IRS Regulations Take Into Account the Concerns of Small Business Owners

By Dillon Taylor, Assistant Chief Counsel

The Office of Advocacy’s efforts on behalf of small businesses were successful recently when the Internal Revenue Service (IRS) revised proposed regulations to be less burdensome on small businesses.

Notice 2015-82 was issued by the IRS to increase the de minimis safe harbor limit to $2,500 in accounting requirements, commonly referred to as the “repair regulations,” after Advocacy expressed concerns that the limit was too low. These regulations are related to the acquisition, production, or improvement of tangible property. The repair regulations direct when business owners must capitalize purchases of property and when businesses are permitted to deduct expenses in the year the businesses incur the expenditure.

Although the repair regulations generally require a business to capitalize amounts paid to acquire or produce property, the rules provide a safe harbor which permits a business to immediately expense the cost of property in the year that the cost was incurred as long as the property does not exceed a certain dollar amount. For businesses with an applicable financial statement, the safe harbor amount is limited to $5,000 per invoice item. (Applicable financial statements are a type of certified audited financial statement filed with the SEC.) Prior to the issuance of Notice 2015-82, businesses without an applicable financial statement were limited to a $500 deduction amount per item.

Many small business owners had expressed concerns to Advocacy that the prior $500 safe harbor was too low. As an example, one small business owner noted to Advocacy that something as “mundane and small as a tool box” could cost $600 and would be above the safe harbor threshold. Further, some small business representatives observed to Advocacy that larger companies already have (or can afford) applicable financial statements while small businesses generally do not already have and cannot afford applicable financial statements. As a result of this feedback, Advocacy was concerned that, if the threshold remained at $500, small businesses would be discouraged from utilizing the safe harbor.

On February 13, 2015, the IRS issued a request for comment on whether the de minimis threshold in the repair regulations should be raised. On March 24, 2015, Advocacy submitted a comment letter to the IRS which, based on feedback from small businesses, strongly encouraged the IRS to increase the safe harbor threshold. Notice 2015-82 indeed increased the safe harbor amount from $500 to $2,500 for businesses without applicable financial statements.

Advocacy praises the IRS for taking into account the concerns of small businesses and raising the de minimis safe harbor limit. For more information, please contact Assistant Chief Counsel Dillon Taylor at 202-401-9787 or Dillon.Taylor@sba.gov.

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