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A quirk in the TCJA's small business exceptions
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A quirk in the TCJA's small business exceptions
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A quirk in the TCJA's small business exceptions
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Magazine Article
A quirk in the TCJA's small business exceptions
2019
Overview
The legislation allows most businesses with average annual gross receipts, or AAGR, no greater than $25 million to use the cash method of accounting.2 It also exempts these businesses from some of the more onerous recordkeeping requirements, including: * The uniform capitalization rules of Sec. 263A;3 * Specific inventory accounting rules;4 * The business interest expense limitation rules of Sec. 163(j);5 and * Certain long-term contracting requirements under Sec. 460.6 However, these valuable exemptions are unavailable to a business that meets the relevant definition of a tax shelter, regardless of whether it satisfies the $25 million gross receipts test. The Joint Committee on Taxation published a report in 2017 that compares the annual gross receipts of businesses of various types (C corporation, S corporation, partnership, and sole proprietorship).14 Although 4.36% of C corporations reported gross receipts on their 2014 tax returns in excess of $10 million, the numbers for S corporations and partnerships were substantially fewer at 2.35% and 1.20%, respectively.15 The number of sole proprietorships reporting gross receipts in excess of $10 million was negligible. The definition of 'tax shelter' If a taxpayer is found to be a tax shelter, it is not allowed to compute taxable income under the cash receipts and disbursements method of accounting.18 Nor may it rely on the other tax simplifications for small businesses mentioned above. Because of this, the tax shelter definition is important. According to Letter Ruling 9321047, the \"classification as a syndicate and its prohibition from using the cash method of accounting depends on how its members arc classified and how its losses are allocated.
Publisher
American Institute of CPA's,American Institute of Certified Public Accountants
Subject
/ Taxation
