BACKGROUND

The IRS first announced a repair regulation project in 2004. Proposed regulations were issued in 2006 and then withdrawn and reproposed in 2008. Temporary regulations were issued in 2011. The final repair regulations were issued over a year ago in September 2013. Additional guidance has come out during 2014. Revenue Procedure 2014-16 details accounting method changes required by the regulations. Rev. Proc. 2014-17 addresses accounting method changes under the Modified Accelerated Cost Recovery System regulations. Additional final regulations address dispositions of property. Rev. Proc. 2014-54 addresses automatic accounting method changes for dispositions of property.

Taxpayers who have depreciable assets,materials and supplies, rotable and temporary spare parts, repairs and maintenance, property improvements (which might be categorized as a betterment, a restoration, or an adaption to a new use), or property acquisitions or dispositions are likely to be affected by these regulations and required to submit accounting method changes with their 2014 returns.

Fundamental to the repair regulations is determining the unit of property to which the new rules are to be applied. This in itself can be a complicated and time-consuming process.

 FORM 3115

The typical taxpayer affected by the repair regulations will be required to file multiple Form 3115s for 2014. The form goes on for eight pages. Although certain accounting method changes may be combined on one Form 3115, many others require a separate form. Supplemental statements are also likely to be necessary.

One of the most difficult parts of the form may be calculating the Sec. 481(a) adjustments. Overall, the adjustments are likely to be favorable to the taxpayer, permitting the write off of items that were previously capitalized. However, the information on the prior treatment of the property and adjustments for items recategorized by the repair regulations necessary for calculating the 481(a) adjustment may be difficult to assemble, with client depreciation schedules being a crucial part of the process. The final regulations assign a number to the accounting method changes being granted automatic approval. The Form 3115 is to include that number, as well as a citation to the relevant regulation section.