LSL CPAs Business Filing Report Regarding Repair Regulations Updated February 13, 2015

An important update for business tax filings in relation to IRS Repair Regulations from the LSL CPAs Business Tax Team. In light of the new IRS Rev. Proc. 2015-20, a small taxpayer with a qualifying business is not required to file an IRS Form 3115 Change of Accounting Method in order to show compliance with the new repair regulations and the update in accounting methods. Although it was initially thought every business would need to file an IRS Form 3115 because of the repair regulations for tangible property.

Repair Regulations IRS Form 3115 Qualifying Businesses

To begin with, it’s important to define what is a qualifying business under this statute. A qualifying business is defined as one with total assets of less than $10 million (as of January 1, 2014) or a business

With average annual gross receipts of $10 million or less for the prior three taxable years (2011 – 2013). It is important to note that these dollar limits apply per “separate and distinct” trades or businesses, and not per taxpayer. In order to qualify as “separate and distinct,” a complete and separate set of books must be kept for each trade or business.

For clients with businesses above both dollar limits, as a minimum, the protective Form 3115 will need to be prepared. Whether your business qualifies for non-filing or is above the non-filing limits, the business tax team at LSL CPAs will make ensure the necessary paperwork is executed with precision and on time. If you have any questions about filing status and whether your business qualifies as a small taxpayer, please contact your LSL CPAs business tax team representative at (714) 569-1000.

Ensured Consistency For Tax Analysis Of IRS Repair Regulations

For our clients, LSL CPASs will review expense accounts such as office supplies, office expenses, materials & supply expenses. We will inquire if necessary to determine each client’s current capitalization policy and appropriateness of expenses.

When making such reviews, your LSL CPAs tax team representative considers the following variables:

1. Should the de minimis election ($500/$5,000) be made on the tax return?
2. Are items being expensed that should be capitalized?
3. Does the business have non-incidental materials & supplies currently being expensed that should be on the balance sheet?

In addition, the depreciation schedule and expense accounts such as repairs and maintenance will be reviewed in depth. When a depreciation schedule is reviewed, your tax team considers the following variables professional:

1. Are there capitalized items acquired in 2014 that could be expensed under the $500/$5,000 de minimis safe harbor?
2. Are there capitalized items acquired in 2014 and in earlier years that could be expensed as routine repairs and maintenance?
3. Are there items in the 2014 repairs & maintenance expense account(s) that should be capitalized? Should the 2012 and 2013 expenses as well?
4. Does the business meet the small building ($1 million) safe harbor? A safe harbor allows deduction of improvements if total paid for repairs, maintenance & improvements < $10,000 or 2% of building basis, the building basis is no greater than $1 million, and the taxpayer’s 3 prior year average gross receipts are $10 million or less.
5. Is there a capitalized item replacing part of a previously capitalized item? The partial disposition election will be considered in terms of how it affects this variable.

For the majority of our clients, LSL CPAs will be conducting business as usual and filing IRS Form 3115. Only clients that qualify as a small business will not file IRS Form 3115. Beyond qualifying as small taxpayers, your business also will be examined to ensure the following:

1. Your business would not benefit from “scrubbing” prior assets (writing off as routine repairs/maintenance).
2. Your business would not benefit from a late partial disposition election.
3. Your business would be able to generate expenses from one or both of the above, but should not because you cannot currently apply the losses effectively on account of large NOLs or passive loss limitations.

LSL CPAS Is Here To Support Your Business

Once again, as a business owner, you do not have to know every single accounting detail and the intricacies of IRS practices. This is why you have chosen to hire the capable business tax team at LSL CPAs. Still, understanding the importance of having access to such information, LSL CPAs will always provide such updates when IRS statutes and regulations are revised before, during and after tax season. If you have any questions, please contact your LSL CPAs business tax team representative at (714) 569-1000.