IRS Repair and Maintenance Regulation Update

Tax Professionals Resource
June 29, 2012 — 1,781 views  
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Any American who has ever filed their income taxes knows what a headache the process can be if one is not thoroughly prepared. The Internal Revenue Service (IRS) has many different rules and regulations that govern tax law and the rights of citizens and businesses, but sometimes these must be updated to reflect the current economic and cultural situation. Recently, the IRS has revised its Repair and Maintenance Regulation, and the details of this change are outlined below.

New language

Accounting and tax professionals are likely already familiar with the Internal Revenue Code (IRC), but understanding the language of this legislation is key to legal comprehension. The new regulation has changed the text of the code and updated the confidence level with which filings can be evaluated. A return filing position is assessed by the IRS via the following terms:

• Will standard - filing has a 95 percent or greater probability of success if challenged by the IRS.

• Should standard - filing has a 70 percent or greater probability of success.

• More-Likely-Than-Not standard - a filing has a half chance or more of success.

• Substantial Authority standard - roughly 40 percent probability of success.

• Realistic Possibility of Success standard - one-third chance or more of success.

• Reasonable Basis standard - lower success percentage than the Realistic Possibility of Success standard, but requires the backing of at least one valid legal authority.

• Non-Frivolous standard - only a 10 percent chance of being upheld upon examination by the IRS.

• Frivolous standard - less than ten percent chance of success, the worst possible rating.

Compliance with regulations

Allowable methods of filing are detailed underneath the new legislation, but the main difference is that taxpayers must receive the IRS's consent before changing their respective methods. This approval can be attained through an automated process.

Within the changes, Rev. Proc. 2012-19 discusses repair and maintenance, materials and supplies and related method changes, according to the IRS. Rev. Proc. 2012-20 concerns depreciation, disposition and changes occurring from temporary regulations.

The letter of the law is too expansive to be discussed in minute details, and any professional who wishes to learn more would do well to familiarize themselves with betterments and adaptations that are defined in the new changes. Visit the IRS website for a PDF version of the official updates.


Tax Professionals Resource