Last Friday, February 13th, 2015, the IRS issued Rev. Proc. 2015-20, which offers some relief to small taxpayers from the newly implemented tangible property regulations. While all taxpayers are still required to follow the tangible property regulations on a prospective basis (additions and dispositions beginning January 1, 2014), small taxpayers are no longer required to file a Form 3115 to report a change in accounting method as previously required under the original regulations. In determining if a taxpayer meets the requirements to be classified as a small taxpayer for this purpose, the taxpayer must assess if it’s separate and distinct trade or business had either 1) total assets of less than $10 million on the first day of the 2014 tax year or 2) average annual gross receipts of $10 million or less for the prior three tax years.
Taxpayers choosing to employ the relief from Rev Proc. 2015-20 are not permitted to make 481(a) adjustments to write off or correct the methods used to depreciate tangible assets previously placed in service prior to January 1, 2014. In addition, taxpayers following Rev. Proc. 2015-20 are not allowed to make late prior asset dispositions which were allowed under the original regulations. Given these and other limitations taxpayers must follow if employing Rev. Proc. 2015-20, it still may be advantageous for some small taxpayers to employ the requirements of the original regulations and file all applicable Forms 3115 in order to obtain a favorable 481(a) adjustment or late prior asset disposition write off. As always, we welcome the opportunity to discuss the application of this matter to your business.
By Derek McCarty