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Video instructions and help with filling out and completing What Form 4797 Tangible

Instructions and Help about What Form 4797 Tangible

Good morning and welcome to the middle of tax season and what a unique tax season it is and I don't mean that in a good way Nina Olson the National Taxpayer Advocate was saying that this was going to be the worst her choice of words simply the worst tax season in 30 years and she pointed to things like the continuing agony over foreign reporting the implementation of the ACA and the repair regulations well on Friday the 13th the IRS gave us some relief from the repair regulations in a ref proc now immediately half of all practitioners were laughing it up on jollity farm and the other half were crying in their beards down on moody River the former were happy because they envision happened to file dozens of 3150 nests for small businesses that couldn't even understand why they were being filed the other half had spent a mountain of time researching the repair regulations and another mountain of time researching the 3115 looking forward to billing those clients for the 3115 it would seem like both sides have overreacted a bit well let's back up what really happened well effective in 2022 there are new repair regulations that we've amped the way that taxpayers treat expenditures expensive versus capitalized and they also change the way that materials and supplies are treated in addition there were other regulations that changed the way that dispositions of fixed assets were to be treated and in an unexpected tax preparer friendly provision they allowed for partial dispositions something that we've never seen before well more recently the IRS issued guidance on how to implement the regulations and taxpayers our practitioners were horrified to find that number one these regulations were retroactive and number two that they would have to file a 31:15 an accounting method change in order to implement the regulations on a retroactive basis and many commentators were saying that all businesses from the largest corporation to an individual with nothing more than a single-family residence as a rental property would have to file a 31:15 if the business had any of the following depreciable assets repair expenses or materials and supplies well on Friday the 13th the IRS issued Rev proc 2022 - 20 was two things it allows small businesses to make the changes on a prospective basis not on a retroactive basis so no 481 adjustments and those taxpayers can simply implement the new regulations on a prospective basis beginning in 2022 again without filing a 3115 so what is a small business a small business is a business with less than 10 million dollars on an average annual basis over the prior three years or a business with total assets as of the beginning of the tax year of less than 10 million dollars now notice the word or it's the key word here this means if you have less than 10 million in gross receipts or 10 million in total assets so what that means is that a business can have a hundred million dollars in sales so long as they're under 10 million dollars in total assets and they qualify so that could be a business for example a very large business that leases its property on the other side of the coin a business with a hundred million dollars in assets let's say it's an investment company investment returns are pretty low now they might only have four million dollars in gross receipts so they qualify now notice the word business not the word taxpayer it's applied on a separate and distinct business basis so that means a taxpayer can have a billion dollars in total sets but you view it on a business by business basis and each business is determined separately now interestingly the Rev proc does not specify how total assets are to be counted is it on a fair market value basis a book basis or a tax basis and if on a tax basis is it on the unadjusted basis or the adjusted basis now it would seem technically that it's on a tax basis but keep in mind that the IRS is probably going to make that determination with respect to a business turn on the total assets figure that's on the front of the 1120 or the 1065 and that comes by reference to the balance sheet in the return which is on the book basis how they're going to do it with respect to an individual I don't know now using the simplified method the small businesses make the adjustment any 481 adjustment purely on a prospective basis which means that essentially they're on the cut off method let's talk a little bit about that the classic accounting change is from the cash basis to the accrual basis so let's say that your final year on the cash basis is year one your first year on the accrual basis is year two let's say that in December of year one you have a hunt you incur a hundred dollar expense but you don't pay the hundred dollars until january of year two well since you're on the cash basis in year one and you didn't pay the expense you don't get to deduct it in year one since you're on the accrual basis and it in year two and it was a crude in year one you don't get to deduct it in year two either so seemingly without a remedial provision it would simply be lost so what the law says is that generally you make a four eighty one adjustment and essentially the way you make a four eighty one adjustment is you compute you're retained earnings as of the final day of the year one method and then you recompute it as of the end of year one as if the year two method had always been in place it's not quite that simple because you have.

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