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Discussion:Final Repair Regulations (T.D. 9636)

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Discussion Forum Index --> Tax Questions --> Final Repair Regulations (T.D. 9636)


Rywvupuli (talk|edits) said:

7 December 2013
Does the expense threshold of $5000 per item or invoice in the final repair regulations pertain to personal property converted to business use?

thanks

Captcook (talk|edits) said:

7 December 2013
The $5,000 threshold only applies to clients having applicable financial statements. A $500 threshold applies to those without an applicable financial statement. It applies to all capitalizable items.

JR1 (talk|edits) said:

December 7, 2013
Right, except for building stuff, which is 10k, pretty liberal in my opinion.

Michaelstar (talk|edits) said:

4 January 2014
JR1 - From what I have read - your referring to the "Per-building safe harbor election for qualifying small taxpayers". In order for this to apply, on needs to have both average gross receipts of less than $10 million in the preceeding three tax years AND have an adjusted basis for the eligible building (condo, coop, or leased property) property of $1 million or less. see reg§1.263(a)-3(h)

JAD (talk|edits) said:

5 January 2014
Are you all making this election for all of your business clients? I cannot think of any reason not to make this election.

Ckenefick (talk|edits) said:

6 January 2014
Is it an election?

JAD (talk|edits) said:

6 January 2014
1.263(a)-1(f)(5)

Time and manner of election. A taxpayer that makes the election under this paragraph (f) must make the election for all amounts paid during the taxable year for property described in paragraph (f)(1) of this section and meeting the requirements of paragraph (f)(1)(i) or paragraph (f)(1)(ii) of this section, as applicable. A taxpayer makes the election by attaching a statement to the taxpayer's timely filed original Federal tax return (including extensions) for the taxable year in which these amounts are paid. See §§301.9100-1 through 301.9100-3 of this chapter for the provisions governing extensions of time to make regulatory elections. The statement must be titled “Section 1.263(a)-1(f) de minimis safe harbor election” and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under §1.263(a)-1(f). In the case of a consolidated group filing a consolidated income tax return, the election is made for each member of the consolidated group by the common parent, and the statement must also include the names and taxpayer identification numbers of each member for which the election is made. In the case of an S corporation or a partnership, the election is made by the S corporation or the partnership and not by the shareholders or partners. An election may not be made through the filing of an application for change in accounting method or, before obtaining the Commissioner's consent to make a late election, by filing an amended Federal tax return. A taxpayer may not revoke an election made under this paragraph (f). The manner of electing the de minimis safe harbor under this paragraph (f) may be modified through guidance of general applicability (see §§601.601(d)(2) and 601.602 of this chapter).

Hammock (talk|edits) said:

11 January 2014
Question for everyone on the small building de minimis related to the qualifying taxpayer having less than $10,000,000 in gross receipts.

I didn't see in the regs any mention of attributing gross receipts from related companies. For example, a husband and wife have two LLCs (that have many properties in each) and each LLC has $6,000,000 in gross receipts. Are these two LLC s still able to make the small building election for qualifying small buildings?

Ckenefick (talk|edits) said:

11 January 2014
Two pieces of good news: (1) I didn't see anything in the Regs about aggregating gross receipts with related entities either and (2) the Queen Musical (We will Rock You) is coming to Charlotte...now that's good news...perhaps the best band of all time.

Trivia Question: What Queen song references the "Income Tax?"

Nilodop (talk|edits) said:

11 January 2014
That musical is right here in Philly next week. Surprise - I am not going. Fact - here is how out of it I am: I never heard of Queen before now. The answer is Bicycle Race.

Ckenefick (talk|edits) said:

11 January 2014
I know, I know...1/14 in Philly...You have heard of Queen, you just don't know it..."We are the Champions" is one of their many famous tunes..."Another One Bites the Dust"..."Under Pressure"...by Queen and David Bowie...And guess where Lady Gaga got her name from, the Queen song, "Radio Gaga." Lest we forget "Fat Bottomed Girls" and "Bohemian Rhapsody," the latter of which was re-popularized in the movie, "Wayne's World," a Saturday Night Live skit turned into movie.

Bicycle Race is correct...we do this ab exercise in Yoga called "Bicycle." I have convinced my Yoga teachers to play this Queen song as we do this exercise in class...speaking of which, 12:30 Saturday Yoga starts soon...I've gotta run...I wonder if anyone will come up to me after class with a *tax* situation...

Until then, enjoy a little "Bicyles Races" on your own...

https://www.youtube.com/watch?v=GugsCdLHm-Q

JAD (talk|edits) said:

12 January 2014
"..."Under Pressure"...by Queen and David Bowie"

I used to play that song in the car a lot. The kids knew it from a young age. I would always play it when I was feeling crazed with everything that I had to do as a working woman with two young children. My son, then age 4, was in preschool and they were talking about volcanos. The teacher said something about volcanos being under pressure. Someone asked what "under pressure" meant. The teacher paused to consider how to explain it. My son enthusiastically raised his hand and said, "It's when you have so much to do, and you're never going to get it all done." Clearly he overhead my lamentations to my mother during various phone calls.

Ckenefick (talk|edits) said:

12 January 2014
That's really funny. I guess Queen needs to be given credit for your son's good grades.

That bass line in "Under Pressure" is pretty famous. There was actually some controversy as to who actually came up with it. We know for sure, however, that Vanilla Ice did not.

Craigums (talk|edits) said:

26 February 2014
Not to derail the discussion too much, but why oh why do we have to elect into this safe harbor?

I see no reason not to...unless you have a client buy a barrel full of $499 ipads that you want to spread the deduction over three years. (Since the election is all or none...)

Coddington (talk|edits) said:

26 February 2014
When Treasury was finalizing these regs, commentators requested an elective safe harbor. For the vast majority, their de minimis book capitalization policy far exceeded $500 or even $5,000, so they did not want to upset their existing book and tax accounting procedures. If you are outside of the safe harbor, it does not mean that everything is capitalizable. Instead, it means that you follow your existing tax accounting method for de minimis expensing, but you must now be able to demonstrate that it clearly reflects income, unless your examining agent determines it is not material.

Craigums (talk|edits) said:

27 February 2014
Ah I see. That makes sense. And the election is made annually, so no big deal if things change.

Taxalmancer (talk|edits) said:

February 28, 2014
I'm not sure electing for every client makes sense. Let's say you have a client that has large or heavy trucks. Put one in the shop and the cost of the "repair" will exceed the $500 every time. In that case, wouldn't it make sense not to make the de minimus safe harbor election?

Coddington (talk|edits) said:

28 February 2014
If it is a repair under 1.263(a)-3, then it can be expensed regardless of the amount. The de minimis expensing election under 1.263(a)-1(f) allows taxpayers to expense the acquisition, production, or improvement of units of property that fall under the de minimis threshold. It doesn't say you can only expense repairs up to $500 (or $5000 as applicable).

Actionbsns (talk|edits) said:

28 February 2014
Is there a condensed version of TD 9636? This sucker is 68 pages long and in fine print. I just printed it out, but I'm not looking forward to reading it.

Lrichards (talk|edits) said:

28 February 2014
Actionbns - When I printed it I got 46 pages. What I would like to see (for the small taxpayer, not General Motors cause I don't have any of those)is a hierarchy or list of how to implement this. For example, do you deduct items under the De minimus limit first, then set up the depreciable items next? When to elect and not to elect, etc. The question probably exposes my ignorance, but if any one knows of a summary and could share it with us all? And Chris...........bicycle, bicycle, bicycle, bicycle.............................

Ckenefick (talk|edits) said:

28 February 2014
Or is it "Bicycle Race"...

Coddington (talk|edits) said:

28 February 2014
I'm a tax accounting methods and credits guy, so I'll just level with you. The new tangible property capitalization regs are probably the single largest tax accounting compliance initiative ever. It dwarfs UNICAP, economic performance, and, going further back, the full absorption regs, all combined. Treasury officials are coming out and saying that they expect almost every business taxpayer to file method changes for 2014 (if they haven't early adopted). The IRS released the rev proc for the proposed disposition reliance regs today: 91 pages. That's on top of the earlier 30-page-or-so rev proc for other method changes and all the pages of the regs, not all of which have been finalized yet. Even if you get checklists from CCH or RIA or you attend every CPE from the Big 4, there are still huge gaps.

Actionbsns (talk|edits) said:

28 February 2014
Treasury officials are coming out and saying that they expect almost every business taxpayer to file method changes for 2014 (if they haven't early adopted).

Maybe I'm just simple, but are you suggesting that everyone is going to be expected to file a 3115 for their client? And maybe a worse question, but, why? Don't these decisions usually affect what goes forward, not what has gone behind? My clients are all really small, they buy a refrigerator for a catering business, a printer for the office, some new computers here and there and a vehicle every now and again. Much of it is taken through 179. Is there a simple, 1,000 word or less explanation of this change?

Coddington (talk|edits) said:

28 February 2014
I'll have to get back to you next week on that -- after I digest the newest rev proc released today. For your clients, maybe not. Most of the method changes involve taxpayers with substantial investments in real or personal property, whether fee interests or leasehold. If they're running a catering business out of their garage, they might not have anything. But if they have leased office space, they very well might need to make a method change.

Actionbsns (talk|edits) said:

1 March 2014
Lrichards, I'm wondering if we have the same document since yours is shorter than the one I printed. Mine gets bogged down with a lot of rhetoric about what people had to say in varous surveys. So much so that the meaning of a paragraph gets lost. It's truly a frustrating document to read. Can you post a link to your document?

Actionbsns (talk|edits) said:

1 March 2014
I was searching in my Tax Book Guide (Deluxe Edition) and in section 7-6 found a discussion on the New Repair Regulations (TD9636) that is easy to read and is a good starting point to understanding what this is talking about. It kind of fits the down and dirty, 1,000 words or less explanation. From there you could branch out and make the thing make a lot more sense I think.

Smokeytax (talk|edits) said:

2 March 2014
Actionbsns - thanks for the tip. I see Quickfinder has a similar writeup. For now, I'm thinking I'm putting clients who I want to take advantage of the new regs for 2013 on extension so that I can sort out later which require an formal election and change of accounting method.

Lrichards (talk|edits) said:

4 March 2014
Actionbsns - we must be talking about different documents. My 46 pages is the Electronic Code of Federal Regulations (TD 9636, 78 FR 57718, Sept. 19, 2013). And I got the link from someone else in this thread.

Coddington (talk|edits) said:

4 March 2014
Depending on where you get it, the length of a Treasury Decision can vary widely. In the Federal Register, TD 9636 is about 60 pages long. In the Internal Revenue Bulletin, it's about 72 pages. The advance copy sent out by the Service ahead of publication is 222 pages, mainly due to the large font and double-spacing. In Lexis Tax Center, it's about 154 pages. And none of these page counts include the simultaneously issued, proposed reliance regs on dispositions. In the advance copy from the Service, those were another 81 pages. Then we have Revenue Procedure 2014-16 (26 pages) and Rev. Proc. 2014-17 (90+ pages). And, supposedly, we're getting finalized disposition regs by the end of April.

MWPXYZ (talk|edits) said:

6 March 2014
I have a client (LLC taxed as 1065) who has removed an outdoor swimming pool from the residential rental property it purchased a couple years ago. This is the only property in the LLC. The pool was stating to leak, but more importantly: operating the pool in Northern NH was expensive and the insurance cost was high.

I believe the temporary regulations provide that the taxpayer may use any reasonable, consistent method to make the determination of the values one could assign to "components" of a real estate purchase. Thus the cost of the removal of the retired pool could be deducted. Would this be correct? Or is this an unknown until the disposition regs are issued?

Coddington (talk|edits) said:

6 March 2014
Treasury issued proposed regs on dispositions in September 2013 that went into more detail about those reasonable methods. These regs are also unusual in that, even though they are only proposed, not temporary, they are designated as reliance regs, so you can use them. One of those more detailed methods of determining the basis of a disposition is identifying the current replacement cost of the asset and trending it back to its original basis using the Consumer Price Index.

Ckenefick (talk|edits) said:

6 March 2014
Are we talking about taking a loss for the basis of the pool or the cost to remove the pool, or both?

MWPXYZ (talk|edits) said:

6 March 2014
The goal is to get both.

I think cost to remove is OK.

I am wondering about the effort/documentation required to get basis deduction.

Thanks Coddington, I will hunt down proposed regs of September 2013.

Dennis (talk|edits) said:

6 March 2014
REG-110732-13

MWPXYZ (talk|edits) said:

6 March 2014
Thanks, Dennis. I hope it has the answer I want!

Ckenefick (talk|edits) said:

6 March 2014
Probably a nice day for a swim in NH, right?

MWPXYZ (talk|edits) said:

6 March 2014
18 below last night, but temps have soared up to 32 in the bright sunshine! Should be able to break a hole in the ice this afternoon. Already sent 8 cords through the wood furnace since September.

Ckenefick (talk|edits) said:

6 March 2014
I wonder if one could chisel a tax return into a block of ice and submit it to the IRS...if that would "purport" to be a return...

Terry Oraha (talk|edits) said:

6 March 2014
8 cords. ha! kick ass! I've been burning about 3 cords a month.

Terry Oraha (talk|edits) said:

6 March 2014
I wonder if one could chisel a tax return into a block of ice and submit it to the IRS...if that would "purport" to be a return...

In a world where the SOL was 3 minutes after the ice was submitted and 2 minutes after the tax was paid, I wouldn't see a problem with that.

MWPXYZ (talk|edits) said:

6 March 2014
You may have to buy some of that insulation stuff (capitalize, not repair) for your walls and roof! Looks like warmer days are coming!
"I wonder if one could chisel a tax return into a block of ice and submit it to the IRS...if that would "purport" to be a return... "

Ice melts when it gets that close to hell.

Ckenefick (talk|edits) said:

6 March 2014
Can you stand in front of an IRS office and verbally, via Megaphone, communicate your tax return?

If not, why not? Please provide citations for your answer.

Lrichards (talk|edits) said:

6 March 2014
Nope, Comm'r v. Lane Wells Co., 321 US 219, 223 (1944). Megaphone would communicate enough information, but would not satisfy the "proper form" and signature under penalties of perjury. However, megaphone might do all this. Huh!

Ckenefick (talk|edits) said:

6 March 2014
When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.

That's from 6011(a). And Lrichards is correct. We have a little problem with "proper form" or "forms" when when we use an ice sculpture. It does make you wonder how an e-filed return satisfies this "forms" requirement.

MWPXYZ (talk|edits) said:

6 March 2014
So. . . is there something about an e-filed return that makes the preparer a "filer' of the return. Or does your paper mailing creep become a "filer" due to some other criteria, which you are not ready to reveal, yet.

Have we morphed into the wrong discussion?

Ckenefick (talk|edits) said:

6 March 2014
We're morphing.

I've already concluded that the 6702 penalty cannot be asserted asserted against Creep, the preparer.

Coddington (talk|edits) said:

6 March 2014
Is Creep a fellow Power Ranger?

Ckenefick (talk|edits) said:

6 March 2014
Probably. He's dirty too. Long, dirty fingers. On more than one occasion, he has extended his hand to shake mine, but I acted like I didn't see it...

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