The Internal Revenue Service has recently released comprehensive repair/capitalization final regulations for tangible property. These Regulations generally apply to taxable years beginning on or after January 1, 2014.
These rules set forth various tests, safe harbors, and elections for the tax treatment of fixed assets and expenditures such as repairs and maintenance. Company accounting policies must be in compliance with the new regulations. Most of the regulations require taxpayers owning assets to comply with these regulations by applying for a change in accounting method requiring consent of the Commissioner by filing a Form 3115. Depending on the taxpayer and the assets, multiple Form 3115s may be required to be filed with the 2014 tax returns.
The IRS has stated it will scrutinize returns that did not include a Form 3115 with the 2014 tax return. The general presumption will be that every business with material and supplies or depreciation must adopt the final regulations. Chances of an audit will increase significantly if a Form 3115 is not filed.
The capitalization rules are a complex area of the tax law. It is important for you to start the review process now so that you can comply with these Regulations. As always, please call us if you have any questions or would like to discuss these topics further.