Don’t let them be fooled into thinking a repairs and maintenance review equals compliance.
There’s a reason that every CPE session you’ve attended in recent months has addressed the tangible property regulations. Compliance with this complex set of rules is mandatory for the 2014 tax year. If your client is not in compliance, and therefore understates taxable income, you as the tax preparer are on the hook for stiff penalties—not to mention the potential loss of a client.
But bringing your client or a prospect into compliance entails a significant amount of your time, not to mention specialized expertise regarding method changes. So how do you convey the importance of complying with these voluminous rules so that those clients are willing—even happy—to pay you for the extensive time that will be required of you?
Following are four things that clients and prospects need to know about 263(a) compliance:
- “There’s gold in them hills.” While compliance with the tangible property regulations can be an arduous climb, a thorough review by tax and engineering experts can pay for itself by mining opportunities to take current deductions for repairs and dispositions of tangible property.
- A repairs and maintenance review is not enough. Your clients should know that any report that merely identifies deductions, with no “givebacks” in the form of additional capitalized costs, is unlikely to address the client’s full compliance responsibilities. The tangible property regulations consist of five sections, each of which entails required method changes, as well as optional elections. Identifying previously capitalized costs that are now eligible for current deductions comprises only one-half of one method change (out of a total of 27).
- That capitalization policy is a good start, but it’s still not enough. Some clients are under the impression that they complied with the new rules when they put in place a capitalization policy last December. While necessary to adopt the de minimis election, the capitalization policy does nothing to address the many other components of this substantial body of regulations.
- Engineering knowledge is not enough. True compliance with the tangible property regulations requires a combination of deep knowledge of this nuanced area of the tax code. While firms that specialize in cost segregation may sing an alluring tune of tax savings, they may not have what it takes to make sure the clients’ 263(a) compliance requirements are met.
Of course, simply telling your client or a prospect what doesn’t constitute compliance is not going to give you the opportunity to help them with these complexities, and in the process, earn additional revenue. That’s why you need to present clients and prospects with a carefully thought out plan regarding the applicable method changes and the potential impact on their 2014 tax liability. Armed with that comprehensive plan—which most likely will include some tax-minimization opportunities—you will demonstrate that you are looking out for his best interests.
Backed by the expertise of Top 100 accounting firm Freed Maxick, CSP360 partners with CPA firms across the country to bring their clients into compliance with the tangible property regulations and identify opportunities for tax minimization. Contact us to learn how we can help you deliver the highest level of value to your clients.