SMALL BUSINESS ACCOUNTING METHOD REFORM AND SIMPLIFICATION.

SEC. 13102. SMALL BUSINESS ACCOUNTING METHOD REFORM AND SIMPLIFICATION.(a) Modification of Limitation on Cash Method of Accounting.—(1) Increased limitation.—So much of section 448(c) as precedes paragraph (2) is amended to read as follows:“(c) Gross Receipts Test.—For purposes of this section—“(1) In general.—A corporation or partnership 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 $25,000,000.”.(2) Application of exception on annual basis.—Section 448(b)(3) is amended to read as follows:“(3) Entities which meet gross receipts test.—Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year.”.(3) Inflation adjustment.—Section 448(c) is amended by adding at the end the following new paragraph:“(4) Adjustment for inflation.—In the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to—“(A) such dollar amount, multiplied by“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting ‘calendar year 2017’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.If any amount as increased under the preceding sentence is not a multiple of $1,000,000, such amount shall be rounded to the nearest multiple of $1,000,000.”.(4) Coordination with section 481.—Section 448(d)(7) is amended to read as follows:“(7) Coordination with section 481.—Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”.(5) Application of exception to corporations engaged in farming.—(A) In general.—Section 447(c) is amended—(i) by inserting “for any taxable year” after “not being a corporation” in the matter preceding paragraph (1), and(ii) by amending paragraph (2) to read as follows:“(2) a corporation which meets the gross receipts test of section 448(c) for such taxable year.”.(B) Coordination with section 481.—Section 447(f) is amended to read as follows:131 STAT. 2103 “(f) Coordination With Section 481.—Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”.(C) Conforming amendments.—Section 447 is amended—(i) by striking subsections (d), (e), (h), and (i), and(ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively.(b) Exemption From UNICAP Requirements.—(1) In general.—Section 263A is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:“(i) Exemption for Certain Small Businesses.—“(1) In general.—In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year.“(2) Application of gross receipts test to individuals, etc.— In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.“(3) Coordination with section 481.—Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”.(2) Conforming amendment.—Section 263A(b)(2) is amended to read as follows:“(2) Property acquired for resale.—Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale.”.(c) Exemption From Inventories.—Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:“(c) Exemption for Certain Small Businesses.—“(1) In general.—In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year—“(A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and“(B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either—“(i) treats inventory as non-incidental materials and supplies, or“(ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, 131 STAT. 2104 the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.“(2) Applicable financial statement.—For purposes of this subsection, the term ‘applicable financial statement’ has the meaning given the term in section 451(b)(3).“(3) Application of gross receipts test to individuals, etc.—In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.“(4) Coordination with section 481.—Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.”.(d) Exemption From Percentage Completion for Long-term Contracts.—(1) In general.—Section 460(e)(1)(B) is amended—(A) by inserting “(other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3))” after “taxpayer” in the matter preceding clause (i), and(B) by amending clause (ii) to read as follows:“(ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into.”.(2) Conforming amendments.—Section 460(e) is amended by striking paragraphs (2) and (3), by redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively, and by inserting after paragraph (1) the following new paragraph:“(2) Rules related to gross receipts test.—“(A) Application of gross receipts test to individuals, etc.— For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.“(B) Coordination with section 481.—Any change in method of accounting made pursuant to paragraph (1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent of the Secretary. Such change shall be effected on a cut-off basis for all similarly classified contracts entered into on or after the year of change.”.(e) Effective Date.—(1) In general.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017.(2) Preservation of suspense account rules with respect to any existing suspense accounts.—So much of the amendments made by subsection (a)(5)(C) as relate to section 447(i) of the Internal Revenue Code of 1986 shall not apply with respect to any suspense account established under such section before the date of the enactment of this Act.(3) Exemption from percentage completion for long-term contracts.—The amendments made by subsection (d) shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date.131 STAT. 2105