263A(i) allows an exemption from the capitalization requirements of Sec. 263A: Newly established under the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 448(c) (commonly known as the small taxpayer gross receipts test).Įxception from Sec. 448(b) provides exceptions to this limitation for farming businesses, qualified personal service corporations, and entities that meet the gross receipts test under Sec. In addition, if the purchase, production, or sale of merchandise is an income- producing factor, the taxpayer cannot use the cash method of accounting. 448 disallows a C corporation or a partnership that has a C corporation as a partner from using it. Small business taxpayer exceptions include:Ĭash - basis accounting method : Although the cash method of accounting is considered a permissible method under Sec. The exceptions are meant more to reduce compliance costs rather than to reduce taxes, but they often do both. Although small taxpayer testing may be time- consuming, the tax and time benefits of a small taxpayer classification may be critical to certain taxpayers. Although these exceptions are meant to simplify tax law implementation, the rules for evaluating whether a business qualifies for the exceptions can be convoluted and highly computational. Paul Bonner ( ) is a JofA senior editor.Various exceptions are available to small business taxpayers to help them avoid some of the Internal Revenue Code's more burdensome and complex requirements. 2021-49 and meet certain other listed requirements of these revenue procedures. 31, 2021.īBA partnerships are eligible if they filed Forms 1065 and furnished Schedules K-1 for the partnership tax year ending after March 27, 2020, and before the issuance of Rev.
These amended returns and Schedules K-1 must be filed or furnished on or before Dec. 2021-50 allows eligible BBA partnerships to file amended Forms 1065 and issue amended Schedules K-1 for the above purposes for tax years ending after March 27, 2020. This revenue procedure's provisions also apply to certain grant proceeds and subsidized payments of certain interest and fees. 705.įor corporations, the revenue procedure provides guidance regarding similar adjustments of stock basis by subsidiary members of consolidated groups under Sec. 704(b) their distributive share of PPP loan forgiveness tax-exempt income and deductions resulting from expenditures attributable to the use of forgiven PPP loans and make corresponding adjustments to the partners' bases in their partnership interests under Sec. 2021-49 prescribes how partners and partnerships may allocate among partners under Sec. The revenue procedure also describes adjustments that must be made on an amended return information return or, for certain partnerships, an administrative adjustment request, when a PPP loan is only partly forgiven. Taxpayers may treat such income as received or accrued when either (1) expenses eligible for forgiveness are paid or incurred (2) an application for PPP loan forgiveness is filed or (3) PPP loan forgiveness is granted. 2021-48 covers the timing of receipt of PPP forgiveness tax-exempt income. Return of Partnership Income, and issue amended Schedules K-1, Partner's Share of Income, Deductions, Credits, etc., to partners in accordance with these procedures. 114-74, (BBA partnerships) may file amended Forms 1065, U.S. 6033.Īs the AICPA had suggested, a range of issues are addressed in the guidance, including the timing for tax purposes of when PPP loan forgiveness is received or accrued, how partners and partnerships may allocate PPP forgiveness as exempt income and allocate deductions resulting from expenditures attributable to the use of forgiven PPP loan proceeds, and how eligible partnerships subject to audit procedures under the Bipartisan Budget Act of 2015, P.L. Another such inclusion is for certain return filing requirement thresholds for tax-exempt organizations under Sec. 448(c) for a "small business taxpayer" eligible to use the cash method of accounting and several other generally favorable tax accounting provisions. While it is excluded from taxpayers' gross income, tax-exempt income resulting from PPP loan forgiveness nonetheless must be included in gross receipts for certain other purposes, which include the gross receipts test under Sec. The AICPA had requested guidance in a March 15, 2021, letter to the IRS. 2021-48, 2021-49, and 2021-50) the IRS provided guidance Thursday on the treatment of amounts excluded from taxpayers' gross income in connection with forgiveness of Paycheck Protection Program (PPP) loans.
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