CAMICO Sample TPR Client Notification for Small Business Clients

CAMICO Sample TPR Client Notification for Small Business Clients

[Note: For liability protection purposes, we recommend that your firm retain a listing of the clients to whom this letter is sent.]

<Date>

Re: Implementation of the Tangible Property Regulations on Your 2014 Income Tax Return

Dear <Client Name>:

As we have indicated to you previously, the IRS and U.S. Treasury have issued final tangible property regulations (TPRs) that govern when taxpayers must capitalize and when they can deduct expenditures for acquiring, producing or improving tangible property. These regulations are fully effective for tax years beginning on or after January 1, 2014. Under certain circumstances, however, these regulations may also be applied retroactively back to the start of 2012 and are required to be applied to items on the taxpayer’s tax depreciation schedule or that should be on the taxpayer’s depreciation schedule based upon the criteria on the final TPRs. The final regulations have created new annual elections, and while certain safe harbors and elections are implemented through filing statements or treatment of an item on a timely filed federal tax return, the IRS considers the remaining provisions to be a change in method of accounting, which may require a taxpayer to file Form 3115,Application for Change in Accounting Method. In fact, some taxpayers might be required to file more than one Form 3115, depending on their situation. Given the additional time and work involved in preparing these forms, we anticipate that we will need to extend your tax return and complete the additional work required under these new regulations after April 15.

As an alternative, however, the IRS announced on February 13, 2015, new simplified procedures that will allow a small business (defined as a business, including sole proprietors, with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years) to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after January 1, 2014. If a taxpayer has more than one business, the limitations apply separately to each business. The IRS is also waiving the requirement to complete and file IRS Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014. However, please be aware that if the simplified procedures are elected, the taxpayer does lose certain opportunities that might exist to write off assets that were capitalized in prior years that could have been expensed, or to report a late partial disposition. In addition, a taxpayer will also lose the potential audit protection related to capitalization decisions made in prior years. If you are a small business as defined above, and qualify to elect the simplified procedures, it is important that you consider the benefits and risks associated with this alternative carefully before you make your final decision.

To ensure that our firm has the required documentation in our files to support your decision as to how to apply the new TPRs to your 2014 income tax return, we respectfully request that you complete the following and sign below:

Is your company a small business (defined as a business, including sole proprietors, with total assets of less than $10 million or average annual gross receipts of $10 million or less for the prior three taxable years)?

______YES ______NO

If you responded YES to the above question, which indicates that you qualify to elect the simplified procedures, please indicate below which option you would like our firm to implement on your behalf:

______OPTION #1: I/We will make the necessary TPR accounting changes retroactively and wish you to prepare the necessary Form 3115(s) and related calculations. We agree to provide you with the information necessary to prepare the appropriate elections and/or IRS method change form(s).

______OPTION #2: I/We will file our 2014 tax return using the simplified procedures available to a small business, which will apply the new TPRs on a prospective basis only. I/We understand that we may be foregoing certain tax benefits that might be obtained by applying the TPRs retroactively, and we understand and acknowledge that Firm Name> will have no liability for any lost tax opportunities if I/we elect this option.

We understand that the new tangible property regulations are very complex, so if you have any questions regarding the application of these new regulations to your company, please ask us for advice in that regard.

Very truly yours,

______

CLIENT ACKNOWLEDGEMENT:

By your signature below, you understand and accept that you have ultimate responsibility for your capitalization analyses and decisions.

______

Client Signature Date

______

Title