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Post Tax Season 263(a) Opportunities to Get New Clients from Competitors

Posted by Don Warrant on 5/22/15 9:03 AM

Don’t let competitors use a letter like this to steal your clients.

Most accountants spend the end of April and early May catching their breath and letting the dust settle from the spring filing season. Once you’ve cleaned up and started planning for the summer, remember that there’s a very rare opportunity this year related to the 263(a) tangible asset rules. Taxpayers who timely filed their 2014 federal tax returns receive an automatic extension of time to amend their tax returns to file Forms 3115 and make late elections.
 
Most commercial real estate businesses are likely to see a significant impact from the regs. Given the constant need for repairs, replacements and maintenance on buildings, these clients need to make sure that they have correctly implemented the accounting method changes and claimed the related adjustments. Because the IRS will continue to release guidance even after the filing season has ended, CPA firms should continue to consider this an important topic to discuss with clients. For example, the rules on building refresh’s are still evolving and IRS guidance is expected anytime.
 
You may very well be on top of things and maximizing any 263(a) opportunities for your clients. On the other hand, if you are behind the curve, you’ve opened up a tremendous window of opportunity for a more aggressive competitor to poach clients.
 
Given the complexity of these rules and the fact that significant pieces of guidance have yet to be released, the next few months are a great time for your firm to aggressively reach out to potential clients about their 263(a) opportunities. For example, if they already filed, explain how you can help them capitalize on a missed opportunity under the automatic extension procedures. If they are on extension, then their current tax preparer may not have pinpointed the tax savings opportunities, carpe diem (seize the day)!
 
Here’s what that letter from an aggressive accounting firm to your client might look like.

263a

We’re pretty sure that you would be very displeased if one of your clients got a letter like this, but your clients are fair game for firms that can deliver more tax advantages from an opportunity with an ever closing window.

This opportunity to amend 2014 tax returns under the automatic extension period might be missed by other tax return preparers. But it’s also an opportunity that some of your competitors may seize if you don’t.

If you would like to evaluate your clients’ plan to comply with the new rules for tangible property, we can help. Contact us to schedule a consultation.

For more on this topic, be sure to download our whitepaper, “Using the New Tangible Property Regs to Help Clients and Gain New Business

Tags: 263(a) regulations, tangible property regulations, Don Warrant, accounting method changes, Form 3115

CPAs Should Urge Commercial Property Owners to File Forms 3115… Despite IRS “Relief”

Posted by Don Warrant on 2/19/15 11:41 AM

Benefits of filing Form 3115 include IRS audit protection and valuable tax savings from prior-year repairs and dispositions.

Revenue_Procedure_2015-20To file Form 3115 or not. That is the question of the week.
 
Our answer: Owners of commercial property should continue to file a Form 3115 with their 2014 tax returns with limited exceptions (see sidebar), even though it may require filing extensions to allow adequate time to complete and file a Form 3115.

Sure… on its face, Rev. Proc. 2015-20 appears to be a reason to celebrate. Small taxpayers can now choose to make changes in accounting methods for tangible property without filing a Form 3115, as long as they use a “cut-off” method (i.e., for tax year 2014 and going forward).
 
Whew! Tax preparers can breathe a huge sigh of relief as a looming mountain of paperwork disappears in a puff of smoke. Right? Not really.
 
Filing a Form 3115 actually provides a number of protections that your client is waiving by taking advantage of this so-called “relief.”
 

  1. IRS examination protection. When taxpayers file Forms 3115, they receive IRS examination protection for their accounting method treatment for all prior tax years. By taking advantage of the exception for small taxpayers, your client waives that protection. For clients who may have aggressively expensed items in prior years under their old methods, that protection is likely worth the cost of preparing the Form 3115 (at most a couple of hours of your time). You still need to perform the work and documentation as to the methods and elections that apply to the 2014 tax year.
  1. Current deductions of previously capitalized items. Your client could be missing out on some taxpayer-friendly provisions within the Tangible Property Regulations if they choose to use the “cut-off” method. Many owners of commercial real estate actually have been fairly conservative in the past with regard to capitalization of costs in prior years. They could have tens or even hundreds of thousands of dollars in remaining tax basis that, under the new unit of property rules, are now eligible for current deductions. Without a method change filing, those deductions are off limits.
  1. Late partial disposition. As we’ve said in prior posts on "late" partial dispositions, taxpayers have a one-time opportunity to recognize partial dispositions of property that occurred in prior years on 2014 tax returns—and only if they file a Form 3115. Your client is waiving this opportunity if they file their return without a Form 3115.
  1. Recognize an unfavorable section 481(a) adjustment over a four-year period. If you have a commercial real estate client who aggressively expensed items in prior years that now must be capitalized and depreciated, then that client will be better off by coming into compliance now and spreading the hit over a four-year period. If the IRS finds those issues upon examination, they will require an immediate increase in income.

Resistant Clients? Have Them Sign a Waiver

What if your client has heard about this so-called good news from the IRS and demands to skip the Form 3115? We recommend that you ask your client to sign a written acknowledgement of the following:

  • They waive IRS exam protection for the item for all prior tax years.
  • They forego any tax benefits associated with a method change for repairs or for dispositions—including the expiring “late” partial disposition election.
  • Filing the return without a Form 3115 is irrevocable once the return is filed.
 
IRS issued Revenue Procedure 2015-20 revising Revenue Procedure 2015-14 Of course, we believe that your commercial real estate clients will see the light when you present all the benefits that can come from digging into their fixed asset and depreciation schedules to uncover tax savings while bringing them into compliance with the Tangible Property Regulations. If you have questions about whether filing Form 3115 is right for your client, contact us to learn how our accounting method change specialists can help.

Tags: commercial real estate, tangible property regulations, Don Warrant, Form 3115, fixed asset, Revenue Procedure 2015-20

And Here’s the Changeup: IRS Eases Transition to New Accounting Method Rev Proc

Posted by Don Warrant on 2/11/15 9:05 AM

Update: Revised revenue procedure means CPAs can continue to use existing method change templates citing Revenue Procedure 2011-14 for 2014 tax returns.

accounting_method_changes-1On Monday, the IRS followed up its tax-season curveball with a changeup. The Service issued a revised version of the revenue procedure issued on Jan. 16 that gives taxpayers and their tax preparers some welcome news with regard to preparing Forms 3115.

The Latest Ruling on Forms 3115

The revision recognizes that some taxpayers may already have prepared a Form 3115, Application for Change in Accounting Method, for their 2014 tax year with the expectation of using the procedures outlined in Rev. Proc. 2011-14. In addition, the existing Form 3115 and its instructions conform to Rev. Proc. 2011-14. A revised Form 3115 and instructions conforming to the procedures outlined in Rev. Proc. 2015-14 is expected sometime later this year.
 
The final word (for now) on these automatic method changes is that if your clients’ tax year-end falls between May 31, 2014 and January 31, 2015, you can (and should) continue to use the procedures outlined in Rev. Proc. 2011-14 rather than new procedures outlined in Rev. Proc. 2015-13.
 
Overview-of-Automatic-Method-Changes-1So rather than taking valuable time to update your firm’s templates for Form 3115 preparation, you can continue to use your existing templates for clients that fall into the tax years identified above. Other than this latest development, our guidance about these new revenue procedures remains largely unchanged—i.e., stay calm and carry on with tangible property compliance efforts.
 
If you are looking for guidance on these new accounting method change procedures, schedule a consultation with CSP360.

Tags: Don Warrant, accounting method changes, Form 3115

IRS Throws Curveball: Changing Procedures for Accounting Method Changes

Posted by Don Warrant on 1/28/15 9:06 AM

Stay calm and carry on with tangible property compliance; expect revised Forms 3115

accounting_method_changesThe IRS issued two new procedures for accounting method changes just as tax season was heating up, throwing a curveball into steps commercial property owners and their CPAs need to take to comply with the new Tangible Property Regulations.
 
Since the announcement on January 16, CSP360 has been inundated with questions about what these two new revenue procedures mean for CPAs’ efforts to get their clients into compliance. Here’s what you need to know about how to keep your clients happy by staying on the right side of the IRS.
 
  1. Continue calculating those 481a adjustments. We are sure that you have been taking our advice to start early on your 263(a) compliance efforts so you have plenty of time to act on tax-saving opportunities such as the soon-to-be-extinct late partial disposition election. The good news is that all of that work will not be for naught! The new revenue procedures do not change the steps required to bring taxpayers into compliance with the tangible property regulations.
  2. Update templates for making method changes. The primary changes in the new revenue procedures have to do with clarification of the rules for taxpayers who are under examination or in appeals, as well as for foreign corporations and partnerships, and a variety of other changes. These changes affect both eligibility for method changes and for 481(a) adjustments. If your firm uses templates to facilitate Form 3115 preparation, then make sure that those templates are updated to reflect all of these changes. If not, then you could overlook a procedure that could result in filing an improper method change—and potentially higher taxable income for your client.
  3. Expect updated Forms 3115. One consequence of the new procedures is that the existing Form 3115 now requires revision. Don’t be surprised if the IRS issues a revised Form 3115 very soon, as well as a second one specifically customized for use by eligible small taxpayers. Given the likelihood of new forms, consider holding off on filing Forms 3115 as long as possible in the event that you may be required to use the new Forms retroactive to filings since January 16, 2015.
  4. Change in procedures for removals. Remember when we told you that method changes for dispositions of property and for removal of that property must be filed, not only on two separate Forms 3115, but in two separate places? The new revenue procedure consolidates all automatic changes and requires that they all be filed with Ogden, Utah. However, the requirement to file two separate Forms 3115 for removal and disposition of property have not changed.

What Happens If You File Improper Forms 3115?

Our take? Don’t panic!
 
Here are the three things described in the new procedures that could happen if you file an improper Form 3115:

  • The director may make adjustments to bring the change into compliance
  • The director may deny the change in method of accounting and place the taxpayer on the proper method
  • The director may deny the change and require the taxpayer to use the old method
However, we believe the IRS will recognize that these new procedures blindsided the CPA community as we are entering our busiest time. For the most part, we expect that they will fix incorrect filings rather than deny a method change due to a procedural error.
 
Overview-of-Automatic-Method-Changes-1Just keep in mind that if that “fix” involves a positive 481(a) adjustment, then your client could be facing higher taxable income, penalties and interest. The new procedure requires the IRS to apply any adjustment to the oldest period covered by the 481(a) adjustment. The best way to keep your clients happy is to stay on the right side of the IRS by seeking out guidance from accounting methods specialists who can interpret these revenue procedures and file the forms appropriately.
 
If you have questions about how the new accounting method change procedures affect you and your commercial real estate clients, contact CSP360.

Tags: Don Warrant, accounting method changes, Form 3115

Telling Clients About Your (GASP!!!!!!) Fees for 263(a) Compliance

Posted by Jennifer Birkemeier on 12/30/14 9:48 AM

Hear that noise? That’s the collective intake of breath from property owners all over the U.S. when they hear estimates for 263(a) compliance... but there may be some good news, too....

Partial Property DispositionYour role as a tax practitioner is to make sure your client has complied with all applicable Internal Revenue Code and Treasury Regulations. And due to the final tangible property regulations, that compliance work will require significantly more time and expense this year than your clients might be expecting—anywhere from tens to hundreds of hours per client.
 
Why is the compliance load so burdensome with this round of regulations? In a word: documentation. In addition to the significant investment of time to understand these complex regulations, the IRS is expecting all taxpayers that own or lease buildings to file at least one Form 3115 for method changes required to comply with the new regulations impacting building property. Otherwise, the taxpayer must show why such method changes weren’t required for their building property. As a tax return preparer, your professional standards for tax return preparation require that you document your client’s compliance with these Regulations to avoid potential preparer penalties.

The Good News: The Spoonful of Sugar That Will Help the Medicine Go Down!

The good news is that most commercial building owners are eligible for method changes and elections that will result in federal tax deductions. And those onerous and time-consuming Forms 3115 will protect those tax deductions in the event the IRS examines your client’s tax return. 
 
So, to fulfill your own professional standards and to demonstrate to building-owning clients the benefits of compliance, tax return preparers should discuss (and clearly document the results of those discussions) each of the following tax-saving opportunities from the tangible property regulations:
 

  1. De minimis. Making this safe harbor election allows your clients to write off amounts paid to acquire, produce or improve tangible property—up to $5,000 per item or invoice for clients that have an Applicable Financial Statement and follow written accounting procedures ($500 for clients without an AFS). In addition to reducing taxable income, this safe harbor will protect amounts expensed in the event of an IRS examination.
  1. Small taxpayer safe harbor. This safe harbor, which is made on a building-by-building basis by eligible small taxpayers, also serves to reduce taxable income and to protect all amounts expensed from IRS examination. The total expenditures for the year for each qualified building may not exceed the lesser of $10,000 or 2% of the original cost of the building. If total expenditures for amounts paid to maintain and improve the building for the year exceed this limitation by any amount, the safe harbor is not applicable for that building.
  2. Dispositions. The “late partial disposition” election, which allows a tax deduction for portions of building property disposed of in prior tax years, is only available for the 2014 tax year. So use it or lose it!
  1. Improvements to tangible property. Many building owners have unknowingly capitalized repairs in prior years that now can be expensed. The identification of capitalized repairs is based on the new unit of property rules, which the regulations have defined as the building and its structural components, and eight specific building systems. A new three-part test is applied to each unit of property to determine whether the amount is a deductible repair.
tangible property regs Failing to identify and make elections and/or method changes that will reduce or eliminate your client’s income tax liability and protect your client’s expenses from IRS examination could have repercussions if examined by the IRS or a competitor. Therefore, best practice is to identify those elections and method changes that are applicable and document your client’s decision—whether or not those elections and method changes will be made. It is likely that such elections and method changes will substantially reduce your client’s costs to comply while you satisfy your professional standards as a tax return preparer.
 
Need help identifying opportunities to lower your clients’ tax bills while also bringing them into compliance? Read our guide to using the tangible property regulations to help clients and gain new business.

Tags: 263(a) regulations, tangible property regulations, Jennifer Birkemeier, Late partial dispositions, Form 3115

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