Revenue Procedure 2015-56  provides certain taxpayers engaged in the trade or business of operating a retail establishment or a restaurant with a safe harbor method of accounting for determining whether expenditures paid or incurred to remodel or refresh a qualified building are deductible, must be capitalized as improvements, or must be capitalized as the costs of property produced by the taxpayer for use in its trade or business. The revenue procedure also provides procedures for obtaining automatic consent to change to the safe harbor method of accounting permitted by this revenue procedure.
Under the safe harbor, retailers are now able to apply a percentage (75 percent) to a base dollar amount of expenditures. The resulting amount will be considered deductible immediately while the remaining percentage (25 percent) will be capitalized and depreciated over time.
The safe harbor may only be used by taxpayers with an applicable financial statement (AFS). In general, an AFS is a certified audited financial statement, a statement required to be filed with the Securities and Exchange Commission, or a financial statement required to be filed with the federal or a state government.
If the safe harbor applies, 25 percent of qualifying remodel-refresh costs are capitalized and the remaining costs are currently deductible.
The safe harbor rule applies immediately to tax filings for 2014 and tax years beyond.