AICPA Recommendations for Small Business Accounting Method Changes

AICPA Seeks Clarification Re: Small Businesses Coping with Accounting Methods Changes

Last week, the AICPA submitted recommendations to the IRS asking for clarification related to how tax reform changes may impact small business compliance with new accounting method changes.

Under the Tax Cuts and Jobs Act, small business taxpayers – defined as those with average annual gross receipts of $25 million or less in the prior three-year period – are subject to new accounting methods for tax years starting after December 31, 2017.

The AICPA’s eight recommendations include:

  1. Providing automatic and simplified accounting method change procedures for small business taxpayers who are attempting to comply with the new tax reform provisions;
  2. Clarifying 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;
  3. Clarifying that the interest deduction limitation under Internal Revenue Code (IRC or “Code”) section 163(j)1 is not considered a method of accounting;
  4. Providing relief for small business taxpayers, who meet the $25 million gross receipts test and are currently on improper accounting methods;
  5. Clarifying the definition of gross receipts under section 448 for purposes of qualifying as a small business taxpayer;
  6. Clarifying 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;
  7. Clarifying that Qualified Improvement Property is treated as 15-year property; and
  8. Providing guidance regarding the tax consequences of transitioning to the cash method of accounting.

If you own or operate a small business and would like to speak with someone on our team about how the new accounting method changes may impact your business, please connect with us.

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