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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations Use of guidance documents.

Guidance documents cannot create binding requirements that do not already exist by statute or regulation.
Accordingly, non-compliance with guidance documents cannot be used as a basis for proving violations of applicable law. Guidance documents can do no more, with respect to prohibition of conduct, than articulate USAIDs understanding of how a statute or regulation applies to particular circumstances.
Ruth Buckley, Acting Performance Improvement Officer/
Acting Office Director, Bureau for Management Office of Management Policy, Budget and Operational Performance.
FR Doc. 202026352 Filed 1421; 8:45 am BILLING CODE P

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1
TD 9942
RIN 1545BP53

Small Business Taxpayer Exceptions Under Sections 263A, 448, 460 and 471
Internal Revenue Service IRS, Treasury.
ACTION: Final regulations.
AGENCY:

This document contains final regulations to implement legislative changes to sections 263A, 448, 460, and 471 of the Internal Revenue Code Code that simplify the application of those tax accounting provisions for certain businesses having average annual gross receipts that do not exceed $25,000,000, adjusted for inflation. This document also contains final regulations regarding certain special accounting rules for long-term contracts under section 460 to implement legislative changes applicable to corporate taxpayers. The final regulations generally affect taxpayers with average annual gross receipts of not more than $25 million, as adjusted for inflation.
DATES:
Effective date: The regulations are effective on January 5, 2021.
Applicability dates: For dates of applicability, see 1.263A1a2i, 1.263A1m6, 1.263A2g4, 1.263A3f2, 1.263A4g2, 1.263A
7a4ii, 1.381c51f, 1.4461c3, 1.4482h, 1.4483h, 1.4601h3, 1.4603d, 1.4604i, 1.4606k, and 1.4711c.
FOR FURTHER INFORMATION CONTACT:
Concerning 1.4601 through 1.4606,
jbell on DSKJLSW7X2PROD with RULES

SUMMARY:

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Innessa Glazman, 202 3177006;
concerning all other regulations in this document, Anna Gleysteen, 202 317
7007.
SUPPLEMENTARY INFORMATION:
Background This document contains amendments to the Income Tax Regulations 26 CFR
part 1 to implement statutory amendments to sections 263A, 448, 460, and 471 of the Code made by section 13102 of Public Law 11597 131 Stat.
2054, commonly referred to as the Tax Cuts and Jobs Act TCJA. These statutory amendments generally simplify the application of the method of accounting rules under those provisions to certain businesses other than tax shelters with average annual gross receipts that do not exceed $25,000,000, adjusted for inflation.
The uniform capitalization UNICAP
rules of section 263A provide that, in general, the direct costs and the properly allocable share of the indirect costs of real or tangible personal property produced, or real or personal property described in section 1221a1
acquired for resale, cannot be deducted but must either be capitalized into the basis of the property or included in inventory costs, as applicable. Before the enactment of the TCJA, certain types of taxpayers and certain types of property were exempt from UNICAP, but there was no generally applicable exemption based on gross receipts.
Section 448a generally prohibits C
corporations, partnerships with a C
corporation as a partner, and tax shelters from using the cash receipts and disbursements method of accounting cash method. However, section 448b3 provides that section 448a does not apply to C corporations and partnerships with a C corporation as a partner that meet the gross receipts test of section 448c. Prior to the TCJAs enactment, a taxpayer met the gross receipts test of section 448c if, for all taxable years preceding the current taxable year, the average annual gross receipts of the taxpayer or any predecessor for any 3-taxable-year period did not exceed $5 million.
Section 460a provides that income from a long-term contract must be determined using the percentage-ofcompletion method PCM. A long-term contract is defined in section 460f as generally any contract for the manufacture, building, installation, or construction of property if such contract is not completed within the taxable year in which such contract is entered into.
Subject to special rules in section 460b3, section 460b1A generally provides that the percentage of
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completion of a long-term contract is determined by comparing costs allocated to the contract under section 460c and incurred before the close of the taxable year with the estimated total contract costs. Prior to the TCJA, section 460e1B provided an exemption from the PCM for a long-term construction contract of a taxpayer who estimated that the contract would be completed within the 2-year period from the commencement of the contract two-year rule, and whose average annual gross receipts for the 3-taxableyear period ending with the year preceding the year the contract was entered into did not exceed $10 million Section 460e gross receipts test.
Section 471a requires inventories to be taken by a taxpayer when, in the opinion of the Secretary of the Treasury or his delegate Secretary, taking an inventory is necessary to determine the income of the taxpayer. Section 1.471
1 requires the taking of an inventory at the beginning and end of each taxable year in which the production, purchase, or sale of merchandise is an incomeproducing factor. Additionally, when an inventory is required to be taken, 1.4461c1iv and c2 require that an accrual method be used for purchases and sales. Prior to the enactment of the TCJA, there were no regulatory exceptions from the requirement to take an inventory under 1.4711.
The statutory amendments of the TCJA increase the gross receipts test amount under section 448c to $25,000,000, adjusted for inflation, for eligibility to use the cash method and also exempt taxpayers, other than a tax shelter under section 448a3, meeting the gross receipts test Section 448c Gross Receipts Test from: 1 The UNICAP rules under section 263A; 2
the requirement to use the percentageof-completion method under section 460 provided other requirements of section 460e are satisfied; and 3 the requirement to take inventories under section 471a if their inventory is treated as non-incidental materials and supplies, or if the method of accounting for their inventory conforms with the method reflected on their applicable financial statement AFS, or if they do not have an AFS, their books and records prepared in accordance with their accounting procedures. These amendments generally apply to taxable years beginning after December 31, 2017. The amendments to section 460
apply to contracts entered into after December 31, 2017, in taxable years ending after December 31, 2017.
On August 20, 2018, the Department of the Treasury Treasury Department
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