Revenue Procedure 2018-40 is part of the IRS’s ongoing efforts to clarify and simplify small business taxpayer accounting method opportunities. By taking advantage of some or all of these automatic accounting method changes, small business taxpayers can reduce the administrative burden of tax-specific calculations and potentially reap the benefits of deferring income and accelerating deductions.
On August 3, 2018, the IRS issued Revenue Procedure (Rev. Proc.) 2018-40 outlining the procedures for adopting certain accounting methods made available to “small business taxpayers” by the Tax Cuts and Jobs Act (the Act), Public Law No. 115-97, enacted December 22, 2017, following the automatic change procedures in Rev. Proc. 2015-13.
Overview of Small Business Taxpayer Simplifying Provisions
The Act defines a small business taxpayer as any taxpayer, other than a tax shelter, with average annual gross receipts of $25 million or less (adjusted for inflation) over the three prior taxable years. This is a significant increase from the $5 million threshold under prior law. The $25 million gross receipts test requires aggregation of gross receipts of related entities if the related entities are treated as a single employer, which generally means a controlled group of entities with more than 50 percent common control or is an affiliated service group. Taxpayers satisfying the $25 million gross receipts test may utilize the small business taxpayer accounting methods.
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