AICPA weighs in on small-biz accounting method changes under new tax law

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The American Institute of CPAs has sent a set of recommendations to the Internal Revenue Service and the Treasury Department about the impact of last December’s tax code overhaul on accounting method changes for small businesses.

In a comment letter Monday, AICPA Tax Executive Committee chair Annette Nellen made eight recommendations on areas that need further clarification and guidance.

Under the Tax Cuts and Jobs Act, small business taxpayers are allowed to streamline their tax accounting methods for years starting after Dec. 31, 2017. The law defines small business taxpayers as taxpayers with average annual gross receipts in the prior three-year period of $25 million or less.

The AICPA has been busy this year since the passage of the tax reform law asking the IRS and the Treasury Department for further guidance on a number of areas, including the rules around the 20 percent deduction for certain kinds of pass-through businesses.

In its latest request, the AICPA made eight suggestions for officials at the IRS and the Treasury Department:

1. They should provide automatic and simplified accounting method change procedures for small business taxpayers who are trying to comply with the new provisions under the TCJA.

2. They should clarify whether taxpayers that exceed the threshold for small business taxpayers in the future need to file accounting method changes and provide certain automatic accounting method changes for such taxpayers to file the accounting method changes.

3. They should clarify that the interest deduction limitation under section 163(j) of the tax code isn’t considered a method of accounting.

4. They should provide relief for small business taxpayers who meet the $25 million gross receipts test that are currently on improper accounting methods.

5. They should clarify the definition of gross receipts under section 448 of the tax code for purposes of qualifying as a small business taxpayer.

6. They should clarify that the definition of a tax shelter for purposes of section 448 doesn’t include an entity with negative taxable income as a result of a negative section 481(a) adjustment.

7. They should clarify that Qualified Improvement Property is treated as 15-year property.

8. They should provide guidance on the tax consequences of changing to the cash method of accounting.

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Tax reform Trump tax plan Small business Tax regulations Accounting methods AICPA IRS Treasury Department