Safe Harbor for Small Businesses

Many practitioners have voiced concerns that the $500 de minimis safe harbor threshold (TD 9636) for immediate deduction of tangible property is too low for small business taxpayers.

However, the regulations provide a higher threshold ($5,000) for taxpayers with an audited financial statement if they have an accounting policy (a written accounting policy for the $5,000 threshold) which allows such expensing.

The IRS established the lower threshold for unaudited taxpayers because it does not have sufficient assurance that they are following the required accounting polices and “accordingly, that the taxpayer is using a reasonable, consistent methodology that clearly reflects its income.”

The AICPA is gathering information from members to achieve a solution that can ease taxpayer compliance and address the IRS’ concerns. We would greatly appreciate your help by answering the following questions:

What would suffice as adequate assurance to the IRS that a taxpayer who is using a reasonable, consistent methodology to reflect income, if that taxpayer does not file a financial statement?

What should be the de minimis threshold for taxpayers without an audited financial statement?

* Please provide a brief explanation for the threshold you chose and any relevant client experiences.