Tangible Property Regulations Are Now Effective

 
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Authored by: John Bennecke, Bob Gordon and Aaron Eibl

Final regulations significantly changed the way taxpayers must report the costs of materials and supplies, repairs and maintenance, and acquisitions and dispositions of tangible personal property (“TPP”) on their federal income tax returns for taxable years beginning on or after January 1, 2014. For calendar year corporate taxpayers, that means that you must have considered the new rules when preparing your tax returns due September 15, 2015. Failure to take action could result in an increased likelihood of IRS examination and adjustments to your 2014 corporate tax returns.

Ideally, taxpayers should have already reviewed and analyzed their policies and accounting procedures regarding:

  • materiality threshold for capitalization;
  • materials and supplies, including spare parts;
  • repairs and maintenance:
  • costs associated with asset acquisitions;
  • improvements; and
  • asset retirements and dispositions;

Taxpayers should then have analyzed their records and identified areas where their treatment differs from the tax treatment required by the regulations. At that point, taxpayers must decide which of the many elections they should make on their tax returns and prepare Forms 3115, Change in Accounting Methods, including appropriate section 481(a) adjustments, to comply with the new rules.

Some of the possible elections and accounting method changes to consider are:

  • Capitalizing and depreciating rotable and temporary spare parts;
  • Electing a de minimis safe harbor for expensing newly-acquired materials and supplies and units of property;
  • Electing the safe harbor for small taxpayers;
  • Electing to follow book treatment for repair and maintenance costs;
  • Capitalizing non-facilitative acquisition costs;
  • Making the partial disposition election;
  • Revoking the election to use general asset accounts;
  • Adopting the routine maintenance safe harbor;
  • Deducting non-incidental materials and supplies when used or consumed;
  • Deducting incidental materials and supplies when paid or incurred;
  • Changing the definition of a unit of property;
  • Capitalizing improvements;
  • Deducting dealer costs that facilitate the sale of property;
  • Elections regarding disposition of TPP;and
  • Changing from a permissible to permissible method of accounting for depreciation of MACRS property.

Our Expertise

The accounting methods experts at True Partners Consulting have the knowledge and expertise in this area to assist all taxpayers in evaluating their compliance with the TPP regulations and recommending and implementing practical approaches to follow the new rules on their 2014 tax returns,  as well as making recommendations for future filings.

Victor Polanco
Managing Director
312.235.3310
Victor.Polanco@TPCtax.com

Kristin Mauer
Director 
408.625.5069
Kristin.Mauer@TPCtax.com
 

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