On Feb. 14, 2015, the IRS released Revenue Procedure 2015-20, which provides relief for small-business taxpayers adopting the final tangible property regulations, including the final disposition regulations released on Aug. 18, 2014.
Revenue Procedure 2015-20 allows small-business taxpayers to adopt the tangible property regulations without filing Form 3115, “Application for Change in Accounting Method.” For this purpose, a small business is defined as any separate trade or business of a taxpayer that has total assets of less than $10 million as of the first day of the tax year of change or average annual gross receipts of $10 million or less for the three years prior to the year of change. For example, a calendar year taxpayer with $20 million average gross receipts over the prior three years but with $8 million of total assets on Jan. 1, 2014, would qualify for relief under the guidance.
The revenue procedure allows small-business taxpayers to make changes in methods of accounting associated with the tangible property regulations and disposition regulations without filing Form 3115. Additionally, the small-business relief provisions allow for adoption of the regulations on a cutoff basis for the 2014 tax year, meaning that qualifying taxpayers are not required to compute the impact of the regulations on prior years.
Taxpayers who use the small-business relief provisions do not receive audit protection for tax years prior to 2014. Furthermore, taxpayers who use the relief provisions must apply them for both the tangible property regulations and the final disposition regulations.
Small-business taxpayers who want audit protection or who want to claim a cumulative adjustment for years prior to 2014 still are required to file Form 3115.
All taxpayers, including small businesses, are required to adopt the regulations for their 2014 tax year. Small-business taxpayers who elect to use the relief provided in the revenue procedure should be cautioned that they still will be required to comply with the final regulations even if they don’t file Form 3115.