IRS issues accounting-method change procedures for small businesses

Beneath guidance in Rev. Proc. 2022-9 issued Thursday, taxpayers may perhaps acquire the IRS’s automatic consent to improve their tax accounting techniques to comply with remaining restrictions relating to less complicated tax accounting procedures accessible to lesser firms.

Those closing restrictions, issued early in 2021 (T.D. 9942), executed variations designed by the regulation recognised as the Tax Cuts and Employment Act (TCJA), P.L. 115-97, that generally exempt from much more sophisticated demands firms with normal annual gross receipts of no more than $25 million (altered for inflation to $26 million for 2021). The remaining regulations apply to tax several years beginning on or soon after Jan. 5, 2021 (or for contracts entered into in these tax many years).

These less difficult techniques (named “tiny-enterprise taxpayer exemption methods” in the earnings method) are discovered in Secs. 263A (capitalization and inclusion in inventory expenditures of certain charges), 448 (dollars strategy of accounting), 460 (very long-phrase contracts), and 471 (inventories), efficient for tax a long time starting soon after Dec. 31, 2017. The gross-receipts test is at Sec. 448. For additional on these TCJA modifications, see Clark, “Relief for Smaller Business enterprise Tax Accounting Procedures,” JofA, Jan. 1, 2019.

Thursday’s earnings procedure modifies Rev. Proc. 2019-43 (as modified by Rev. Proc. 2021-34) giving steerage on automatic consent processes beneath Sec. 446. It also supplies processes for taxpayers to revoke an election built underneath the proposed laws.

Apart from automatic variations to utilize a little business taxpayer exemption strategy beneath the closing regulations, techniques below the earnings course of action consist of:

  • Computerized changes for taxpayers that no longer qualify for a smaller enterprise taxpayer exemption technique underneath the remaining rules, like these altering to a uniform-capitalization (UNICAP) system specifically explained in the laws
  • A modified procedure for reseller-producers switching from a permissible simplified resale method to be consistent with other adjustments by allowing these taxpayers to improve only to a permissible UNICAP method especially explained in the rules
  • An automatic adjust for taxpayers utilizing an accrual system for purchases and revenue of inventories and the hard cash method for computing all other goods of income and expense to alter to an total accrual approach
  • Computerized adjustments to an accrual method for purchases and revenue of inventories and making use of the hard cash strategy for computing all other products of cash flow and expense.

— To comment on this report or to recommend an idea for a different post, contact Paul Bonner at [email protected].

Maria Flores

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