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The Internal Revenue Service has issued proposed regulations that updates rules for the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act. These apply to tax years beginning in 2019 and 2020. The new rules apply to taxpayers having inflation-adjusted average annual gross receipts of $26 million or less (known as the gross receipts test). Taxpayers classified as tax shelters cannot use these rules.

 Previously these taxpayers could determine if they were eligible to categorize taxable income under the cash method of accounting by meeting a different test. That gross receipts test was met if the taxpayer's average annual gross receipts for all prior taxable years did not exceed $5 million.

Under the recent law, taxpayers can use the cash method if average annual gross receipts for the three-taxable year period ending immediately before the current taxable year are $25 million (adjusted for inflation) or less.

The law also exempts taxpayers meeting the gross receipts test from the uniform capitalization rules. In addition, it made available an exception to the requirement to use an inventory method if  businesses inventory is treated as non-incidental materials and supplies, or in accordance with the applicable financial statement.  Those taxpayers without such a statement can utilizes their books and records

Moreover, the proposed regulations provide guidance for small businesses with long-term construction contracts and the requirements for exemption from the percentage-of-completion method and the uniform capitalization rule.  For such taxpayers, guidance is provided for applying the look-back method after repeal of the corporate alternative minimum tax and enactment of the base erosion and anti-abuse tax.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
Last modified on Friday, 31 July 2020
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