Tuesday, November 25, 2014

The Final Tangible Property Capitalization Regs (Presenter Vignettes)

I've fallen off my promised posting schedule to work on more important projects. One of these projects involves guidance on the final tangible property capitalization regulations. As part of this process, I have been collecting incorrect statements from professionals presenting on this topic. I won't name names, but here are some of the more interesting ones.

  • The de minimis expensing is made once and is irrevocable. It is made once each year and is irrevocable for that year. You still have to file the election every year.
  • If you do not file method changes in tax year 2014, you will permanently lose tax deductions. Only timing differences qualify for method change treatment. If you fail to file a method change application in 2014, your clients will still get the deductions. It may not be when and how they would like them, but they will still get their deductions. Even if a change is made under audit, since these are timing differences, the agent would be required to follow Rev. Proc. 2002-18 and make the change on a method change basis in the earliest open year.
  • The automatic method changes will not be available after tax year 2014. The automatic method change for late partial disposition elections will not be available after tax year 2014. It will still be available in later years by filing a private letter ruling request. Otherwise, the only things slated to expire are the scope waivers. In general, scope waivers permit an automatic change in circumstances where it would ordinarily be prohibited. For example, if a taxpayer changed its Unit of Property definitions in 2012, the waiver of the five-year item scope rule allows it to make an automatic change in 2014. For the most part, these waivers are only relevant to taxpayers under exam or big taxpayers who have already made method changes in these areas. The automatic changes themselves are not going anywhere. 
  • If you do nothing, your taxpayers will have a zero dollar expensing threshold. This is the most puzzling comment I have run across. Most taxpayers already have an expensing policy for book and tax purposes where they expense items costing less than a set dollar amount. To change from that is an accounting method change, which would need advance consent from the Service under Rev. Proc. 97-27. If a client does nothing, they would continue to follow their existing method and would need to prove clear-reflection-of-income under prior law if examined. After all, the de minimis expensing safe harbor is just a safe harbor.
The point of the above anecdotes is not to ridicule any speaker, but rather to correct some of the disinformation floating around out there. After all, it's hard enough to get right as it is. Also, everything I've said above can be substantiated by the regulations, revenue procedures, or informal, public comments by Treasury or Chief Counsel. Good luck.

Wednesday, October 22, 2014

New Series

Having restarted my blog with a practitioner-to-practitioner focus, I am launching a series of posts based on my experiences interacting with other tax practitioners online and in real life. These posts will address frequently asked questions and common misconceptions in the area of tax accounting methods and credits.

IRS to Restaurants: Comply with UNICAP!

On September 26, 2014, the Service released Chief Counsel Advice 201439001 on restaurants' UNICAP compliance. Historically, few restaurants complied with UNICAP. This led to LB&I examining a number of restaurants on this issue.  In this memo, Chief Counsel advised the Field that restaurants willing to adopt a reasonable facts-and-circumstances UNICAP method should not be required to use the Simplified Production Method.

Friday, September 5, 2014

Standards for Written Tax Advice

Today I am interested in Circular 230 and its standards for written tax advice. Though I may later address how written tax advice relates to penalty issues, my primary concern is how the standards fit in with Circular 230 after Loving and Ridgely. I am not entirely certain that they do fit in. So let's rewind a few years.


Once again, my old blog is gone. Starting from this clean slate, my new blog will have three primary purposes:

  1. Briefly discuss new tax developments.
  2. Address recurring issues from my practice or common questions from the tax practitioner community.
  3. Discuss professional practice issues, such as ethics, tax research, software, and other related topics.
I cannot promise scholarly treatises or pithy marketing slogans. If you need those, I'm available for hire and you can find my contact information here