The Internal Revenue Service ("IRS") today issued proposed regulations (PDF) updating various tax accounting regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA).
For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having inflation-adjusted average annual gross receipts of $26 million or less (known as the gross receipts test). Please note: Taxpayers classified as tax shelters cannot use the simplified rules even if they would meet the gross receipts test.
The TCJA also exempted taxpayers meeting the gross receipts test from the uniform capitalization rules. Tax reform also added an exception to the requirement to use an inventory method if their inventory is treated as non-incidental materials and supplies, or in accordance with the applicable financial statement (AFS). If they do not have an AFS, taxpayers can use their books and records. The proposed regulations issued today implement these statutory changes and provide clarifying definitions.
The proposed regulations issued today also provide guidance for taxpayers with income from long-term contracts reported under the percentage-of-completion method, 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 ("BEAT").
For any questions or assistance, please contact the Tax Attorneys at Fazzio Law, we are in your corner!
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