IRS Simplifies Accounting Method Changes Under “Repair Regs”

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IRS building-716739-hIn new Rev. Proc. 2015-20, the IRS permits a “small business taxpayer” to use a simplified procedure to change its method of accounting under the final tangible property regulations for tax years beginning on or after January 1, 2014. This rule allows these small taxpayers to change to certain accounting methods without the burden of filing Form 3115.  The guidance also modifies Rev. Procs. 2015-14 and 2015-13.

Who is a Small Business Taxpayer?

A small business taxpayer is a taxpayer with one or more separate and distinct trades or businesses that has either (1) total assets of less than $10 million as of the first day of the taxable year in which the change of accounting method is made under the tangible property regulations or (2) average annual gross receipts of $10 million or less for the prior three tax years.

What are the alternate procedures?

Certain accounting changes can be made on the taxpayer’s federal tax return without including any separate statement.  To qualify the change must be to an accounting method listed in the Rev. Proc. and must include an adjustment under section 481(a) that takes into account only amounts paid or incurred, and dispositions, by the trade or business in taxable years beginning after January 1, 2014.

No Audit Protection

Most voluntary accounting method changes are granted by the IRS with “audit protection,” which means that the IRS will not require the taxpayer to change its method of accounting for the same item if impermissibly used for a taxable year prior to the year of change. Rev. Proc. 2015-20 specifies, however, that a small business taxpayer changing accounting methods under the simplified procedure will not receive any audit protection for taxable years beginning before January 1, 2014.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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