Tangible Property Regulations – IRS Considering Filing Relief

The 2014 tax season is underway and CPAs and tax professionals are knee deep in the implementation of the final Tangible Property Regulations (TPRs). Tax practitioners have expressed frustration regarding the overly burdensome filing requirements of the new TPRs. The number one question KBKG is asked is whether change #184 is really necessary for every client with tangible property, even when no Section 481(a) adjustment is required. While some experts interpret that to be the case, there are many tax professionals who disagree and will not be filing Change #184 for the sole purpose of identifying the newly defined building structure or building systems.

According to Revenue Procedure 2015-14, the Designated Change Number 184 applies to:

“a change to deducting amounts paid or incurred for repair and maintenance or a change to capitalizing amounts paid or incurred for improvements to tangible property and, if depreciable, to depreciating such property under §167 or §168. Includes a change, if any, in the method of identifying the unit of property, or in the case of a building, identifying the building structure or building systems for the purpose of making this change.”

As many of you know, KBKG has taken a practical approach with the interpretation of the Tangible Property Regulations and in particular, Method Change #184. While we agree that filing a change of accounting for #184 is recommended, we do not believe the IRS intends to disallow future deductions if it is overlooked unless a legitimate 481(a) adjustment is needed.

KBKG Insight: In recent discussions with IRS officials actively involved with the Tangible Property Regulations (and confirmed by the AICPA), the IRS acknowledged that the current filing requirements of the new TPRs are causing an internal debate. KBKG pointed out that adoption of the newly defined Unit of Property is not optional and, therefore, it is unnecessary to require additional filings to adopt a definition that is mandatory (with no corresponding adjustments to income). The official acknowledged that this issue is working its way through the IRS and that he anticipated issuing guidance on this question shortly.

While we would never recommend relying on IRS verbal comments, KBKG believes that filing Form 3115 for the sole purpose of changing the way units of property are identified is an unnecessary administrative burden and looks forward to the IRS issuing sensible guidance soon.

Read more from the AICPA » AICPA Special News Update – Feb. 10, 2015

Action Step: To find out if the new Repair Regulations will benefit you,
visit KBKG.com/repair-regulations