The IRS recently made the road on which business owners must travel to comply with final tangible property regulations a little less bumpy. Currently, most businesses that buy, depreciate, or repair property were required to file Form 3115 basically telling the IRS that the business had changed its accounting methods to comply with the new IRS rules and safe harbor, regardless of whether the change actually impacted their income.
Today, now that Revenue Procedure 2015-20 (15-20 relief) is in effect, small business taxpayers have the option of foregoing that extra paperwork. This relief removes the requirement to file a 3115 or statement with the tax return just to tell the IRS that you are making the changes. But, is that a good idea?
The main reason that you might still want to file a 3115 is if you have favorable tax adjustments from the past that you can harvest and take on your tax return this year. Filing the form is the only way to get at those. You also waive the audit protection for prior years that would be available with filing the 3115. But, you do get to save some money on tax prep fees and paperwork.
Here’s a brief “true-or-false” quiz to help you decide what to do. Of course you have to be eligible for the 15-20 relief, so the eligibility statements must be true. You should also consider filing a 3115 if you answer false to the later items.
- True or False? Your small business’s assets total no more than $10 million or, over the last three years, your gross receipts have totaled no more than $10 million. (only need one of these to be true).
- True or False? You will not file Form 3115 for any other business activity or any other change in accounting method for the year.
- True or False? You get no benefit (or you don’t care about the benefit) from harvesting favorable 481(a) adjustments as a result of partial dispositions made in previous years.
- True or False? You don’t care about prior year audit protection.
- True or False? You believe that adequate records will otherwise be maintained with regard to what you have done (and are going to do) to protect against an audit. For example, if you have chosen not to do repair X, Y and Z because of your obligation to list it on Form 3115, will you continue to maintain that information in the event an audit were to occur?
Better Safe Than Sorry
Because it’s the only way to harvest prior year benefits and because most taxpayers desire the audit protection on these issues for prior years, we will likely continue to file Form 3115 for many of our clients.
Email Rea & Associates to learn more about Revenue Procedure 2015-20 and to find out if the new simplified method of reporting property changes is right for you.
By Joe Popp, JD, LLM (Dublin office)