IRS Has Two Sets of De Minimis Rules
On September 13, 2013, the IRS finally issued Final Regulations on how to treat repairs and maintenance and related capitalization rules. Temporary Regulations had been issued a few years back and after much comment from the public, the IRS has now issued final Regs.
In the original Temporary Regs., the IRS had provided for a de minimis exception to the capitalization of certain items. Normally, if a farmer purchase an asset that has a useful life greater than one year (excluding most repair parts and supplies), the farmer is required to capitalize these costs and depreciate over the applicable period. However, the IRS came up with a fairly complicated de minimis rules only available to those taxpayers who had audits performed on their financial statements. The old rules would still apply to most farmers.
The Final Regulations now have two sets of de minimis rules. The first set applies to companies with applicable financial statements (i.e. an audit) and allows the company to expense any fixed asset purchase that does not exceed $5,000. The second set allows any other taxpayer to expense any fixed asset purchase that does not exceed $500. Personally, I would have hoped this number would be closer to $2,500, but $500 is better than none.
The Regulations also provide for guidance to IRS agents that they can reach an agreement with a taxpayer during audit to use a de minimis number higher than the ceiling in the Regulations. As usual, the taxpayer has the burden of proving that using a higher number clearly reflects income.
In many years, if a taxpayer has unused Section 179 available, the de minimis provision may be moot.
We will keep you updated with any other nuggets from the Final Regulations.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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