Up until recently, most businesses needed to file Form 3115 to ensure that tangible property items have been properly capitalized or expensed in current and prior years. However, the IRS recently issued Revenue Procedure 2015-20 which provides relief for certain businesses. Under this new procedure, certain small taxpayers have the option of following the new regulations only prospectively, without filing a 3115. Please note that a small taxpayer is any business with total assets of less than $10 million as of the beginning of the first tax year that started on or after Jan. 1, 2014, or with average annual gross receipts of $10 million or less over the three prior tax years.
First, you should note that it will take time to review the regulations associated with Form 3115. Specifically, be prepared to spend time reviewing your accounting records. The IRS has actually provided guidance for practitioners and businesses to understand and apply the law. Specifically, the IRS recommends 20 hours to learn the law, 39 hours to review work papers and 24 hours to prepare the form. While we believe that these estimates are a little extreme, it will still take several hours.
While it may take time to prepare, it’s important to note that your business may benefit financially by filing the form. There may be several instances in which your business can and should have claimed expenses that it has not done so in the past. This will be reported as an IRC Section 481(a) adjustment.