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Accounting

AICPA Makes Recommendations to IRS and Treasury about Small Business Accounting Methods Changes under TCJA

Jul. 25, 2018

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The American Institute of CPAs (AICPA) has sent recommendations to the Internal Revenue Service (IRS) and Department of the Treasury about the impact of the Tax Cuts and Jobs Act (TCJA) on accounting methods changes for small business taxpayers.

Under the TCJA, small business taxpayers are permitted to streamline their tax accounting methods for years beginning after December 31, 2017, and small business taxpayers are defined as taxpayers with average annual gross receipts in the prior three-year period of $25 million or less.

The AICPA recommendations include:

  • Provide automatic and simplified accounting method change procedures for small business taxpayers seeking to comply with the new provisions under the TCJA;
  • Clarify whether taxpayers that exceed the threshold for small business taxpayers in the future must file accounting method changes and provide certain automatic accounting method changes for such taxpayers to file the accounting method changes;
  • Clarify that the interest deduction limitation under Internal Revenue Code section 163(j) is not considered a method of accounting;
  • Provide relief for small business taxpayers, who meet the $25 million gross receipts test, that are currently on improper accounting methods;
  • Clarify the definition of gross receipts under section 448 for purposes of qualifying as a small business taxpayer;
  • Clarify that the definition of a tax shelter for purposes of section 448 does not include an entity with negative taxable income as a result of a negative section 481(a) adjustment;
  • Clarify that Qualified Improvement Property is treated as 15-year property; and
  • Provide guidance regarding the tax consequences of changing to the cash method of accounting.