Relief for small business in filing Form 3115

Forbes magazine said it best, there was a massive collective sigh of relief yesterday from accountants preparing U.S. tax returns the world over. For background, the IRS issued final rules effective for tax years beginning on or after Januaray 1, 2014 dictating how taxpayers were allowed to treat purchases of fixed assets (things like computers and furniture or buildings) or materials and supplies. These rules specificed when and how they could be deducted for both book and tax purposes. Because of the method of implementation these rules were considered a change in accounting method which required the duplicate filing of a Form 3115, Application for Change in Accounting Method, even if the new method of calculating the deductions resulted in no change. The Form 3115 can be relatively simple but tends to get complicated in a hurry and tax return preparers were not looking forward adding this to every business return or individual return with business activity.

Thanks to the AICPA and other parties the IRS has given us some relief from the filing requirement for small taxpayers. Small taxpayers are those with average gross receipts of $10M or less for the three prior tax years or total assets of less than $10M on the day of the tax year. This group of taxpayers, undoubtably the largest group of taxpayers by volume, does not have to file the form to effect the change and only has to attach a statement to their tax return.

This is quite welcome news but taxpayers should consult a tax professional as to whether they should take advantage of this relief because among other advantages the filing of the Form 3115 provided audit protection from the IRS for those tax returns.

More information and the full text of the Revenue Procedure 2015-20 can be found on the IRS website by clicking here.

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