The IRS Conducts a 2 hour Webinar on the TPRs
[Note the following is based upon my notes taken during the two hour presentation. The IRS has promised to post the webinar (and hopefully also the Q and A session to the IRS website). We will provide the IRS webinar link when it becomes available, around the 1st week of August 2015. When the IRS does that posting, I will be able to listen to that webinar and its related Q and As several times to be sure of the statements made or not made. Until then, please note that my observations below may be modified.] The IRS conducted a two hour webinar where it presented a 30 minute previously taped webinar on the highlights of the TPRs (with even a couple of IRS commercials inserted here and there). That session of the webinar covered the main points of the TPRs. The following were some of the key points from that part of the webinar:
a. The purpose of the TPRs was to compile decades of conflicting case law and to provide administrative guidelines for taxpayers to address TPR issues.
b. There was a lot of talk on the DMSH. Some of those points were:
i. The taxpayer has the burden to show that its deductions above the DMSH clearly reflect income.
ii. The IRS suggests that if you do have a deduction amount in excess of the DMSH you should still file the DMSH election with the return to at least garner the DMSH safe harbor protection.
c. Paraphrase: Every taxpayer must file 3115s to use the benefits of the TPRs.
i. I assume that this means that a large taxpayer must file the 3115s but a qualified taxpayer can default to the “filing” deemed done (i.e. the Form 3115s) if it employs the provisions of RP 2015-20
d. If you employ the provisions of RP 2015-20 you cannot take 481(a) for tax years before tax year 2014 and such will restrict your ability to obtain those benefits in subsequent tax years.
e. After the taped session the IRS took some questions. Here are my main observations on those questions and their answers:
i. The IRS seemed to be “shooting from the hip” on some of their answers to the questions asked in the webinar. For example, when asked if shingles are considered a repair and maintenance or a capital item, Scott Dinwiddie of the IRS appeared to have answered that if the taxpayer replaced all of its shingles it would be required to be capitalized. Later in the Q and As he seems to have reversed that statement and stated that only if the taxpayer replaced its complete roof that included shingles it would be required to be capitalized.
ii. A question was asked about a taxpayer who had a $750 item that is required to be capitalized as it is above the taxpayer’s DMSH amount but a $75,000 new roof for shingles may not be. Scott also provided the answer, whose main points are paraphrased as follows: (a) the dollar amount, whether $75 or $75 million is not the crucial factor. The TPRs are not dollar based but rather are principal based (other than the DMSH amounts).
iii. One of the IRS persons seemed to read a script that seismic “bolts” installed in a building increase the strength of the building so therefore must be capitalized. She did not mention nor address the issue of “materiality” however.
iv. There were a few statements about the employment of RP 2015-20 made:
1. A taxpayer may comply with the TPRs, if qualified, without filing the Form 3115s and only employ the TPRs 2014 and afterwards. [I agree with this statement]
2. Such a taxpayer will not go back prior to tax year 2014 for its implementation or 481(a) calculations. [I agree with this statement]
3. “if a taxpayer plans to file the TPR Form 3115s in tax year 2015 and wants to include items in prior tax years it MUST put a statement in its 2014 tax return a statement that is not following RP 2015-20. It is better off if it does.
a. While I agree that a taxpayer is better off making a statement in its return that it is not following RP 2015-20, it seems that the IRS FAQs on its website does not require such a statement to be made:
i. “If you choose not to utilize the simplified procedure and do not file Form 3115 to change to the final regulations with your 2014 tax return, you should consider including, but you are not required to include, a statement on your 2014 tax return indicating that your qualifying trade or business is not applying the simplified procedure of Rev. Proc. 2015-20.”
b. This is a serious restriction if the IRS restricts taxpayers from filing TPR Form 3115s after tax year 2014 that cannot be employed for tax years prior to 2014. As RP 2015-20 seems to make this statement, and the IRS FAQs seem to state otherwise, I have placed a call into the IRS author of RP 2015-20 to ask her which is true. I will keep you posted as I obtain a clear(er) answer.
c. Recommendation: Make sure your taxpayer 2014 returns include the following statement if you intend to file the TPR Form 3115s after tax year 2014: “We hereby state that we are not following Revenue Procedure 2015-20 in which to implement the tangible property regulations.”
v. The IRS stated that it is going to update and expand its FAQs on the TPRs.