Hi Donna,

Sorry I missed this earlier in the week. Here’s what I think. You’ve either got incidental or nonincidental materials and supplies, right? And these sound like nonincidental supplies to me. So the little blurbs out of the regs provide the appropriate accounting:

(1) Non-incidental materials and supplies. Except as provided in paragraphs (d), (e), and (f) of this section, amounts paid to acquire or produce materials and supplies (as defined in paragraph (c) of this section) are deductible in the taxable year in which the materials and supplies are first used in the taxpayer’s operations or are consumed in the taxpayer’s operations.

(2) Incidental materials and supplies. Amounts paid to acquire or produce incidental materials and supplies (as defined in paragraph (c) of this section) that are carried on hand and for which no record of consumption is kept or of which physical inventories at the beginning and end of the taxable year are not taken, are deductible in the taxable year in which these amounts are paid, provided taxable income is clearly reflected.

Bottomline? I think you should deduct in year stuff is used or consumed.

Got you!! Thanks so much.

If I understand your question, I don’t think you need a 3115 for that change because given that you’re only rolling forward, you don’t actually have to put a backwards looking Sec. 481 adjustment into the tax return. I.e,. you don’t need to do a Sec. 481 adjustment to catch stuff that slipped between the cracks prior to 2014… nothing slipped through the cracks.. Rather you’re simply going to expense stuff all in 2014. I think this is what IRS means when they say the “cut-off” method of doing a Sec. 481 adjustment.

I think you would use the de minimis safe harbor election (but that’s an election with a statement and not change in accounting methods requiring a 3115).

BTW, as I read Rev. Proc. 2015-20, if you ended up doing other 3115s with backwards looking Sec. 481 adjustments, then I think you need to do a 3115 for this even though there’s not Sec. 481 adjustment. Or at least that the way I’d roll.

I think it probably boils down to this: If you fix your accounting to comply with the new regs and make a Sec. 481 adjustment, the IRS won’t go back and make you fix (and pay for) errors in earlier years.

One might also reasonably suppose that if you have done a full-meal-deal accounting method change and recognized any Sec. 481 adjustment that IRS is less like to even start poking around.

Sorry I didn’t catch this comment earlier.

So you do need to do 3115 and you do use DCN 196… and because you’re doing one 3115 you need to do all the other 3115s to. In other words, you ignore Rev. Proc. 2015-20’s “get out of jail free” card…

I think I’ve answered this. I.e., the $200 limit seems to have “vanished”… and the $500 limit seems now very wishy-washy. I.e., you could use a higher capitalization limit safely if doing so doesn’t distort.

BTW I’m getting this all from the quoted language. So if other practitioners draw different conclusion, that thinking should be shared with a comment. 🙂

I think/hope my response to Tony addresses this…