Oh crap! I forgot the election

[Margaret CPA in OH]

Lion, this client had a cordless drill for $350 in 2006 and $957 of various tools in 2008 all Sec. 179. I think there is not a need to change accounting methods or file a 3115 now. Those are the only assets that he has acquired since I've known him. I was worried about the materials and supplies election but feel less anxious now.

I know for sure a couple other clients are in for the whole shebang which I dread. I dread my own but need to get on it as we are due an unexpected refund which I would like to have.

I, too, really hope this AICPA effort works!

[rfassett]

Lion - I appreciate your insight.  But as to the hefty user fee - that is one of the scare tactics being floated around.  Agreed, this is A year where there will be no fee for the scope involved; however, there is no guarantee that the fee will be imposed next year.

 

Q. I have heard about a $7,000 user fee. What is that?

A. The $7,000 user fee applies to a taxpayer seeking non-automatic consent for an accounting method change. The 3115’s required to comply with the TPRs generally receive automatic consent without a user fee, BUT after 2014 there will be cases where an automatic method change may not be available because of “scope limitations.” Through 2014, the IRS has waived all normal scope limitations to accommodate compliance with the TPRs. For example, one scope limitation allows for only one accounting method change every five years. In another case, scope limitations limit certain taxpayers with Section 263A (self-constructed assets) method changes to non-automatic consent. Through 2014, all taxpayers will be given automatic consent in spite of these limitations. After 2014, these scope limitations will again be applicable, and changing method of accounting may require a $7,000 fee.

So if my client has not requested a change of accounting methods in the last five years, and needs to make one next year, assuming all other scope issues are met, the user fee would not apply.  At least that is my reading.  And by the same token, the thought just occurred to me, if I rush to file unnecessary 3115s this year, what happens next year or the next when my client needs to make a real change in accounting methods.  Am I subjecting him to that $7,000 user fee because we filed a 3115 in 2014 and he is filing one again within the five year scope limitation?  I don't know the answer to that. But I think it needs to be considered.

Margaret - this will teach you to forget to attach an election.  Look at the can of worms you have opened.

[RitaB]

So, forgive my ignorance but I have problems with educating clients about refusing bad checks from Omar Shariff with two Fs, and I just have not studied this. And I really cannot muster up much concern over it, despite the intense anxiety of some on other boards.

 

The "Election to Apply De Minimis Safe Harbor to Expense Cost of Acquired Property" means if I goof and call an asset "supplies" instead of listing it as an asset (and using Section 179, which is what I always do, hello); I will not be taken out and shot if the item costs less than $200.  Or $500.  And that one election covers both amounts?  So how do I know which one I elected? 

 

Ron:  We were posting at the same time - I'm not ignoring you.

[Lion EA]

Lion - I appreciate your insight.  But as to the hefty user fee - that is one of the scare tactics being floated around.  Agreed, this is A year where there will be no fee for the scope involved; however, there is no guarantee that the fee will be imposed next year.

 

Q. I have heard about a $7,000 user fee. What is that?

A. The $7,000 user fee applies to a taxpayer seeking non-automatic consent for an accounting method change. The 3115’s required to comply with the TPRs generally receive automatic consent without a user fee, BUT after 2014 there will be cases where an automatic method change may not be available because of “scope limitations.” Through 2014, the IRS has waived all normal scope limitations to accommodate compliance with the TPRs. For example, one scope limitation allows for only one accounting method change every five years. In another case, scope limitations limit certain taxpayers with Section 263A (self-constructed assets) method changes to non-automatic consent. Through 2014, all taxpayers will be given automatic consent in spite of these limitations. After 2014, these scope limitations will again be applicable, and changing method of accounting may require a $7,000 fee.

So if my client has not requested a change of accounting methods in the last five years, and needs to make one next year, assuming all other scope issues are met, the user fee would not apply.  At least that is my reading.  And by the same token, the thought just occurred to me, if I rush to file unnecessary 3115s this year, what happens next year or the next when my client needs to make a real change in accounting methods.  Am I subjecting him to that $7,000 user fee because we filed a 3115 in 2014 and he is filing one again within the five year scope limitation?  I don't know the answer to that. But I think it needs to be considered.

Margaret - this will teach you to forget to attach an election.  Look at the can of worms you have opened.

[rfassett]

Operate word here is "may". Conversely, may not - depending on the circumstances.

[rfassett]

Ron:  We were posting at the same time - I'm not ignoring you.

I have been ignored at far lesser folks!

[rfassett]

So, forgive my ignorance but I have problems with educating clients about refusing bad checks from Omar Shariff with two Fs, and I just have not studied this. And I really cannot muster up much concern over it, despite the intense anxiety of some on other boards.

 

The "Election to Apply De Minimis Safe Harbor to Expense Cost of Acquired Property" means if I goof and call an asset "supplies" instead of listing it as an asset (and using Section 179, which is what I always do, hello); I will not be taken out and shot if the item costs less than $200.  Or $500.  And that one election covers both amounts?  So how do I know which one I elected? 

 

Ron:  We were posting at the same time - I'm not ignoring you.

 

The hour is getting late but my forward brain is telling me that the $200 is for materials and supplies; whereas the $500 is for repairs and improvements, assuming applicable financial statements are not in play.  If they are, then that number is $5,000.  And for the record, that should be where our angst is anchored.  What's fair about that?  A company gets a bump of $4,500 on the safe harbor front simply because its has audited financial statements?  (Note: there are other applicable financial statements such as those prepared to satisfy a government requirement; and others.)  I have quite a few client's that could stand to have the higher threshold - but they are punished because they do not need audited statements?  When did the IRS start basing regs on the form of book reporting? Oh wait, I know.  With these stupid regs.

 

Enough of that!  Good night!  

[Catherine]

Operate word here is "may". Conversely, may not - depending on the circumstances.

 

Are we back to that old "facts and circumstances" frou-frou?  Don't we keep running into that *every* bleeping where?  You'd think it would wear out by now!

[Catherine]

So, forgive my ignorance but I have problems with educating clients about refusing bad checks from Omar Shariff with two Fs, and I just have not studied this. And I really cannot muster up much concern over it, despite the intense anxiety of some on other boards.

 

The "Election to Apply De Minimis Safe Harbor to Expense Cost of Acquired Property" means if I goof and call an asset "supplies" instead of listing it as an asset (and using Section 179, which is what I always do, hello); I will not be taken out and shot if the item costs less than $200.  Or $500.  And that one election covers both amounts?  So how do I know which one I elected? 

 

Ron:  We were posting at the same time - I'm not ignoring you.

Rita --

 

It may be a case where I am exhausted and punchy, but I laughed SO hard at your "Shariff with two F's" line I cried and got salt tear stains on my glasses and had to go wash them.

[rfassett]

Are we back to that old "facts and circumstances" frou-frou?  Don't we keep running into that *every* bleeping where?  You'd think it would wear out by now!

And throw in some "ordinary and necessary" and we can have a party! How lame is that?

[Catherine]

What was the line from that song at the tail end of "Miss Congeniality"?  I'll bring the bullets, you bring the wine?  Or something like that.

[rfassett]

What was the line from that song at the tail end of "Miss Congeniality"?  I'll bring the bullets, you bring the wine?  Or something like that.

Yep - that was the line. The song is named "Bullets" - written and performed by Bob Schneider. Maybe we could contract him to write one called...............................................well, none of those words have the same kind of zing as "Bullets". Again - how lame is that? :)

[MsTabbyKats]

Considering we are "the top minds"...and most of us are baffled...just imaging the baffling of other people.  Let those IRS agents be baffled.

 

I remember when they changed the Schedule E a few years back...and nobody noticed.

 

At the IRS conference in the summer one of the speakers said that "since just about nobody got it right" they weren't going to penalize etc. for that year.

 

My passive take on this is to depreciate any repairs over $200 from now on.

[Catherine]

Yep - that was the line. The song is named "Bullets" - written and performed by Bob Schneider. Maybe we could contract him to write one called...............................................well, none of those words have the same kind of zing as "Bullets". Again - how lame is that?

 

and here it is on YouTube

 

[jklcpa]

This has to be the biggest time waster I've ever seen in my entire career.  Why didn't someone think of the novel solution to scrubbing the old fixed assets to have a code within our depreciation programs to create the schedules for the net 481 adjustments to flow onto the return automatically if the net end result was a small amount. We could have even scrapped the asset with a new indicator code also.  Or how about a Form 3115EZ for those making only changes of nominal amounts for this automatic change in method.

[Lion EA]

Any hints of if AICPA is making any headway with the IRS?

[rfassett]

This was posted on the PICPA list serv this morning:

 

FYI 

 

AICPA Addresses Primary Concerns Surrounding Implementation of Tangible Property "Repair" Regulations

 

 

  We are reaching out to members to address issues and concerns with the tangible property "repair" regulations. Over the last few weeks, we have heard from an unprecedented number of members with questions, concerns and requests for resources. The two biggest questions we are hearing are: Will the IRS be issuing guidance or relief? What should we do right now? 

 

What is the Status of IRS Guidance or Relief?

We understand that the IRS and Treasury are considering our recommendations to provide relief from the reporting requirements related to the repair regulations. We are hopeful they will release some form of relief for small businesses in the next couple of weeks. We understand that time is of the essence. If any relief is granted or if the IRS releases additional information, we will notify members immediately.

 

Our advocacy efforts on this issue date back to the release of the proposed regulations. Since that time, the AICPA Tax Executive Committee and the Tax Methods and Periods Technical Resource Panel have continued to provide comments and feedback to Treasury and the IRS to express our concerns about the administrative burdens associated with the regulations and request relief on behalf of members and small businesses. We have asked for the following forms of relief:

 

• Make Form 3115, as well as the section 481 adjustment, optional.

• Allow for the adoption of a “cut-off method” and apply the rules prospectively.

• Accept a statement in lieu of Form 3115 to acknowledge compliance with the regulations.

• Raise the de minimis safe harbor from $500 to $2,500.

 

What Should We Do Right Now?

We find ourselves in a challenging predicament. On the one hand, we are hopeful that the IRS will issue relief which would ease the burden for small businesses. On the other hand, there is no guarantee that relief will come in time (if at all). As we move further into tax season, tensions continue to mount as rumors spread regarding what the IRS may or may not provide in terms of guidance, relief, support or enforcement. We have heard that many practitioners are deferring the preparation of Form 3115 in anticipation of possible relief. For members struggling with the question of what to do right now, there are only two options to consider:

 

• Option 1: Continue under current rules and adapt if/when the IRS issues relief. The risk with this option is that work performed today may need to be revised or may prove obsolete. So, members who choose this option should consider their capacity to perform work that ultimately may not be necessary and potentially not billable.

• Option 2: Temporarily suspend all related work in hopes of near-term the IRS relief. The risk with this option is that the IRS may not issue relief at all. So, members who choose this option should consider their broader workload and that certain returns may need to be extended.

 

We cannot formally advise members to disregard existing law and regulations and simply not comply. Ultimately, firms must make an informed decision based on their unique circumstances, client mix, and resources. 

 

Please visit our Tangible Property Resources page for the latest information and resources. We recommend you bookmark this page and visit it often, as we will continue to update this page as new information and resources become available. Members have asked for a sample Form 3115, however the applicability of the regulations vary so widely that a single illustrative example would offer limited value. We are working to compile a list of resources available online from a variety of sources, both for free and for sale, to provide members with a one-stop resource for guidance, tools, and practice aids related to understanding and complying with the repair regulations.

 

Related articles from the Journal of Accountancy and the Tax Adviser:

 

Final Guidance Related to Tangible Property Regulations Provides Time-Limited Opportunities (02/01/2015)

Taxpayers will want to determine how the new rules provided in the regulations may affect their current methods of grouping assets and recovery of basis upon disposition of property and then determine which changes require a Form 3115 under the revenue procedure or an election.

 

[jklcpa]

I haven't seen anything more from the AICPA either, only what Ron posted directly above.

[Randall]

I don't think the AICPA can do any more now.  Just wait like the rest of us.

[kcjenkins]

I'll just add one thing I don't think anyone mentioned.  If you file it before the deadline, it is NOT an Amended return, it is a Superseding Return. A tax return filed subsequent to an original return during the filing period supersedes it as the return of record. The filer must indicate that the return supersedes the original return on the return.  A return filed after the expiration of the filing period is referred to as an amended return and does not supersede the original return. A Superseding Return REPLACES the original return, and is thus treated as 'the original'.

[Margaret CPA in OH]

Thanks for this reminder, KC. I will do that and include the election just to cover the 'ol rear end. I still don't think I need other changes unless the consensus here says otherwise.

Wow! I never imagined, as rfasset mentioned, what a can of worms and lengthy posting this would be. Clearly this discussion has been lurking about in the minds of many. Good thing we have each other here and the collective wisdom it provides. Thanks, Eric, again and again for providing this venue!

[jklcpa]

Considering we are "the top minds"...and most of us are baffled...just imaging the baffling of other people.  Let those IRS agents be baffled.

 

I remember when they changed the Schedule E a few years back...and nobody noticed.

 

At the IRS conference in the summer one of the speakers said that "since just about nobody got it right" they weren't going to penalize etc. for that year.

 

My passive take on this is to depreciate any repairs over $200 from now on.

 

That might depend on the type of business your taxpayer is in and what the repair is for. In addition to the de minimis safe harbors for tangible property purchased and the materials and supplies, there is also a safe harbor for small taxpayers with buildings (Reg sec 1.263(a )-3(h)(8) that says the total of repairs and improvements for building repairs totaling 2% or less than the unadjusted basis of the building, capped at $10,000, meets the safe harbor.  The safe harbor also extends to lessees where a taxpayer leases a building or leases space within a building, ref is reg sec 1.263(a )-3(h)(2). The "unadjusted basis" of a leased building or space is equal to the amount of undiscounted rent paid or expected to be paid over the entire lease term, including renewal periods.

 

Small taxpayer definition - having average annual gross receipts of $10 million or less in 3 preceding tax years.

 

I have my retailer that I'm still working on today that leases two retail stores. He falls into that safe harbor also, so in general terms for example, if he pays ~ $50K per year for one store and has a 5-year lease, that's 250K * 2%, so he has a safe harbor of $5K. If the lease had a 5-yr option, the safe harbor would include that option period too.  If he spends $800 to fix a damaged door or a plumbing issue that don't fall into the categories of betterments, restorations, or adaptations, then I think he can safely continue to expense those.

 

Am I on the right course with that?!

Edited February 11, 2015 by jklcpa
added refs to regs, and added definition of small taxpayer

[Max W]

I'll just add one thing I don't think anyone mentioned.  If you file it before the deadline, it is NOT an Amended return, it is a Superseding Return. A tax return filed subsequent to an original return during the filing period supersedes it as the return of record. The filer must indicate that the return supersedes the original return on the return.  A return filed after the expiration of the filing period is referred to as an amended return and does not supersede the original return. A Superseding Return REPLACES the original return, and is thus treated as 'the original'.

Just so that nobody gets confused, the Superceded Return designation only applies to forms 1041, 1120, 1120-F, 1120S, 1065 and 1065-B.

[Margaret CPA in OH]

Another Oh Crap! Thanks, Max.

[kcjenkins]

Just so that nobody gets confused, the Superceded Return designation only applies to forms 1041, 1120, 1120-F, 1120S, 1065 and 1065-B.

While it is true that only those forms have a 'check the box' option, it is still true that ANY return filed before the deadline supersedes the previous return.  You just need to paper file it, and write on the top  [i always highlight it] "Superseding Return".  I've done it several times with 1040s, with no problems.