Written de minimis Capitalization Policy

Chris Shumate's Profile

de Minimis Capitalization Policy

In efforts to comply with the U.S. Department of Treasury has anyone started, or does anyone have a template you would be willing to share for the new de minimis deduction rules?

Answers

Proformative Advisor
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The main thing you need to ensure for 2012 if you have an existing business pre-2011, is that the CPA who preps your return files a change in accounting method during for the 2012 tax return. The accounting change filing is mandatory and the IRS is expecting to see one for all buisness filings prior to 2012. Your CPA needs to be on top of that and prepared to address it.

Regarding the final regulations, they should be issued soon in December 2012.

One of the most comprehensive high level summaries on this topic including the de minimus rule changes is found at this link

http://tax.cchgroup.com/downloads/files/pdfs/legislation/capitalization-regulations.pdf

This CCH analysis is posted at State Society websites also, so I believe it is the most recent full scale document unless you can find another one.

Here is a worthy blog analysis
http://www.rehmann.com/toolsresources/tax_alerts/comp_repair_cap_regs_4

Here are the Revenue Rulings (contained in bulletins)
http://www.irs.gov/irb/2012-14_IRB/ar07.html (Rev Proc 2012-19)
http://www.irs.gov/irb/2012-14_IRB/ar08.html (Rev Proc 2012-20)

My advice is to buy the 2013 US Master Depreciation Guide advertised in the CCH pdf and the 2013 US Master Tax Guide because they will have the final summaries with updates to the MACRS rules and the de minimus rules as well.

In the mean time review the 27 pages provided by CCH.

The audits that will occur will be testing the conformance with the paperwork guidelings and how well you follow the letter of the rulings and regulations within the scope of the dates provided.

Best.

Please note:

IRS Circular 230 notice: Any tax advice contained herein was not intended or written to be used, and cannot be used, by you or any other person (i) in promoting, marketing or recommending any transaction, plan or arrangement or (ii) for the purpose of avoiding penalties that may be imposed under federal tax law.

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Valerie - Thank you for the information you provided. Yesterday I attended a webinar by a national, non-Big 4 firm regarding these updates. I work for a construction contractor, so these changes are going to impact us quite a bit. One thing that I do not agree with is that the tax returns are not considered "Applicable Financial Statements". We have a separate entity with multiple properties that the GAA election is not available because each are not filed with the SEC, nor certified audited, nor required to be filed with federal or state governments.

However, the parent company will be able to benefit from this election.

Thanks again!

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Proformative Advisor
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The transition will be difficult for many small businesses given that if they do not have a financial statement prepared they will not be able to take advantage of the good things.

If your company has a parent company that does prepare a financial statement and your company is consolidated into it, then my guess is that the parent financial statement will satisfy the requirement, even if you file a separate tax return. I would look into that. I have not read there is any detail definition between parent vs sub reportable entities with regard to having the data included in a financial statement. So look into that question.

In addition you are able to prepare a report similar to a "Board Report" and if there are financials included in that package and you can show evidence of a meeting attended by the Board or management team where the package was presented and discussed, even though you don't have an "audit" or formal financials, I believe that may qualify for the financial statement aspects. Of course you need to look into that a little more to see the requirements. You may be able to add on a communication activity in Q4 to satisfy that requirement.

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