115 for M&S safe harbor 186

Can you provide more details on that?
 

#359
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I agree with everyone else about the excellence of the letter. The unfortunate thing is that the amount of time it took you to write the letter is the same amount of time you will have to sit with and explain it to many clients.

Fun fun fun, I'm gonna sit back and wait for you guys and gals to figure this stuff out.

And EZTax, some of us here have been stating that from the beginning. That not everyone will require a 3115. Interpretations and all.

The link below is something that was shared in a seminar. The IRS has drawn it up but it is not posted on their website yet.

Please take note of the final bullet point. This has been my belief from day one. The purpose of these regs are geared towards to the Big 4 clients taking very aggressive positions with these items and this was never ever designed for the smaller clients with less than 10 million in revenue.

https://www.dropbox.com/s/a6shbwa9y4lgp ... s.png?dl=0
 

#360
WEISSEA  
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"Can you provide more details on that?"

I want to cover my Schedule C clients with a e filed 3115pdf as well as the Schedule E clients.

Change number 186 non incidental M&S: An inventoriable item is any item either purchased for resale to customers or used as a raw material in producing finished goods. For cash method taxpayers, inventoriable items may be treated as nonincidental materials and supplies.
 

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