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IRS Updates Guide for Business Tangible Property Regulations


Business owners should be cautious with how they manage business tangible property regulations – especially when faced with an IRS audit.  Most US business taxpayers completed the implementation of the IRS Business Tangible Property Regulations last year.  These new regulations were a guide to help business owners and their accounting and tax professionals when an expenditure qualifies as a capital expenditure versus a business expense.  Most of our business customers who implemented these regulations with our guidance noticed an increase in the number of expenditures that qualified as “expenses” when compared to the old rules.

In many cases, the implementation of the new Business Tangible Property Regulations required us to file a “Change in Accounting Method” (Form 3115).  This has caused several issues for the IRS auditors, as many require education on Generally Accepted Accounting Principles (GAAP) as well as client systemology for capturing and reporting supporting details.

The new regulations have also established a new “safe harbor” and items that fall below this threshold are not required to be capitalized.  The safe harbor is $2,500 for unaudited financial statements and $5,000 for taxpayers with audited financials.  Many business professionals ask us to argue for higher limits that reflect the nature of business volumes.  The IRS guidelines clearly state Examiners should not negotiate with taxpayers to set de minimis thresholds beyond the safe harbor limits. A taxpayer that seeks a deduction for amounts in excess of the amount allowed by the safe harbor or by agreement with IRS examining agents will have the burden of showing that such treatment clearly reflects income.”  The burden is clearly on our business clients, and yet the guidelines are quite vague as to this threshold increase is to be proven.  This is why our reporting systems and accounting methods are so vitally important to our business clients.  It is these very systems and the detailed information they provide that proves to the IRS our methodology accurately reflects business realities.


If you are a San Diego business owner we invite you to contact the experienced tax, legal and accounting professionals at Allen Barron for a free consultation at 866-631-3470.  Our clients value the economies of scale of working with a company like Allen Barron where multiple disciplines are united under a single roof.  This allows us to have a much broader and more informed discussion with our clients on all business related topics, while saving them a substantial amount of money by reducing the number of separate business, accounting, tax and legal representatives they must employ.