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New Proposed Regs for Small Business Accounting Methods: Gross Receipts Test, Inventory, Long-Term Contracts

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, December 8, 2020

Recorded event now available

This course will cover the proposed regulations issued in July 2020, addressing the simplified tax accounting rules for taxpayers having gross revenues under $26 million (indexed annually for inflation). The panel will discuss adopting the simplified methods related to the use of the cash method, the exception of applying the UNICAP rules, the inventory exception for nonincidental materials and supplies, changing accounting methods when the threshold is exceeded, and the implications to long-term contract measurement.

Description

The Tax Cut and Jobs Act of 2017 raised the cap on gross receipts to $25 million (indexed annually for inflation), averaged out over the three prior years of operation in determining if a taxpayer meets the definition of a small business. If an entity qualifies, it can claim small business treatment, which allows the taxpayer to use the cash method of accounting rather than the accrual method.

In addition to being able to use cash-basis accounting, these small business taxpayers qualify for exemption from the 263A and UNICAP reporting. Many of these taxpayers may also be eligible for exemption from using the percentage-complete method for long-term contracts prescribed by Section 460(e). These changes are meant to reduce the tax compliance burden on small business taxpayers.

However, as before, businesses defined as tax shelters may not adopt a simplified method of accounting, and many companies that would otherwise qualify may not change to the cash method of accounting. Tax advisers must verify that the taxpayer does not fall under Section 448 definition of tax shelter before switching to a cash method of accounting.

Although they are proposed regulations, they can be adopted for tax years beginning after Dec. 31, 2017.

Listen as our experienced panel provides a practical guide to the changes in the small business taxpayer threshold for purposes of adopting simplified accounting methods as well as how to apply for an automatic accounting method change in the year a business exceeds the threshold.

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Outline

  1. Prior Section 448 provisions
  2. 2017 tax law changes to small business treatment
    1. Increased gross receipts thresholds and calculations
    2. Cash method of accounting eligibility
    3. Simplified inventory reporting
    4. Changes to 263A capitalization requirements
    5. Elections on long-term construction contract accounting treatment for tax purposes
  3. Proposed regulations issued July 2020
  4. Tax shelter definition and other provisions impacting eligibility for simplified accounting method change
  5. Making the election, including retroactive provisions
  6. Handling previously eligible businesses which exceed the threshold

Benefits

The panel will review these and other relevant issues:

  • Changes to inventory accounting and reporting for eligible small businesses
  • Which businesses may not qualify as small business taxpayers under Section 448 even if they meet the gross receipts test
  • Automatic accounting method changes when a previously eligible business exceeds the threshold
  • Details of long-term contract accounting treatment under the simplified method
 

Faculty

Resnick, Michael
Michael D. Resnick
Attorney
Eversheds Sutherland (US)

Mr. Resnick focuses his practice on federal taxation matters, including tax accounting methods and compliance,...  |  Read More

Strong, David
David Strong, CPA
Partner
Crowe

Mr. Strong is a leader in the delivery of tax accounting services related to inventory valuation, accounting method...  |  Read More