The Service Issues New Administrative Authority Governing TPR De Minimis Safe Harbor Limits for Small Businesses

Written by Peter J. Scalise | Posted in IRS • Tax Deductions • TPR Compliance • Treasury Regulations

On November 24^th of 2015, the Internal Revenue Service (hereinafter the “Service”) streamlined the compliance for the Tangible Property Regulations (hereinafter “TPR”) for small businesses by increasing the safe harbor threshold for deducting certain capital items from $ 500 to $ 2,500 under IRS Notice 2015-82. The scope affects businesses that do not maintain an Applicable Financial Statement (hereinafter “AFS”) such as an audited financial statement. It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item that is substantiated by an invoice. As a result, small businesses will be able to immediately deduct expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the Service will provide audit protection to eligible small businesses by not challenging the use of the new $2,500 threshold in tax years prior to 2016. For taxpayers with an AFS, the De Minimis Safe Harbor threshold remains at $5,000.

The Service indicated that it received more than 150 letters from businesses and their representatives suggesting an increase in the De Minimis Safe Harbor threshold. Perhaps one of the more compelling letters came from The American Institute of CPAs (hereinafter the “AICPA”) on April 21^st of 2015 that strongly recommended to the Service that the De Minimis Safe Harbor threshold amount under the TPR be increased from $500 to $2,500 for small business entity taxpayers without an AFS. IRS Commissioner John Koskinen indicated today in a prepared statement “we received many thoughtful comments from taxpayers, their representatives and the professional tax community and this important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.”

IRS Notice 2015-82 can be referenced and downloaded at https://www.irs.gov/pub/irs-drop/n-15-82.pdf

Peter Scalise

Peter J. Scalise

Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has approximately twenty years of progressive public accounting experience developing, managing and leading multi-million dollar tax advisory practices on both a regional and national level.

Peter is a highly acclaimed thought leader in the fields of accounting and taxation with deep subject matter expertise in connection to designing, implementing and defending sustainable methodologies for specialty tax incentives including, but not limited to, research tax incentives; orphan drug credits; therapeutic discovery credits; accounting methods and periods; energy tax incentives in connection to green building envelope efficiency and benchmarking, solar energy, bio energies, fuel cells, wind turbines, micro turbines, and geothermal systems; and comprehensive fixed asset analysis incorporating principles of construction tax planning, cost segregation analysis and the final treasury regulations governing tangible property.

Peter is a renowned keynote speaker and an extensively published author on specialty tax incentives, tax controversy matters, and legislative updates from Capitol Hill for NAREIT, AGRION, USGBC, AICPA, ASTP, NATP, ABA, AIA, and TEI. Peter serves as a member of the Tax Faculty for CPAacademy, iShade and TaxConnections University (“TCU”). Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (“ASTP”) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable.