Repair Regs and 3115

[andreawick]

Ugh and WTF.

Anyone else struggling with this?

[msventoux]

Feb 9, 2015 15:56:58 GMT -5 andreawick said:

Ugh and WTF.

[mwcpa]

this can be confusing, there are so many options to chose from.... and the ones most at risk with the DIY crowd with the schedule C that includes repairs and materials and supplies.... I am sure the boxed programs are not bringing this issue up.... I hear IRS will be highly scrutinizing 2014 filings where an election statement is not made and or a 3115 is not filed.....

I read a blog where a practitioner noted that he never put anyone on extension until this year where he will be having everyone file one.... the IRS made this much harder than it should have been.... could have made this a check the box kind of thing on the tax return....

Not sure how a short-staffed IRS can deal with these filings.... there will be millions this year..... 

[andreawick]

Feb 9, 2015 22:22:45 GMT -5 mwcpa said:

this can be confusing, there are so many options to chose from.... and the ones most at risk with the DIY crowd with the schedule C that includes repairs and materials and supplies.... I am sure the boxed programs are not bringing this issue up.... I hear IRS will be highly scrutinizing 2014 filings where an election statement is not made and or a 3115 is not filed.....

I read a blog where a practitioner noted that he never put anyone on extension until this year where he will be having everyone file one.... the IRS made this much harder than it should have been.... could have made this a check the box kind of thing on the tax return....

Not sure how a short-staffed IRS can deal with these filings.... there will be millions this year..... 

And from what I understand, the extra copy that goes to Utah, can not be e-filed. So it's a lot of extra paperwork/processing time on the practitioner's side also.

I think  I read the same blog.

[taxref]

If I am understanding the rules correctly, I will have to do a number of fairly boilerplate 3115s.  

Luckily, all of my clients qualify for the de minimis exceptions and will not be electing to go back before 2014.  At least there should be few complex computations needed with my 3115s, since almost everything I did before 2014 met most of the final regs.

Sometimes having only really small businesses for clients is a big advantage.   

[andreawick]

Feb 10, 2015 23:43:45 GMT -5 taxref said:

If I am understanding the rules correctly, I will have to do a number of fairly boilerplate 3115s.  

Luckily, all of my clients qualify for the de minimis exceptions and will not be electing to go back before 2014.  At least there should be few complex computations needed with my 3115s, since almost everything I did before 2014 met most of the final regs.

Sometimes having only really small businesses for clients is a big advantage.   

that's an approach I've seen as well. Basically every return with fixed assets and repairs gets a 3115 for 184, 186 and 192.

At least it's something to file?

[bean29]

www.dopkins.com/services/21-pages/services/545-tangible-assets-and-repairs-tars

We own the building DH's office is in (commercial rental) and the building his office was formerly in (mixed use-currently used for residential rental).

I will use a CPA this year for our personal return, but I usually do my In-laws return and they also have a residentail rental property.

Can some one explain how this might affect those of us that own residential rental property?

[andreawick]

Feb 11, 2015 11:28:13 GMT -5 bean29 said:

www.dopkins.com/services/21-pages/services/545-tangible-assets-and-repairs-tars

We own the building DH's office is in (commercial rental) and the building his office was formerly in (mixed use-currently used for residential rental).

I will use a CPA this year for our personal return, but I usually do my In-laws return and they also have a residentail rental property.

Can some one explain how this might affect those of us that own residential rental property?

you'll have to file (possibly multiple) Form 3115 with your personal returns. If the rental property is owned inside an LLC, then (from what I understand) you'll have to file the 3115's with each entity. But if an individual has multiple rental properties all in his/her name, only one set of 3115s would have to be filed.

You'll have to file a 3115 for each accounting change you are making. As I noted above, from people I've talked to, they (generally) are filing (at least) three 3115s for each return.

But every situation is different, so your situation may different.

[taxref]

"Can some one explain how this might affect those of us that own residential rental property?"

While the actual answer is most likely "not really,"  allow me to give it a try.  I would encourage anyone with a different opinion to chime in, as I am not fully certain I am correct.  

A small landlord of residential real estate seems to need to: 

1. Begin record keeping to assign all costs relating to improving or maintaining the building into the 9 Units of Property (UOP) classifications.

2. Have a non-written policy in place no later than 1-1-14 to expense items costing under $500.  There must also be an election made each year on the tax return for this.

3. File a 3115 with the tax return and another mailed to the IRS, to take advantage of the Routine Maintenance Safe Harbor (which is not the same as Number 2 above).

4. Make an election on the tax return to apply the Small Taxpayer Safe Harbor.  That allows the taxpayer to expense improvements totaling less than 2% of the building's unadjusted basis, not to exceed $10K.

The items above are closely related, with sometimes only subtle differences between them.  Still, I recommend doing each one.  Also note the rules are different for large taxpayers.  

The final regs extend over 200 pages, and its difficult to pull out items which only apply to small landlords.  I'm sure much litigation will occur in the future over these regs.   

Again, do not take this post as the final word on this subject.  Like many others, I am feeling my way in the dark on this.

[TheOtherMe]

I work at a top 100 CPA firm, in an admin rule.  They are filing the 3115 on every single client it could possibly apply to.  I should know as I am mailing them to the IRS.  I think they have their software set up so the preparers click a box and it pulls in numbers.  The rest of the wording is the same on every single one of the 3115s.

[taxref]

"The rest of the wording is the same on every single one of the 3115s."


Steal one and send it to me. 

[mwcpa]

from the AICPA... with emphasis added.... maybe some progress soon to make this "easier."

-------------------------

"We are reaching out to members to address issues and concerns with the tangible property "repair" regulations. Over the last few weeks, we have heard from an unprecedented number of members with questions, concerns and requests for resources. The two biggest questions we are hearing are: Will the IRS be issuing guidance or relief? What should we do right now?

What is the Status of IRS Guidance or Relief?
We understand that the IRS and Treasury are considering our recommendations to provide relief from the reporting requirements related to the repair regulations. We are hopeful they will release some form of relief for small businesses in the next couple of weeks. We understand that time is of the essence. If any relief is granted or if the IRS releases additional information, we will notify members immediately.

Our advocacy efforts on this issue date back to the release of the proposed regulations. Since that time, the AICPA Tax Executive Committee and the Tax Methods and Periods Technical Resource Panel have continued to provide comments and feedback to Treasury and the IRS to express our concerns about the administrative burdens associated with the regulations and request relief on behalf of members and small businesses. We have asked for the following forms of relief:
• Make Form 3115, as well as the section 481 adjustment, optional.
• Allow for the adoption of a “cut-off method” and apply the rules prospectively.
• Accept a statement in lieu of Form 3115 to acknowledge compliance with the regulations.
• Raise the de minimis safe harbor from $500 to $2,500.


What Should We Do Right Now?
We find ourselves in a challenging predicament. On the one hand, we are hopeful that the IRS will issue relief which would ease the burden for small businesses. On the other hand, there is no guarantee that relief will come in time (if at all). As we move further into tax season, tensions continue to mount as rumors spread regarding what the IRS may or may not provide in terms of guidance, relief, support or enforcement. We have heard that many practitioners are deferring the preparation of Form 3115 in anticipation of possible relief. For members struggling with the question of what to do right now, there are only two options to consider:
• Option 1: Continue under current rules and adapt if/when the IRS issues relief. The risk with this option is that work performed today may need to be revised or may prove obsolete. So, members who choose this option should consider their capacity to perform work that ultimately may not be necessary and potentially not billable.
• Option 2: Temporarily suspend all related work in hopes of near-term the IRS relief. The risk with this option is that the IRS may not issue relief at all. So, members who choose this option should consider their broader workload and that certain returns may need to be extended."

[andreawick]

I saw the "tax season letter" that one firm sent to all it's client's basically saying: "fees are going up at least $200-$300 per return and expect to go on extension due to the extra work involved"

TheOtherMe - I've seen the same thing - basically the blanket approach.

[TheOtherMe]

Today the tax partner came out with a hold the presses!  New procedure on all returns with 3115s.  Find all of them still in the building and put in an insert.  I have not seen the insert.  By morning, it will be a fancy insert as they sent it out for printing.  

I'm averaging about 20 new 3115s per day to the spreadsheet and mailing about 20 3115s per day to the spreadsheet.

Preparers were also told to see a manager if they are spending more than 5 minutes on this issue.  It has to be canned if they are to do the work that fast.  I am so glad by tax preparation days are over.  

taxref, what they are sending to the IRS is 10 pages long, but the wording is all the same.  Numbers are different.  It's like fill in the blank.

[taxref]

"Preparers were also told to see a manager if they are spending more than 5 minutes on this issue."

Which, in public accounting, probably means it takes a minimum of 15 minutes to do one.  

"taxref, what they are sending to the IRS is 10 pages long, but the wording is all the same." 

I'm sure all of mine will be boilerplate as well.  Mine will probably be 9 pages, which will consist of the 8 pages of the form and a 1 page attachment.  I don't anticipate my attachment page as containing any numbers, just a statement saying there are no 481(a) adjustments and why.

[mwcpa]

We are trying to develop a "standard" set of procedures and language for the 3115's as well.... many clients are not going to get it and are going to balk and get upset with us for having to charge more....

I am hopeful that IRS will ease the requirements now that many are catching wind of this....

[mwcpa]

see Rev Proc 2015-20.... maybe some relief..... have not read yet..... www.irs.gov/pub/irs-drop/rp-15-20.pdf

[taxref]

It appears to drop the 3115 requirement for small taxpayers (under $10M) who don't go back to prior years.  That is certainly good news.

[andreawick]

Feb 13, 2015 22:51:02 GMT -5 taxref said:

It appears to drop the 3115 requirement for small taxpayers (under $10M) who don't go back to prior years.  That is certainly good news.

It would have been nice to get the news 2 months ago, instead of 1/2 way through tax season.

Ugh!

But overall, yes, it's good news. :-)

[taxref]

I am still unsure, though, if the elections to be included with the tax returns still need to be done.  2015-20 does not specifically mention the elections, so I assume they are still required.  Still, elections are much easier than 3115s.

[TheOtherMe]

Maybe that is what the Tax Partner was going on about.  Most of the clients sitting in my 3115 box do not have gross receipts or assets over $10M.  Some definitely do, but not very many.

You are right about the preparers are probably taking 15 minutes.  This firm is on this big lean kick this year.  I didn't go to any of the training and I know many of the preparers are very wary of the new approach.  Firm's founder died last year during tax season, so the managing partner has full reign to do whatever he wants now.  Before founder still had veto power.