The American Institute of CPAs (AICPA) has written to the US Internal Revenue Service (IRS) with recommendations on accounting methods for small business taxpayers, as requested by the IRS in Rev. Proc. 2018-40.

Presently, the Tax Cuts and Jobs Act (TCJA) defines a small business taxpayer as a taxpayer with average annual gross receipts in the prior three-year period of $25m or less. AICPA says the threshold of $25m is a welcome change for many, as previous simplifying provisions with respect to certain accounting methods were generally applicable to taxpayers with average annual gross receipts of $1m, $5m or $10m or less.

For purposes of determining whether a taxpayer qualifies as a small business taxpayer, the TCJA references the existing gross receipts test under section 448(c)(2) and increases the dollar threshold from $5m to $25m. However, if the taxpayer fails the $25m gross receipts test for a given taxable year, it may not apply any of the simplifying provisions for that taxable year.

The AICPA recommends that the IRS:

  • Provide guidance related to how to apply the gross receipts test to each trade or business of a taxpayer that is not a corporation or partnership;
  • Confirm the ability to change to the overall cash method for taxpayers meeting the gross receipts test;
  • Interpret ‘books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures’ under Internal Revenue Code section 471(c)(1)(B);
  • Clarify section 460(e)(2)(B) in the context of Rev. Rul. 92-28; and
  • Modify the definition of ‘tax shelter’ for purposes of section 448 to exclude syndicates.