Page 246 - TaxAdviser_2022

TAX CLINIC

business taxpayers to obtain automatic taxpayer did not qualify as a small
consent to change to simplified meth- business taxpayer, the prior change is
ods of accounting to comply with the disregarded for determining whether
final regulations under Secs. 263A, 448, the taxpayer has made a change for
460, and 471 issued on Jan. 5, 2021 the same item in the past five years
(T.D. 9942). (the “five-year eligibility requirement”
Rev. Proc. 2022-9 modifies under the method change procedures
existing automatic method changes, of Rev. Proc. 2015-13). This will give
adds several new automatic changes, small business taxpayers more opportu-
and contains transition rules that nity and flexibility to change between
provide more flexibility for taxpayers non–small business taxpayer methods
to change to or from the simplified and small business taxpayer methods as
methods. Procedures also are provided their circumstances change and they are
for taxpayers to revoke a syndicate able to again utilize small business tax-
election made under the proposed small payer methods after being disqualified
business taxpayer regulations issued within the past five years. New rules are
in August 2020. Rev. Proc. 2022-14 provided for recognizing Sec. 481(a)
updates the list of automatic accounting adjustments remaining from prior ac-
method changes and significantly counting method changes for the same
modifies Rev. Proc. 2019-43, including item, and the rules that permitted net-
revising some items in Rev. Proc. ting under Section 3.04 of Rev. Proc.
2022-9. 2018-40 are removed.
In December 2017, the law known their methods of accounting are dis-
as the Tax Cuts and Jobs Act, P.L. tinguishable from taxpayers that are Highlights of automatic changes
115-97, introduced a number of sim- required by the Code to change their to small business taxpayer
plifying tax provisions for eligible small methods of accounting because they accounting methods
business taxpayers. These small business either no longer qualify for the small Under revised Section 15.17 of Rev.
taxpayer methods expand the use of business taxpayer exemptions or were Proc. 2022-14, the scope of a change
the overall cash method of accounting previously required to change their from an overall accrual accounting
and grant exemptions from the require- methods of accounting but subse- method to the overall cash method
ment to take an inventory under Sec. quently requalify for the small business is expanded to include changes from
471(a), from capitalizing costs under taxpayer exemptions. A taxpayer is a either an overall cash or overall accrual
the uniform capitalization rules under small business taxpayer if it is not a tax method to a method of using an ac-
Sec. 263A, from the required use of the shelter (as defined under Secs. 448(d) crual method for purchases and sales
percentage-of-completion method for (3) and 461(i)(3)) that meets the Sec. of inventories and the cash method for
certain exempt long-term construction 448(c) gross-receipts test, under which computing all other items of income
contracts under Sec. 460, or from the the average annual gross receipts for the and expense. Under this change, ex-
requirement to capitalize costs under three prior tax years are $25 million or empt long-term construction contracts
Sec. 263A for Sec. 460 home construc- less, adjusted for inflation. The terms may change to the cash method, and
tion contracts. The final regulations and conditions of automatic consent such contracts that include the sale of
apply for tax years beginning on or procedures added or modified by Rev. inventory may change to use an accrual
after Jan. 5, 2021; however, they may be Proc. 2022-9 are more flexible and method for purchases and sales of such
applied for a tax year beginning after favorable for taxpayers that are required inventory and the cash method for
Dec. 31, 2017, and before Jan. 5, 2021 by the Code to change their methods computing all other items of income
(early-adoption year), or alternatively, than for taxpayers that are optionally and expense from such contracts.
a taxpayer may rely on the proposed changing their methods of accounting. Section 22.18 of Rev. Proc. 2022-14
regulations for these tax years. For example, if within the prior five permits a change to a small business IMAGE BY MICROSTOCKHUB/ISTOCK
tax years, a taxpayer made a change taxpayer inventory method under the
Small taxpayers distinguished from a small business taxpayer method final regulations, or for tax years begin-
As stated in the final regulations, tax- to a non–small business taxpayer ning after Dec. 31, 2017, and before
payers that are voluntarily changing method in the first tax year that the Jan. 5, 2021, to methods under Sec.

28 May 2022 The Tax Adviser