Also see: Sample IRS Election Statement: Small Taxpayer Safe Harbor Election for Building Property.
             Sample IRS Election Statement: Election to Capitalize Repair and Maintenance Costs.

Sample IRS Election Statement: Annual De Minimis Safe Harbor Election Statement.

(Parker Tax Publishing March 14, 2015)

The 2013 final repair regulations added a de minimis safe harbor, to be elected annually by including a statement on the taxpayer's timely filed original federal tax return for the year elected. Under this provision, if a taxpayer elects to apply the de minimis safe harbor under Reg. Sec. 1.263(a)-1(f), the taxpayer must apply the safe harbor to all amounts paid in the tax year for tangible property that meet the requirements of the safe harbor, including amounts paid for materials and supplies that meet the requirements, other than rotable, temporary, and standby emergency spare parts that are subject to the election to capitalize, or rotable and temporary spare parts that are subject to the optional method of accounting for such parts (Reg. Sec. 1.263(a)-1(f)(3)(ii)).

If the taxpayer properly applies the de minimis safe harbor to amounts paid for property, then these amounts are not treated as capital expenditures under Reg. Sec. 1.263(a)-2(d)(1) or as amounts paid for materials and supplies under Reg. Sec. 1.162-3, and may be deducted under Reg. Sec. 1.162-1 in the tax year the amounts are paid, provided the amounts otherwise constitute an ordinary and necessary expenses incurred in carrying on a trade or business (Reg. Sec. 1.263(a)-1(f)(3)(iv)).

However, amounts paid for tangible property eligible for the de minimis safe harbor may, nonetheless, be subject to capitalization under Code Sec. 263A if the amounts paid for this tangible property comprise the direct or allocable indirect costs of other property produced by the taxpayer or property acquired for resale.

A taxpayer makes the election to take the de minimus safe harbor by attaching a statement to the taxpayer's timely filed original federal tax return (including extensions) for the tax year in which these amounts are paid. The statement must be titled "1.263(a)-1(f) de minimis safe harbor election" and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under Reg. Sec. 1.263(a)-1(f).

In the case of an S corporation or a partnership, the election is made by the S corporation or the partnership and not by the shareholders or partners.

In the case of a consolidated group filing a consolidated income tax return, the election is made for each member of the consolidated group by the common parent, and the statement must also include the names and taxpayer identification numbers of each member for which the election is made.

Sample Election Statement

Section 1.263(a)-1(f) De Minimis Safe Harbor Election

[Taxpayer Name]

[Taxpayer Address]

[TIN]

The taxpayer is hereby making the de minimus safe harbor election under Reg. Sec. 1.263(a)-1(f).

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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