Under the direction of Rev. Proc. 2022-9 released Thursday, taxpayers can get automatic consent from the IRS to change their tax accounting methods to comply with final regulations relating to the simpler tax accounting methods available to small businesses.
These final regulations, released in early 2021 (TD 9942), implemented changes made by law known as the Tax Cuts and Jobs Act (TCJA), PL 115-97, which generally exempt from more requirements. Complex companies with average annual gross revenues of no more than $ 25 million (adjusted for inflation to $ 26 million for 2021). The final rule applies to tax years beginning on or after January 5, 2021 (or for contracts entered into during those tax years).
These simpler methods (referred to as “small business taxpayer exemption methods” in the tax process) are found in Secs. 263A (capitalization and inclusion in inventory costs of certain expenses), 448 (cash basis of accounting), 460 (long-term contracts) and 471 (inventories), effective for tax years beginning after 31 December 2017. The receipt test is in Sec. 448. For more on these changes to the TCJA, see Clark, “Relief for small business tax accounting methods, ” JofA, January 1, 2019.
Thursday’s tax procedure amends Rev. Proc. 2019-43 (as amended by Rev. Proc. 2021-34) providing guidance on automatic consent procedures under Sec. 446. It also provides procedures for taxpayers to revoke an election made under the proposed regulations.
In addition to the automatic changes to apply a small business taxpayer exemption method as part of the final settlement, the procedures under the tax process include:
- Automatic changes for taxpayers who no longer qualify for a small business exemption method under the final regulation, including those who switch to a uniform capitalization method (UNICAP) specifically described in the regulation;
- A modified procedure for reseller-producers moving from an authorized simplified resale method to be compatible with other changes by allowing these taxpayers to switch only to an authorized UNICAP method specifically described in the regulations;
- An automatic change for taxpayers using an accrual method of accounting for purchases and sales of inventory and the cash method of calculating all other items of income and expense to move to an accounting method of overall exercise;
- Automatic changes to an accrual method of accounting for purchases and sales of inventory and use of the cash method of accounting for the calculation of all other income and expense items.
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