The rules for handling tangible property for taxes now are so complex that the IRS has issued a number of Revenue Procedures to help us with applying to materials and supplies and for acquiring, maintaining, or improving property. The final regulations went into effect for tax years beginning on or after January 1, 2014, with "clarifications" that follow in Rev. Procs.:

1. January 24, 2014, Rev. Proc. 2014-16, rules for changing accounting methods.

2. September 18, 2014, Rev. Proc. 2014-54, rules for changing accounting methods to comply with law.

3. January 16, 2015, Rev. Procs. 2015-13 and 2015-14, rules for making accounting method changes.

4. February 13, 2015, Rev. Proc. 2015-20, exceptions to the general procedures.

This article deals with the exceptions in Rev. Proc. 2015-20 It modifies Rev. Proc. 2015-14 to permit a small business, defined as a business 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 make certain tangible property changes in methods of accounting with an adjustment under § 481(a) that takes into account only amounts paid or incurred and dispositions.

In addition, for their first taxable year that begins on or after January 1, 2014, small business taxpayers are permitted to make certain tangible property changes without filing a Form 3115.

An expenditure is a capitalizable improvement if it is a betterment, restoration, or adaptation.

An expenditure is a betterment if it corrects a material defect or condition before the taxpayer's acquisition; is for a material expansion, enlargement, extension, or addition; or reasonably is expected to increase productivity.

An amount paid is a capitalizable restoration only if it is for the replacement of a component for which the taxpayer has properly deducted a loss (not a casualty loss); it is for the replacement of a component to which the taxpayer has properly taken onto account the adjusted basis in realizing gain or loss resulting from a sale or exchange of the component; it is for the restoration of damage for which the taxpayer is required to take a basis adjustment; it returns a property to its ordinary efficient operating condition if the property has deteriorated to a state of disrepair and no longer is functional; it results in the rebuilding of the property to a like-new condition after the end of the class life; or it is for the replacement of a part or combination of parts that comprises a major component or substantive structural part of a property.

A taxpayer must capitalize amounts paid to adapt a property to a new or different use not consistent with the taxpayer’s ordinary use of the property.

Under the routine maintenance safe harbor, the amount paid for routine maintenance is not a improvement. Routine maintenance includes the recurring activities that a taxpayer expects to perform to keep the property in the ordinarily efficient operating condition Routine maintenance may be performed any time during the useful life of property, but the activities are routine only if the taxpayer reasonably expects to perform the activities more than once during the class life of the property.

There is a de minimis safe harbor amount that can be expensed for tangible assets. The amount depends on whether or not the business has an accountable financial statement (AFS) [audit]. If there is an AFS, the amount is $5,000; otherwise, the amount is $500. This amount is per invoice.

A taxpayer using the de minimis deduction must calculate a § 481(a) adjustment that does not take into account dispositions in taxable years beginning on or after January 1, 2014.