![]() 414(o) states that Treasury has broad authority to issue regulations necessary to prevent avoidance of employee benefit requirements, including Sec. ![]() As previously stated, entities must therefore aggregate their gross receipts to the extent they are treated as a single employer under subsection (a) or (b) of Sec. 448(c)(2) is to eliminate spinoffs of larger businesses into separate entities to meet the gross receipts test. The purpose of the aggregation rules under Sec. 448, the next step is assessing whether it must aggregate its gross receipts with amounts from other entities. Once an entity determines the types of gross receipts it must consider for purposes of Sec. 448 regulations provide specific rules addressing how to compute gross receipts for taxpayers with newly formed entities, short tax years, transactions between aggregated group members, and predecessor entities. However, with respect to sales of capital assets or sales of property used in a trade or business, taxpayers can reduce gross receipts by the adjusted basis in that property. Generally, taxpayers are not allowed to reduce gross receipts by cost of goods sold or by the cost of property sold (e.g., in the case of inventory). 103), dividends, rents, royalties, and annuities, regardless of whether these amounts are derived in the ordinary course of the taxpayer's trade or business. For example, gross receipts include interest (including original issue discount and tax- exempt interest within the meaning of Sec. ![]() Gross receipts include total sales (net of returns and allowances) and all amounts received for services, as well as any income from investments and from incidental or outside sources. 448- 1T(f)(2)(iv)(A)broadly defines gross receipts as receipts that are properly recognized under the taxpayer's accounting method used in that tax year for federal income tax purposes. Aggregation rules in generalīe fore delving into the aggregation rules, it is important first to define the types of gross receipts that must be included for purposes of applying the $25 million gross receipts test. Taken together, these references to multiple Code sections send taxpayers through a labyrinth of complex rules involving a combination of controlled group definitions and employment tax principles. 52(a) and 52(b) or under the qualified plan rules relating to affiliated service groups (or would be so treated if they had employees) in Secs. 448(c)(2) requires the aggregation of gross receipts for entities treated as a single employer for purposes of the work opportunity tax credit in Secs. 448(c)(2), as they could result in multiple entities' gross receipts being combined for purposes of applying the test. 163(j).Īlthough the $25 million threshold may appear generous for many small to midsize entities, taxpayers should carefully examine the aggregation rules under Sec. 460 for long- term contracts, and exemption from the interest expense limitation under Sec. 263A, exemption from the use of the percentage- of- completion method under Sec. 471, exemption from the UNICAP rules under Sec. 448(d)(3), the average annual gross receipts of which over the three immediately preceding tax years do not exceed $25 million (indexed for inflation), is eligible for the overall cash method of accounting, exemption from the requirement to account for inventories under Sec. 31, 2017, an entity other than a tax shelter, as defined under Sec. Backgroundįor tax years beginning after Dec. This discussion reviews the mechanics of the gross receipts test, highlights several potential traps for the unwary, and raises several common but still unanswered questions that will hopefully be addressed by the IRS and Treasury in future guidance. While the $25 million gross receipts test seems straightforward upon first impression, the nuances related to the application of the threshold are anything but simple. In particular, the new exceptions now apply to taxpayers with average annual gross receipts of $25 million or less, more than doubling or quadrupling prior thresholds provided in pre- TCJA simplifying conventions. 115- 97, significantly expanded the universe of taxpayers that qualify for the provisions. While many of these simplifying exceptions existed in some fashion prior to tax reform, the enactment of the Tax Cuts and Jobs Act (TCJA), P.L. Tax reform promised overall simplification for small business taxpayers, including streamlined accounting method provisions as well as an exemption from the interest expense limitation under Sec.
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