26 USC 448 - Limitation on use of cash method of accounting

Inflation Adjusted Items for Certain Years

For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title.

Editorial Notes

Amendments

2017—Subsec. (span)(3). Puspan. L. 115–97, § 13102(a)(2), amended par. (3) generally. Prior to amendment, text read as follows: “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).”

Subsec. (c). Puspan. L. 115–97, § 13102(a)(1), substituted “Gross receipts test” for “$5,000,000 gross receipts test” in span and amended introductory provisions and par. (1) generally. Prior to amendment, text read as follows: “For purposes of this section—

“(1) In general.—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.”

Subsec. (c)(4). Puspan. L. 115–97, § 13102(a)(3), added par. (4).

Subsec. (d)(7). Puspan. L. 115–97, § 13102(a)(4), amended par. (7) generally. Prior to amendment, par. (7) related to coordination with section 481.

2002—Subsec. (d)(5). Puspan. L. 107–147 amended span 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). Puspan. L. 100–647, § 1008(a)(9), added subpar. (D).

Subsec. (d)(2). Puspan. 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). Puspan. 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). Puspan. L. 100–647, § 1008(a)(7), inserted sentence at end relating to treatment of S corporation as tax shelter.

Subsec. (d)(4)(C). Puspan. L. 100–647, § 1008(a)(8), substituted “90 percent or more of” for “substantially all of”.

Puspan. L. 100–647, § 1008(a)(2), substituted “such group” for “all such members”.

Subsec. (d)(8). Puspan. L. 100–647, § 1008(a)(1)(B), added par. (8).

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Puspan. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13102(e) of Puspan. L. 115–97, set out as a note under section 263A of this title.

Effective Date of 2002 Amendment

Puspan. L. 107–147, title IV, § 403(span), Mar. 9, 2002, 116 Stat. 41, provided that:

“(1)In general.—The amendments made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Mar. 9, 2002].

“(2)Change in method of accounting.—In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year ending after the date of the enactment of this Act—

“(A) such change shall be treated as initiated by the taxpayer,

“(B) such change shall be treated as made with the consent of the Secretary of the Treasury, and

“(C) 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 shall be taken into account over a period of 4 years (or if less, the number of taxable years that the taxpayer used the method permitted under section 448(d)(5) of such Code as in effect before the date of the enactment of this Act) beginning with such first taxable year.”

Effective Date of 1988 Amendment

Amendment by section 1008(a)(1), (2), (7)–(9) of Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.

Puspan. L. 100–647, title VI, § 6032(span), Nov. 10, 1988, 102 Stat. 3695, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1986.”

Effective Date

Puspan. L. 99–514, title VIII, § 801(d), Oct. 22, 1986, 100 Stat. 2348, as amended by Puspan. L. 100–647, title I, § 1008(a)(5), (6), Nov. 10, 1988, 102 Stat. 3437, provided that:

“(1)In general.—Except as provided in paragraph (2), the amendments made by this section [enacting this section and amending section 461 of this title] shall apply to taxable years beginning after December 31, 1986.

“(2)Election to retain cash method for certain transactions.—A taxpayer may elect not to have the amendments made by this section apply to any loan or lease, or any transaction with a related party (within the meaning of section 267(span) of the Internal Revenue Code of 1954, as in effect before the enactment of this Act), entered into on or before September 25, 1985. Any election under the preceding sentence may be made separately with respect to each transaction.

“(3)Certain contracts.—The amendments made by this section shall not apply to—

“(A) contracts for the acquisition or transfer of real property, and

“(B) contracts for services related to the acquisition or development of real property,

but only if such contracts were entered into before September 25, 1985, and the sole element of the contract which has not been performed as of September 25, 1985, is payment for such property or services.

“(4)Treatment of affiliated group providing engineering services.—Each member of an affiliated group of corporations (within the meaning of section 1504(a) of the Internal Revenue Code of 1986) shall be allowed to use the cash receipts and disbursements method of accounting for any trade or business of providing engineering services with respect to taxable years ending after December 31, 1986, if the common parent of such group—

“(A) was incorporated in the State of Delaware in 1970,

“(B) was the successor to a corporation that was incorporated in the State of Illinois in 1949, and

“(C) used a method of accounting for long-term contracts of accounting [sic] for a substantial part of its income from the performance of engineering services.

“(5)Special rule for paragraphs (2) and (3).—If any loan, lease, contract, or evidence of any transaction to which paragraph (2) or (3) applies is transferred after June 10, 1987, to a person other than a related party (within the meaning of paragraph (2)), paragraph (2) or (3) shall cease to apply on and after the date of such transfer.”