IRS Repair Regulations

I have never been overly persuaded by business owners complaining of government over-regulation. I have been a business owner and generally I did not think complying with government regulations created a significant burden.

Until now.

The beleaguered IRS, resource constrained as it is, has seen fit to create onerous compliance requirements on business. Briefly, taxpayers are required to file a Form 3115 accounting method change application to essentially keep doing what they have always been doing.

The accounting method change has to do with accounting for materials and supplies that are not used in the year of purchase and changes to how repairs and maintenance were previously deducted. The IRS intention is to make it more restrictive to take advantage of such deductions, which most practitioners do not oppose. It is the extraordinary process taxpayers must go through to preserve accounting treatment similar to what they have been using historically.

A Form 3115 is 8 pages long and is supported by 20 pages of instructions. Completion of the form is notoriously complicated and time consuming. This for an accounting method for which permission is not needed. Taxpayers are automatically approved for the change in accounting method.

Within the last week the IRS has granted small business (defined as those with revenues of less than $10 million) an exception to completing Form 3115. But it still leaves a very wide swath of businesses with a need to complete the accounting method change form.

Businesses with more than $10 million in revenue will see their tax compliance costs increase this year whether they complete their own tax returns or use professionals.

I think there is more to come, see this entertaining CPA Trendlines article for more information and updates to this issue.

photo credit: Monopoly Income Tax Ver1 via photopin (license)


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