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3115 Guidance Toolkit

IRS Offers Small Businesses Relief on Form 3115

Responding to passionate feedback from firms and the preparers who support them, the IRS has announced that it is now allowing small businesses to comply with the new tangible property regulations through a simplified procedure in lieu of filing a Form 3115, according to the Journal of Accountancy.

Form 3115, and its requirements as they relate to the tangible property regulations, had been a source of concern on the part of preparers due to a combination of confusing instructions and burdensome compliance costs, according to Forbes, issues that were brought up by the AICPA in a comment letter to the IRS this past November. CPAs on the Society's own social media network Exchange have also been asking a number of questions regarding how other practitioners are handling some of the more difficult aspects, including how to best explain the requirements to clients, and how to determine under which circumstances the form would need to be filed at all. 

Under the guidance, Rev. Proc. 2015-20, small businesses–defined for the purposes of this document as a business with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years–will not be required to file Form 3115 and can make changes in methods of accounting with a §481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in taxable years beginning on or after January 1, 2014.

"This modification means that, effectively, small business taxpayers making these changes in method of accounting for the first taxable year that begins on or after January 1, 2014, may elect to make the change on a cut-off basis," according to the IRS guidance.

In the same document, the IRS is also asking taxpayers to comment on whether the current $500 de minimis safe harbor under the tangible property regulations for taxpayers without applicable financial statements should be increased. Comments should be submitted to the IRS by April 21 to the addresses in the revenue procedure.

–Chris Gaetano

Learn and Earn CPE Credit

Tangible Property Regulations - Beyond Form 3115 ($40 On Demand Course)

Learn about the latest update on Form 3115 and the Repair Regulations in light of the Revenue Procedure 2015-20 relief provisions issued a week later.

Program Content: This session will look at the following issues:

  • Industries most significantly affected by these changes
  • Applying the various elections on an annual basis, including:
    • De Minimis Election (both for entities with an applicable financial statement and those without)
    • Small Building Small Taxpayer Election
    • Capitalization of “Repair” Items Being Capitalized on the Books
    • Understanding how the detailed rules work and what has changed

The below video is available to watch for free, but you must register for our On Demand Course to obtain 1 CPE Credit (taxation).