26 U.S. Code § 448 - Limitation on use of cash method of accounting
Paragraphs (1) and (2) of subsection (a) shall not apply to any farming business.
Paragraphs (1) and (2) of subsection (a) shall not apply to a qualified personal service corporation, and such a corporation shall be treated as an individual for purposes of determining whether paragraph (2) of subsection (a) applies to any partnership.
Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if, for all prior taxable years beginning after December 31, 1985, such entity (or any predecessor) met the $5,000,000 gross receipts test of subsection (c).
A corporation or partnership meets the $5,000,000 gross receipts test of this subsection for any prior taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with such prior taxable year does not exceed $5,000,000.
All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one person for purposes of paragraph (1).
If the entity was not in existence for the entire 3-year period referred to in paragraph (1), such paragraph shall be applied on the basis of the period during which such entity (or trade or business) was in existence.
Gross receipts for any taxable year of less than 12 months shall be annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.
Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.
The term “farming business” means the trade or business of farming (within the meaning of section 263A(e)(4)).
The term “tax shelter” has the meaning given such term by section 461(i)(3) (determined after application of paragraph (4) thereof). An S corporation shall not be treated as a tax shelter for purposes of this section merely by reason of being required to file a notice of exemption from registration with a State agency described in section 461(i)(3)(A), but only if there is a requirement applicable to all corporations offering securities for sale in the State that to be exempt from such registration the corporation must file such a notice.
This paragraph shall not apply to any amount if interest is required to be paid on such amount or there is any penalty for failure to timely pay such amount.
The Secretary shall prescribe regulations to permit taxpayers to determine amounts referred to in subparagraph (A) using computations or formulas which, based on experience, accurately reflect the amount of income that will not be collected by such person. A taxpayer may adopt, or request consent of the Secretary to change to, a computation or formula that clearly reflects the taxpayer’s experience. A request under the preceding sentence shall be approved if such computation or formula clearly reflects the taxpayer’s experience.
For purposes of this section, a trust subject to tax under section 511(b) shall be treated as a C corporation with respect to its activities constituting an unrelated trade or business.
2002—Subsec. (d)(5). Pub. L. 107–147 amended heading and text of par. (5) generally. Prior to amendment, text read as follows: “In the case of any person using an accrual method of accounting with respect to amounts to be received for the performance of services by such person, such person shall not be required to accrue any portion of such amounts which (on the basis of experience) will not be collected. This paragraph shall not apply to any amount if interest is required to be paid on such amount or there is any penalty for failure to timely pay such amount.”
1988—Subsec. (c)(3)(D). Pub. L. 100–647, § 1008(a)(9), added subpar. (D).
Subsec. (d)(2). Pub. L. 100–647, § 6032(a), inserted at end “To the extent provided in regulations which shall be prescribed by the Secretary, indirect holdings through a trust shall be taken into account under subparagraph (B).”
Subsec. (d)(2)(B). Pub. L. 100–647, § 1008(a)(1)(A), substituted “(or indirectly through 1 or more partnerships, S corporations, or qualified personal service corporations not described in paragraph (2) or (3) of subsection (a))” for “or indirectly”.
Subsec. (d)(3). Pub. L. 100–647, § 1008(a)(7), inserted sentence at end relating to treatment of S corporation as tax shelter.
Subsec. (d)(4)(C). Pub. L. 100–647, § 1008(a)(8), substituted “90 percent or more of” for “substantially all of”.
Pub. L. 100–647, § 1008(a)(2), substituted “such group” for “all such members”.
Subsec. (d)(8). Pub. L. 100–647, § 1008(a)(1)(B), added par. (8).
Amendment by section 1008(a)(1), (2), (7)–(9) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Written determinations for this section
These documents, sometimes referred to as "Private Letter Rulings", are taken from the IRS Written Determinations page; the IRS also publishes a fuller explanation of what they are and what they mean. The collection is updated (at our end) daily. It appears that the IRS updates their listing every Friday.
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- Function Test : 2006-02-10
- Clearly v. Not Clearly Reflecting Income : 2002-10-18
- General Rule for Inventories : 2002-10-18
- Farmers : 2002-10-18
- Farming Business Defined : 2002-10-18
- Nonaccrual of Certain Amounts by Service Providers : 2002-08-09
- Requirement of Registration : 2000-05-05
- Ownership Test : 2000-02-11