The tangible property de minimis safety harbor that was finalized and issued in 2013 provided a regulation that allows qualifying businesses to deduct purchases of tangible property immediately that were below a certain dollar amount. If you were a taxpayer that did not have an AFS (audited financial statement), that dollar amount must be under was $500.

However, in the recent years, many businesses and taxpayers have made comment that the $500 threshold was too low of a monetary number to sustainably and effectively reduce administrative burdens that come from running a small business. While the original threshold amount was helpful, it was not making a very big difference in the financial health of small businesses all across the country.

A taxpayer without an applicable financial statement (“AFS), as defined in Reg. Section 1.263(a)-1(f)(4), may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property subject to the de minimis safe harbor does not exceed $500 per invoice (or per item as substan-tiated by the invoice).

In contrast, a taxpayer with an AFS may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property does not exceed $5,000 and the taxpayer treats the amount paid as an expense on its AFS in accordance with its written accounting procedures.

A larger safe harbor limitation is reasonable for a taxpayer with an AFS because an AFS provides independent assurance that the taxpayer’s de minimis policies are consistent with the requirements of generally accepted accounting principles (“GAAP”) and do not materially distort the taxpayer’s financial statement income.

Taking these concerns into consideration, the IRS announced that they would increase the de minimis safe harbor threshold to $2500 starting with the 2016 tax year.

The increasing of the de minimis safe harbor threshold by the IRS will help many small businesses thrive financially in the upcoming years. While $2500 still may not cover a large chunk of all small business administrative burdens, this ruling that increased the threshold by five times its original amount will greatly lessen costs associated with the implementation of business for a wide percentage of taxpayers.

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However, mistakes happen, and you may end up filing your taxes late, or maybe even not at all. While it is not by any means encouraged to put your taxes on the back burner, the IRS can be understanding of individuals who have made a one-time mistake such as this. That is why the First Time Penalty Abatement exists.

If you or any individual you know accidentally files your taxes late, or mistakenly does not file them at all, the IRS allows for the one-time abatement of any late or non-filing fee you may receive. Meaning, as long as you have filed your taxes correctly and on time for the past three years, the IRS will, just this once, let your penalty slide.

The First Time Penalty Abatement can be extremely helpful for individuals who have made a one-time mistake, and can result in quite a bit of money being saved in fees. However, it is important to note that this abatement does not keep you from incurring other consequences for not filing your taxes correctly. To avoid any other penalties or fees, speak with a trusted expert, like Evolve Financial, to make sure you are correctly filing all past mistakes, and all future claims moving forward.

The First Time Penalty Abatement can be a live-saver, but do not rely on it as an excuse to ignore your taxes. While it is a wonderful safety net that should be taken advantage of if needed, the best way to avoid any penalties from the IRS is to always file your taxes correctly, and on time.

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The Rev Proc 84-35 is an IRS Penalty Abatement that allows for the automatic penalty abatement for any organization whose partners or LLC/LLP members file their personal taxes on time (by May, or if filed for an extension, by October). Basically, if the people who make up the organization have made no mistakes in filing their own personal taxes, the organization is granted a get out of jail card when it comes to an IRS penalty.

However, there are several factors that must be met in order for an organization to be eligible for the Rev Proc 84-35 IRS Penalty Abatement:

• The partnership must be a domestic partnership
• The partnership must have 10 or fewer partners (husband and wife and their estate count as one)
• All partners must be natural persons (other than a nonresident alien) or an estate of a deceased partner
• Each partner’s share of each partnership item has to be the same as their share of every other item
• All partners need to have filed their income tax returns timely
• All the partners need to have full reported their share of the income, deductions, and credits of the partnership on their timely filed income tax returns
• As long as all of these requirements are met, and you have submitted a letter to the IRS regarding the matter that looks like this example, the abatement will be yours.

In recent years, the IRS seems to have grown tired of Rev Proc 84-35 abatement requests, and have been trying to shift the discussion of penalty abatement to “reasonable cause”. Do not let them pressure you into backing down. The Rev Proc 84-35 is available to you as long as you meet the above criteria. No matter the number of years you have claimed the abatement, it is there for you to use. If they persist with a reasonable cause argument, stick to your knowledge of Rev Proc 84-35, and stand firm until you get your abatement.

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