Sec. 3301. Limitation on use of cash method of accounting
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Section 448 is amended to read as follows: The cash receipts and disbursements method of accounting may only be used by— a natural person, a farming business, and any other entity which meets the gross receipts test of subsection
(b)for the taxable year. Such method may not be used by a tax shelter (as defined in subsection (d)). For purposes of this section— An entity meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $10,000,000. 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 entity for purposes of paragraph (1). For purposes of this subsection— 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. Any reference in this subsection to an entity shall include a reference to any predecessor of such entity. For purposes of this section— The term farming business means the trade or business of farming. The term farming business shall include the trade or business of— operating a nursery or sod farm, or the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. For purposes of subparagraph (A)(ii), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree. For purposes of this section, the term tax shelter has the meaning given such term by section 461(i)(2) (determined after application of paragraph
(3)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)(2)(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. For purposes of this section— In the case of any person required by this section to change its method of accounting for any taxable year— such change shall be treated as initiated by such person, and such change shall be treated as made with the consent of the Secretary. The Secretary shall prescribe such regulations as may be necessary to prevent the use of related parties, pass-thru entities, or intermediaries to avoid the application of this section. . Section 446(c)(1) is amended by inserting to the extent provided in section 448, before the cash receipts . Section 451 is amended by adding at the end the following new subsection: 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 such person’s experience) will not be collected if such services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other field identified by the Secretary for purposes of this subsection. Paragraph
(1)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 paragraph
(1)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. . The amendments made by this section shall apply to taxable years beginning after December 31, 2014. In the case of any qualified change in method of accounting for the taxpayer’s first taxable year beginning after December 31, 2014— such change shall be treated as initiated by the taxpayer, such change shall be treated as made with the consent of the Secretary of the Treasury, and if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 by reason of such change is positive— such amount shall be taken into account during the 4-taxable year period beginning with the earlier of the taxpayer’s elected taxable year or the taxpayer’s first taxable year beginning after December 31, 2018, as follows: 10 percent of such amount in the first taxable year in such period, 15 percent of such amount in the second taxable year in such period, 25 percent of such amount in the third taxable year in such period, and 50 percent of such amount in the fourth taxable year in such period, and for purposes of applying the regulations and other guidance issued under such section (including any provisions which require accelerated inclusion), the period beginning with the taxpayer’s first taxable year beginning after December 31 2014, and ending with the taxable year before the first taxable year referred to in clause
(i)shall not fail to be taken into account as part of the period of the adjustment merely because such amount is not otherwise taken into account under clause
(i)during such period. For purposes of this subsection, the term qualified change in method of accounting means any change in method of accounting which— is required by the amendments made by this section, or was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments. For purposes of this subsection, the term elected taxable year means such taxable year as the taxpayer may elect (at such time and in such form and manner as the Secretary may provide) which begins after December 31, 2014, and is before the taxpayer’s second taxable year beginning after December 31, 2018.