A representative of the American Institute of CPAs told the Internal Revenue Service that the temporary proposed regulations governing the deduction and capitalization of tangible property expenditures are too complex for many taxpayers.

Carol Conjura

Carol Conjura, who chairs the AICPA’s Tax Methods & Periods Technical Resource Panel, said at an IRS hearing Wednesday that many small businesses would not have the resources to comply with the new regulations. The IRS proposed the long-awaited repair regulations for tangible property last December (see IRS Issues Regulations on Tangible Property Repairs) followed by transitional rules in March (see IRS Issues Transition Rules for Repair Regulations).

However, the AICPA argues that the regulations are far too complicated.

“The regulations fail to provide sufficiently objective principles, they do not provide as many bright line tests as are needed and they introduce entirely new sources of complexity,” said Conjura, who is a partner in KPMG's Washington National Tax Office. The regulations “will place demands on many taxpayers that exceed their limited compliance resources,” she added. “Taxpayers and their advisers will have to devote significant resources to understanding these complex rules and then applying them to common or routine transactions every year, such as the purchase of materials and supplies, and recurring property maintenance activities. The need for simplification is particularly pressing for small businesses, which make up the majority of business taxpayers.” 

“The ‘facts and circumstances’ approach on which the temporary regulations rely has led to long-standing controversy and uncertainty” in this area, Conjura said. “The AICPA recommends that the government develop and include in the next set of regulations significantly more bright line tests, objective standards and safe harbors.” 

Conjura noted that the AICPA believes the de minimis rule in the regulations, which requires an annual financial statement that meets the definition of an Applicable Financial Statement, discriminates against smaller taxpayers. The definition of “Applicable Financial Statement” requires preparation of the statement in accordance with U.S GAAP and use of the statement in filings with the Securities and Exchange Commission or with any federal government agency other than the IRS. 

Instead, the AICPA recommends the use of an alternative test that would allow smaller taxpayers to meet the eligibility requirement for the de minimis rule. For example, an aggregate dollar ceiling could be set on the taxpayer’s tax deduction; the ceiling could be measured by a defined attribute reported on the tax return, such as a percentage of tax gross receipts.

The AICPA’s testimony was based on the Institute’s April 17 comment letter to the IRS about the guidance.