On February 13, the IRS issued Rev. Proc. 2015-20, which will allow small businesses to change certain methods of accounting under the final tangible property regulations for 2014 without having to file a Form 3115 or an election statement.  The ruling aims to reduce the burden on small businesses and their tax preparers in response to complaints that it was too difficult for these taxpayers to comply with the final tangible property regulations.  Based on options granted by the IRS, business taxpayers with tangible property such as buildings, may have the opportunity to expense items capitalized as improvements in prior tax years—claiming additional deductions and capturing losses for assets disposed of that were not claimed previously.

The new procedure established by Rev. Proc. 2015-20 is available on a prospective basis for the tax year beginning on or after January 1, 2014.  For tax years after 2014, the taxpayer will be required to file a Form 3115 for concurrent automatic changes other than those addressed in §5 of Rev. Proc. 2015-20.  Additionally, taxpayers seeking to retroactively apply the tangible property regulations to the 2012 or 2013 tax years must file a Form 3115.  The Form 3115 remains optional, as some taxpayers may want to have a clear record of their change in method of accounting.  The form should also be used if there is a §481(a) adjustment.

Small business taxpayers are defined as those with $10 million or less in assets or $10 million or less in revenue.  It is significant that this definition is disjunctive as indicated by the word “or”: Rev. Proc. 2015-20 may apply to some larger businesses, such as those with significantly more than $10 million in receipts but less than $10 million in assets.  This may be true of businesses that hold property in a separate LLC, or that lease their properties from third parties.  The ruling represents a drastic change from existing procedures, which required taxpayers to file a Form 3115 for each “automatic change” request.

To maximize your tax savings through compliance and specialized tax planning, contact Capital Review Group. As with all of our services, CRG meets or exceeds IRS standards while delivering concise, actionable information to clients.