Tax Blog

March 27, 2015

IMPORTANT REMINDER!!!  The tax deadline is near which means that income and self-employment tax owed is DUE BY APRIL 15th even if you are planning to obtain a filing extension. If you haven’t already made an estimate of your 2014 tax liability and compared it to your tax withholding as shown on form W-2 and any estimated tax payments, this is something to consider at this time. If you find that you are unable to pay the projected tax liability, you should consult with an experienced tax professional familiar with such matters.

Gary M. Zweig


Planning Ahead

March 27, 2015

While your 2014 tax return is fresh in your mind, this is a great time to make a copy of the return and begin planning for 2015. Consider making an appointment for early May to review the return to learn about the tax effect of your wages, marketable security investments, real estate investments, planned capital expenditures, planned debt repayment and other tax relevant transactional matters. Follow this meeting with planned or scheduled updates to monitor these early talking points.     

IRS Simplifies Complying with the New Repair Regulations for Small Businesses: 

February 16, 2015

On February 13, 2015, the IRS released Revenue Procedure 2015-20[ “RP” ]. This RP allows “small business taxpayers” to make certain accounting method changes for the first tax year beginning on or after January 1, 2015 without filing a Form 3115, Application for Change in Accounting Method. Background On September 13, 2013, final regulations [“TPRs”] were issued which provide guidance with respect to the issue of whether a particular expenditure is an amount paid to acquire, produce or improve tangible property or whether the amount may be deducted in the year paid or incurred as a repair expense. This determination is based on an examination of all relevant facts and circumstances. The final regulations provide that generally a change to comply with the TPRs is a change in method of accounting. This means that a taxpayer seeking to change to a method of accounting permitted in the TPRs must secure the consent of the Commissioner in accordance with applicable regulations and administrative procedures issued for obtaining such consent. The regulations for obtaining consent require the taxpayer to calculate the effect of this change in prior years using the criteria of the new TPRs as if they existed in such prior years to make certain that income is not omitted and deductions are not duplicated in the year of change. This calculation may require significant time and resulting increased administrative costs for taxpayers.

The IRS ultimately agreed that the filing of form 3115 and the calculation required for “small business taxpayers” should be optional.

RP 2015-20

Qualifying Taxpayers

Small business taxpayers are those with either total assets of less than $10 million or average annual gross receipts of $10 million or less in the prior three taxable years

Basic relief: A taxpayer wanting to use this new simplified method will not have to file Form 3115

Qualifying taxpayers using the provisions of this RP

1. Only have to take into account amounts paid or incurred and dispositions in taxable years beginning on or after January 1, 2014. This means that the previous regulations apply for prior year transactions and the new TPRs apply in 2014

2. Certain elections remain available to taxpayers using this RP

3. This RP does not offer audit protection for pre 2014 transactions. At least one commentator has expressed the view that even with a zero prior year effect adjustment [ technically a IRC 481(a) adjustment, commonly referred to as a “481(a) adjustment” ] while the IRS may dispute the amount of the 481(a) adjustment the Form 3115 provides audit protection with respect to the taxpayers receiving automatic consent for method changes included in the form as well as the unit of property determination.

Tasks and Considerations in Applying RP 2015-20

1. Taxpayers are still required to comply with the final TPRs issued in 2013. This requires a review of internal policies and procedures applicable to the determination of whether a particular expenditure satisfies any of the BAR tests for proper recording in both the books of the business and the related tax return. This analysis may involve an understanding by both the relevant accounting personnel and CPA of business operations, building or machine functionality, project design or expenditure purpose and related invoice interpretation. A single dollar denominated metric indicating materiality and therefore tax treatment is not consistent with the principals comprehended by the BAR tests of the TPRs. Working familiarity with the technical meaning of betterment, restoration and adaptation as used in the TPRs is essential to compliance

2. An understanding of the elections available in the TPRs remain important

3. Determination of the relevant unit of property is foundational for compliance with the TPRs and necessary to support capitalization or deductible repair decisions prospectively

4. Without filing Form 3115, the benefit of administrative convenience may be offset in part if there is no clear record of a change in method of accounting if examined. It appears advisable to document certain method changes and compliance in the event such issues are raised upon examination by the IRS in the future

5. Without filing Form 3115, the benefit of a large negative 481(a) adjustment, meaning a current deduction in the 2014 tax return will be lost

6. Removal of fully depreciated assets from the depreciation schedule that could have been deducted in prior years using the BAR tests is precluded. These assets are subject to recapture income which if written off would be eliminated.

7. Loss of IRS 1231 losses for assets no longer existing due to prior year abandonment that continues to be depreciated event though replaced with a new improvement that is also being depreciated [ sometimes called “ghost assets” ]

The information provided is an initial summary of this new revenue procedure. It is general information and not intended to relate to the reader’s specific facts and circumstances. Consultation with a tax professional is advisable in interpreting and applying this information to your facts and circumstances. The information presented while intended to be accurate, there is no guarantee as to its accuracy or that it will remain accurate over time. Certain content is the opinion of the writer based on experience and is meant to help interpret the content or its general application.

Gary M Zweig

Gary M. Zweig, An Accountancy Corporation San Diego office:

5080 Shoreham Place, Ste. 201

San Diego, CA 92122

Telephone (858) 646-0681

Fax (858) 646-0684

Email: gzweig@zweigaccounting.com

Visit our website at: www.zweigaccounting.com

This information is not intended as tax advice and cannot be relied on for any purpose without the services of a qualified professional. This post contains general information based on authorities that are subject to change.

Possible Relief From New Repair Regs?

February 11, 2015

On Tuesday, February 10, 2015, the AICPA reported that the IRS and Treasury are considering recommendations to provide relief from the reporting requirements related to the repair regulations. Relief for small businesses, if any, is projected to be released over the next several weeks.

The relief the AICPA has requested includes the following:

  1. Make Form 3115 and the IRC 481 adjustment optional

  2. Make the rules prospective

  3. Accept a statement in lieu of Form 3115 to acknowledge compliance with the regulations; and

  4. Raise the de minimis safe harbor from $500 to $2,500

The regulations and related guidance have been well vetted. Both the IRS and Treasury have received comments related to the administrative burden associated with implementation, including and most importantly, the need to file Form 3115 (consent to adopt the new regulations). In January, Revenue Procedures 2015-13 and 2015-14 were issued with updated procedures to follow to obtain both advance (non-automatic) and automatic consent of the IRS to change accounting methods. It therefore appears that taxpayers and their accountants are faced with challenges in respect of actions which should be taken at this time given the uncertainty associated with any further IRS change in reporting protocol.

For many taxpayers, obtaining a filing extension may be a practical approach. Until we know more about what the IRS may provide in terms of guidance, relief, support or enforcement, rushing to file may not be the best option. Consideration of this issue and discussion with your accountant appears to be reasonable advice in order to obtain an understanding of relevant rules, the tasks needed for compliance in terms of your specific facts and circumstances, and your options for managing this tax issue.

One well respected commentator has suggested that the definition of small taxpayer eligible for relief may be defined in terms of annual revenue with applicable thresholds between $1 million and $5 million as the upper limit. It may be too optimistic to expect that the Form 3115 requirement will be waived entirely. In any event, I will be closely following this dynamic and complex tax issue and plan to add information on this blog section of my web site as appropriate.

Please feel free to call me with questions or concerns related to your situation.

Gary M Zweig

Gary M. Zweig, An Accountancy Corporation                          

5080 Shoreham Place, Ste. 201    

San Diego, CA  92122                     

Telephone (858) 646-0681                  

Fax (858)646-0684

Email: gzweig@zweigaccounting.com

This information is not intended as tax advice and cannot be relied on for any purpose without the services of a qualified professional. This post contains general information based on authorities that are subject to change.

Tax News and Commentary

January 30, 2015

House Majority Leader Kevin McCarthy said today that the permanent renewal of IRC 179 expensing and the tax-free charitable IRA distribution provisions are among tax measures the House will consider in early February.  

The Internal Revenue Service today warned taxpayers about groups masquerading as a charitable organization to attract donations from unsuspecting contributors. The IRS offers these basic tips to taxpayers making charitable donations:

Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

Don’t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you. Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Affordable Care Act News

January 30, 2015

In Notice 2015-9 The IRS Announced Penalty Relief Relating to Premium Tax Credit Advance Payments

The IRS has announced limited relief from tax penalties for taxpayers who have a balance due on their 2014 income tax return. Individual taxpayers should be aware of the requirement when preparing  their 2014 tax return  of reconciling advance payments of the premium tax credit received  against the premium tax credit allowed as reported on the tax return. This relief applies only for the 2014 tax year.

What does this mean?

Beginning in 2014, eligible individuals who are covered under a qualified health plan through a Health Insurance Marketplace, are allowed a premium tax credit under Code Sec. 36B. Taxpayers generally receive advance payments of the premium tax credit to assist in paying for their health insurance. These advance credit payments are made directly to the insurance provider. The amount of the advance credit payments is determined when an individual enrolls in a qualified health plan and is based on his or her projected household income and family size.

Reg. Sec. 1.36B-4(a)(1)(i), requires taxpayers to reconcile the amount of the premium tax credit allowed with the amount of advance credit payments actually received. A difference between the amount of advance credit payments received and the premium tax credit allowed may occur if there were changes in the taxpayer's circumstances during the year. Life events such as getting married or divorced, or simply experiencing a difference between projected and actual income may cause the advance credit to differ from the amount allowed.

It’s important to know that if advance credit payments are more than the premium tax credit allowed, the difference is treated as additional tax and may result in either a smaller refund or a larger balance due. If the premium tax credit allowed is more than the advance credit payments made, the excess credit amount may result in a larger refund or lower balance due. 2014 is the first year where taxpayers will have to reconcile advance credit payments with the premium tax credit on their tax return.

Penalty Relief for 2014

Some taxpayers who, because of a difference in their advance credit payments and the premium tax credit calculated on their returns, have an increase in their tax liability may not be able to pay by the due date, generally April 15. Taxpayers who do not pay their entire tax liability generally would be liable for the failure to pay penalty.

Additionally, some taxpayers may discover that their estimated tax payments made throughout the year were understated due to the difference in the advance payments received and premium credit allowed, potentially leading to an estimated tax penalty. In consideration of these factors, the IRS is providing relief from these penalties for taxpayers who satisfy certain requirements.

The Notice provides criteria allowing the IRS to abate or waive penalties which require the taxpayer to be current with their filing and payment obligations. Procedures are also provided for claiming penalty relief.

This information is not intended as tax advice and cannot be relied on for any purpose without the services of a qualified professional. This post contains general information based on authorities that are subject to change.

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