The AICPA has written the Internal Revenue Service (IRS) with recommendations on accounting methods for small business taxpayers, as requested by the IRS in Rev. Proc. 2018-40.
Presently, the Tax Cuts and Jobs Act (TCJA) defines a small business taxpayer as a taxpayer with average annual gross receipts in the prior three-year period of $25 million or less. The threshold of $25 million is a welcome change for many, as previous simplifying provisions with respect to certain accounting methods were generally applicable to taxpayers with average annual gross receipts of $1 million, $5 million or $10 million or less.
For purposes of determining whether a taxpayer qualifies as a small business taxpayer, the TCJA references the existing gross receipts test under section 448(c)(2) and increases the dollar threshold from $5 million to $25 million. However, if the taxpayer fails the $25 million gross receipts test for a given taxable year, it may not apply any of the simplifying provisions for that taxable year.
The AICPA recommends that the IRS:
- Provide guidance related to how to apply the gross receipts test to each trade or business of a taxpayer that is not a corporation or partnership;
- Confirm the ability to change to the overall cash method for taxpayers meeting the gross receipts test;
- Interpret “books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures” under Internal Revenue Code section 471(c)(1)(B);
- Clarify section 460(e)(2)(B) in the context of Rev. Rul. 92-28; and
- Modify the definition of “tax shelter” for purposes of section 448 to exclude syndicates.