New Accounting Method Rules for Small Business Taxpayers Under IRC 448

Increased Gross Receipts Threshold for Cash Method Accounting, Elections for Inventory and Long-Term Contract Treatment

Note: CLE credit is not offered on this program

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


Conducted on Thursday, February 7, 2019

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will prepare tax advisers to individuals owning small businesses with a practical guide to the new simplified accounting method change rules for companies with gross revenues under $25 million. The panel will discuss how to late-adopt the simplified method, detail what entities and income items will be required to use accrual accounting even where the gross receipts test is met, and outline the implications to long-term contract measurement and inventory accounting.

Description

One of the often overlooked but critical provisions of the 2017 tax reform law was the change to Section 448 expanding the number of taxpayers eligible to qualify as small businesses. The Act raised the cap on gross receipts from $10 million to $25 million, averaged out over the three prior years of operation, for determining whether an entity could claim small business treatment, which allows taxpayers to use the cash method of accounting rather than accrual method.

The Act also expanded the number of small business taxpayers eligible to claim exemption from the requirement to account for inventories as required by the terms of Sections 263A and 471. Additionally, many of these businesses may be exempt from using the special methods of accounting for long-term contracts prescribed by Section 460. The IRS issued guidance under Rev. Proc. 2018-40 which added provisions for automatic accounting method changes, including the elections for capitalization, inventory and long-term contracts treatment. These changes are intended to reduce the tax compliance burden on small business taxpayers.

However, the law does not change the definition of tax shelters for purposes of determining whether a small business may adopt a simplified method of accounting, and 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 the Section 448 definition of tax shelter before switching to a cash method of accounting.

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.

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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. Rev. Proc. 2018-31 initial guidance
  4. Rev. Proc. 2018-40 modifications and automatic method change procedures
  5. Tax shelter definition and other provisions impacting eligibility for simplified accounting method change
  6. Making election including retroactive provisions

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 under Rev. Proc. 2018-31 and 2018-40
  • Details of long-term contract accounting treatment under the simplified method

Faculty

Resnick, Michael
Michael D. Resnick

Atty
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

Managing Director
Crowe Horwath

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

Tschosik, Brian
Brian Tschosik

Atty
Eversheds Sutherland (US)

Mr. Tschosik represents multinational clients in international tax planning, joint ventures, corporate restructurings...  |  Read More

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