The New Tangible Property Regulations Update: IRS Provides Relief to “Small Business” Taxpayers

How do you spell “relief”? I-R-S (sometimes).

A couple of months ago, I wrote an e-blast about the new Tangible Property Regulations (click here to access) that provided an overview of the potentially beneficial, but technically and administratively-difficult-to-comply-with regulations.

After receiving many comments complaining about the administrative complexities that the regulations imposed on all taxpayers, even relatively small taxpayers, the IRS provided some relief in a newly-issued revenue procedure (Revenue Procedure 2015-20).

Under the new guidance, small business taxpayers can adopt the new rules prospectively (for taxable years beginning on or after January 1, 2014), and no longer have to file Form 3115 with the IRS which requires applying the new rules on a retroactive basis. It should be noted, however, that while the preparation of the Form 3115 can be a time-consuming process, it can also generate a significant amount of deductions for the taxpayer.

A “small business” taxpayer is defined as a taxpayer with one or more separate and distinct trades or businesses and has either:

  1. total assets of less than $10 million as of the first day of the tax year for which a change in method of accounting under the final tangible property regulations is effective (for existing taxpayers, that is the first day of the tax year beginning on or after January 1, 2014); or
  2. average annual gross receipts of $10 million or less for the prior three tax years.

In general, the same taxpayer can have different accounting methods for different lines of business. Therefore, the question of whether a taxpayer satisfies this test is applied to each of the taxpayer’s separate and distinct trades or businesses. A taxpayer’s separate and distinct trade or business that does not meet either
criterion does not qualify for relief.