Small Business Taxpayers (as defined below) May Use an Automatic Approval Procedure to Change to the Cash Method of Accounting for Income Tax Purposes

William Delaney, EA
Westwood, MA

Yes, the Congress said that we can do it, now the IRS is telling us how to do it automatically – see Rev. Proc. 2018-40.

Who May Do It – A small business taxpayer (defined) which has an average annual gross receipts for the three prior taxable years of $25,000,000 or less (to be adjusted for inflation).

Effective for taxable years beginning after December 31, 2017.

Accounts Receivable in existence when the change becomes effective will be recorded as income “as the amounts are actually or constructively received…”

Reduced filing requirement - Section 3, 15.18(7) outlines six bits of information needed for successful completion of Form 3115.  Automatic change number for the form is 233.

See the Rev. Proc. for additional information which you may need.