IRS issues accounting-method change procedures for small businesses

By Paul Bonner

Under guidance in Rev. Proc. 2022-9 issued Thursday, taxpayers may obtain the IRS's automatic consent to change their tax accounting methods to comply with final regulations relating to simpler tax accounting methods available to smaller businesses.

Those final regulations, issued early in 2021 (T.D. 9942), implemented changes made by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, that generally exempt from more complex requirements businesses with average annual gross receipts of no more than $25 million (adjusted for inflation to $26 million for 2021). The final regulations apply to tax years beginning on or after Jan. 5, 2021 (or for contracts entered into in those tax years).

These simpler methods (called "small-business taxpayer exemption methods" in the revenue procedure) are found in Secs. 263A (capitalization and inclusion in inventory costs of certain expenses), 448 (cash method of accounting), 460 (long-term contracts), and 471 (inventories), effective for tax years beginning after Dec. 31, 2017. The gross-receipts test is at Sec. 448. For more on these TCJA changes, see Clark, "Relief for Small Business Tax Accounting Methods," JofA, Jan. 1, 2019.

Thursday's revenue procedure modifies Rev. Proc. 2019-43 (as modified 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.

Besides automatic changes to apply a small business taxpayer exemption method under the final regulations, procedures under the revenue procedure include:

  • Automatic changes for taxpayers that no longer qualify for a small business taxpayer exemption method under the final regulations, including those changing to a uniform-capitalization (UNICAP) method specifically described in the regulations;
  • A modified procedure for reseller-producers changing from a permissible simplified resale method to be consistent with other changes by allowing such taxpayers to change only to a permissible UNICAP method specifically described in the regulations;
  • An automatic change for taxpayers using an accrual method for purchases and sales of inventories and the cash method for computing all other items of income and expense to change to an overall accrual method;
  • Automatic changes to an accrual method for purchases and sales of inventories and using the cash method for computing all other items of income and expense.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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