26 U.S.C. § 448: Limitation on use of cash method of accounting

C corporation, partnership which has a C corporation as a partner, or tax shelter, 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 such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year. 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. 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. Any reference in this subsection to an entity shall include a reference to any predecessor of such entity. such dollar amount, multiplied by 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. The term “farming business” means the trade or business of farming (within the meaning of section 263A(e)(4)). The term “farming business” includes the raising, harvesting, or growing of trees to which section 263A(c)(5) applies. substantially all of the activities of which involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and employees performing services for such corporation in connection with the activities involving a field referred to in subparagraph (A), retired employees who had performed such services for such corporation, the estate of any individual described in clause (i) or (ii), or any other person who acquired such stock by reason of the death of an individual described in clause (i) or (ii) (but only for the 2-year period beginning on the date of the death of such individual). 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. community property laws shall be disregarded, stock held by a plan described in section 401(a) which is exempt from tax under section 501(a) shall be treated as held by an employee described in paragraph (2)(B)(i), and at the election of the common parent of an affiliated group (within the meaning of section 1504(a)), all members of such group may be treated as 1 taxpayer for purposes of paragraph (2)(B) if 90 percent or more of the activities of such group involve the performance of services in the same field described in paragraph (2)(A). such services are in fields referred to in paragraph (2)(A), or such person meets the gross receipts test of subsection (c) for all prior taxable years. 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. 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. 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. 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 ]. 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 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.” 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 . 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(b) 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. contracts for the acquisition or transfer of real property, and contracts for services related to the acquisition or development of real property, was incorporated in the State of Delaware in 1970, was the successor to a corporation that was incorporated in the State of Illinois in 1949, and 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. 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.”