Tangible Property Regulations
There are two immediate opportunities for taxpayers to reduce their 2014 taxes:
- Partial Disposition Study – A limited time opportunity to report losses for portions of property disposed of in prior years.
- Repairs & Maintenance Study – An opportunity to expense items capitalized and currently depreciated that can qualify as repairs or maintenance expenses under the new rules.
- A complete analysis of TPR and a business’ current accounting methods will identify gaps and opportunities for business to comply with the final regulations.
- Based on the TPR/current methods analysis, determine the required reporting in 2014 tax returns for accounting method changes (Form 3115) and annual elections and disclosures.
Implementing TPR may provide immediate
tax benefits to businesses:
- Partial Disposition Study – claim catch up losses for portions of property disposed of in prior years, which are still on the records for depreciation.
- Repair and Maintenance Study – accelerate deductions for
items capitalized in prior years that qualify as repairs under the new rules.
- Accounting methods that may accelerate expensing of materials and supplies or the depreciation of certain spare parts.
Longer term strategies for applying TPR
will assist businesses to:
- Classify expenditures on units of property as repair costs (deductible) or as improvements (capitalize).
- Identify inherently facilitative costs when acquiring property.
- Deduct all appropriate costs when disposing of properties.
Key Business Impacts
- Implementing and maintaining new accounting methods.
- Evaluating annual elections and gathering information for tax return disclosures.
- Maintaining proper records for future IRS audit, or potential due diligence requests.
- Increased collaboration of finance, IT and tax departments.
- Updates to fixed assets policies and supporting IT systems.
Finance & Accounting
- Financial statement impact.
- ASC-740-10 (formerly FIN 48) liability computations and disclosure.
- Written financial accounting policy.
It’s the Law!
By law, compliance with the Final Tangible Property Regulations is mandatory. If your company is currently not in compliance with the new rules, you must file a change in method of accounting (Form 3115). If your business decides not to implement the new rules, the consequences may have several negative effects:
- IRS is expecting most all businesses to file Form 3115. Not filing may increase exposure for IRS audit.
- A failure to proactively respond to TPR may cause certain irrevocable elections. This may only be changed upon a private letter ruling, which may create a financial and/or administrative burden.
- A tax return preparer may be unable to sign your 2014 tax return without disclosure for non-compliance.
- Potential liability assessment of ASC 740-10 (formerly FIN 48) and related uncertain tax positions (UTP) schedule disclosure.
- A financial statement auditor may be unable to sign off on your company’s provision and/or internal control effectiveness, if material.