The IRS today released an advance version of Rev. Proc. 2015-20 that allows a “small business taxpayer” to make certain tangible property and dispositions changes in methods of accounting with a section 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014.
Rev. Proc. 2015-20 [PDF 54 KB] defines a “small business taxpayer” as a business with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three tax years. These tests are applied to each separate and distinct trade or business of the taxpayer.
In addition, Rev. Proc. 2015-20 provides that for the first tax year beginning on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property and dispositions changes without filing a Form 3115 if they choose to make the changes by calculating a section 481(a) adjustment that takes into account only amounts in tax years beginning on or after January 1, 2014. Taxpayers filing under this procedure do not receive audit protection for tax years beginning prior to January 1, 2014.
The accounting method changes that may be made under the provisions of Rev. Proc. 2015-20 are changes under the final tangible property regulations (section 10.11(3)(a) of Rev. Proc. 2015-14); certain permissible to permissible methods of accounting for depreciation of MACRS property in mass asset accounts (sections 6.37(3)(a)(iv), (v), (vii), and (viii) of Rev. Proc. 2015-14); disposition of a building or structural component (section 6.38 of Rev. Proc. 2015-14); and dispositions of tangible depreciable assets (section 6.39 of Rev. Proc. 2015-14).
A taxpayer that chooses to use the procedures of Rev. Proc. 2015-20 for tangible property method changes must also use this procedure for its dispositions changes, and vice versa.
Note that a taxpayer that uses the method change relief in Rev. Proc. 2015-20 is not permitted to make a late partial disposition election.
The IRS stated that Rev. Proc. 2015-20 is intended to ease the administrative burden faced by small business taxpayers, including sole proprietors, by allowing them to prospectively apply the final tangible property regulations beginning in 2014.
Accordingly, Rev. Proc. 2015-20 modifies certain procedures provided in Rev. Proc. 2015-14* to permit small business taxpayers to make changes in methods of accounting with a section 481(a) adjustment that takes into account only amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014. This modification means that, effectively, small business taxpayers making these changes in method of accounting for the first tax year that begins on or after January 1, 2014, may elect to make the change on a cut-off basis.
The IRS noted that some small business taxpayers may choose to file a Form 3115 in order to retain a clear record of a change in method of accounting or to make permissible concurrent automatic changes on the same form, whereas other small business taxpayers may prefer the administrative convenience of being able to comply with the final tangible property regulations in their first tax year that begins on or after January 1, 2014, solely through the filing of a federal tax return.
Accordingly, for the first tax year that begins on or after January 1, 2014, small business taxpayers that choose to apply the tangible property regulations prospectively to amounts paid or incurred, and dispositions, in tax years beginning on or after January 1, 2014, have the option of making certain tangible property and dispositions changes in method of accounting on the federal tax return without including a separate Form 3115 or separate statement.
Rev. Proc. 2015-20 is effective for tax years beginning on or after January 1, 2014. It also includes a transition rule, providing that a taxpayer may withdraw its Form 3115 by filing an amended federal tax return using this revenue procedure if the taxpayer:
The amended federal tax return must be filed on or before the due date of the taxpayer’s federal tax return for its first tax year beginning on or after January 1, 2014, including extensions. The withdrawn Form 3115 will not be taken into account for purposes of applying section 5.05 of Rev. Proc. 2015-13.
Rev. Proc. 2015-20 includes a request for comments on whether it is appropriate to increase the de minimis safe harbor limit provided in Reg. section 1.263(a)-1 (f)(1)(ii)(D) for a taxpayer without an applicable financial statement to an amount greater than $500, and, if so, what amount would be used and the justification for considering that amount appropriate.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.