Many business and some individual taxpayers were staring this tax season down the barrel of IRS Form 3115, which, the IRS says, is filed
“to request a change in either an overall method of accounting or the accounting treatment of any item.”
Form 3115 is the means of reporting to the IRS a change in your method of accounting generally or for a specific taxable item.
Recently issued treasury regulations on repair and maintenance expense seemed to suggest that filing one or more Forms 3115 for tax years beginning after January 31, 2014 would be a requirement for any business endeavor (including business for self, rental properties, etc.) that ever incurs repair and maintenance costs.
Form 3115’s 20-page, single-spaced instructions estimate that it would take more than 80 hours for recordkeeping; learning about the law or the form; and preparing and sending the form to the IRS. And that doesn’t include the time needed to deal with its Schedules A-E.
Think about that for a minute. If you have a business endeavor, large or small, that incurs repairs and maintenance expense, you could be required to file one or more forms 3115, adding up to 80 hours of compliance for each instance of the form you would have been required file.
Tax professionals cried out on behalf of their small business owner clients, for whom the cost of complying would have been onerous. The IRS heard their cries and offered relief from the requirements to file Form 3115.
In short, according to the newly released modified revenue procedure dealing specifically with accounting method changes related to the new tangible property regulations, qualifying taxpayers are permitted to adopt the required changes prospectively, and are not required to file forms 3115 until they have a qualifying event. Qualifying taxpayers are those with less than $10M in total assets on their balance sheets and less than $10M in average gross receipts, based on their last three tax returns.
So, the IRS is modifying its Form 3115 stance. Taxpayers are the beneficiaries. But to make sure you benefit, if you’re in Form 3115’s arena, talk to your tax preparer. With this decision the IRS takes the pressure off taxpayers, and itself. A good deal all around.