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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
election under this paragraph b2iiiB must apply this election for other provisions of the Code that specifically apply the definition of tax shelter in section 448a3.
2 Time and manner of making election. A taxpayer makes this election for the taxable year by attaching a statement to its timely filed original Federal income tax return including extensions for such taxable year. The statement must state that the taxpayer is making the election under 1.448
2b2iiiB. In the case of an S
corporation or partnership, the election is made by the S corporation or the partnership and not by the shareholders or partners. An election under this paragraph b2iiiB may not be made by the taxpayer in any other manner.
For example, the election cannot be made through a request under section 446e to change the taxpayers method of accounting. A taxpayer may not revoke an election under this paragraph b2iiiB.
3 Administrative guidance. The IRS
may publish procedural guidance in the Internal Revenue Bulletin see 601.601d2 of this chapter that provides alternative procedures for complying with paragraph b2iiiB2 of this section.
C Examples. The following examples illustrate the rules of paragraph b2iii of this section. For purposes of the examples, the term losses has the meaning stated in paragraph b2iiiA of this section.
1 Example 1. Taxpayer B is a calendar year limited partnership, with no active management from its limited partner. For 2019, B is profitable and has no losses to allocate to its limited partner. For 2020, B is not profitable and allocates 60 percent of its losses to its general partner and 40 percent of its losses to its limited partner. For 2021, B is not profitable and allocates 50
percent of its losses to its general partner and 50 percent of its losses to its limited partner. For taxable year 2020, B makes an election under paragraph b2iiiB of this section to use its prior year allocated amounts.
Accordingly, for 2020, B is not a syndicate because B was profitable for 2019 and did not allocate any losses to its limited partner in 2019. For 2021, B
is a syndicate because B allocated 50
percent of its 2021 losses to its limited partner under paragraph b2ii3A
of this section. Even if B made an election under paragraph b2iiiB of this section to use prior year allocated amounts, B is a syndicate for 2021
because B allocated 40 percent of its 2020 losses to its limited partner in 2020. Because B is a syndicate under
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paragraph b2iiiA of this section for 2021, B is a tax shelter prohibited from using the cash method for taxable year 2021 under paragraph b2iB of this section.
2 Example 2. Same facts as Example 1 in paragraph b2iiiC1
of this section, except for 2021, B is profitable and has no losses to allocate to its limited partner. For 2020, B makes an election under paragraph b2iiiB
of this section to use its prior year allocated amounts. Accordingly, for 2020, B is not a syndicate because it did not any allocate any losses to its limited partner in 2019. For 2021, B chooses not to make the election under paragraph b2iiiB of this section. For 2021, B
is not a syndicate because it does not have any 2021 losses to allocate to a limited partner. For taxable years 2019, 2020 and 2021, B is not a syndicate under paragraph b2iiiA of this section and is not prohibited from using the cash method for taxable years 2019, 2020 or 2021 under paragraph b2iB of this section.
iv Presumed tax avoidance. For purposes of b2iC of this section, marketed arrangements in which persons carrying on farming activities using the services of a common managerial or administrative service will be presumed to have the principal purpose of tax avoidance if such persons use borrowed funds to prepay a substantial portion of their farming expenses. Payments for farm supplies that will not be used or consumed until a taxable year subsequent to the taxable year of payment are an example of one type of such prepayment.
v Taxable year tax shelter must change accounting method. A tax shelter must change from the cash method for the taxable year that it becomes a tax shelter, as determined under paragraph b2 of this section.
vi Determination of loss amount. For purposes of section 448d3, the amount of losses to be allocated under section 1256e3B is calculated without regard to section 163j.
c Exception for entities with gross receipts not in excess of the amount provided in section 448c1 In general. Except in the case of a tax shelter, this section does not apply to any C corporation or partnership with a C corporation as a partner for any taxable year if such corporation or partnership or any predecessor thereof meets the gross receipts test of paragraph c2 of this section.
2 Gross receipts testi In general.
A corporation meets the gross receipts test of this paragraph c2 if the average annual gross receipts of such corporation for the 3 taxable years or,
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if shorter, the taxable years during which such corporation was in existence, annualized as required ending with such prior taxable year does not exceed the gross receipts test amount provided in paragraph c2v of this section section 448c gross receipts test. In the case of a C
corporation exempt from Federal income taxes under section 501a, or a trust subject to tax under section 511b that is treated as a C corporation under paragraph b1 of this section, only gross receipts from the activities of such corporation or trust that constitute unrelated trades or businesses are taken into account in determining whether the gross receipts test is satisfied. A
partnership with a C corporation as a partner meets the gross receipts test of paragraph c2 of this section if the average annual gross receipts of such partnership for the 3 taxable years or, if shorter, the taxable years during which such partnership was in existence annualized as required ending with such prior year does not exceed the gross receipts test amount of paragraph c2v of this section.
Except as provided in paragraph c2ii of this section, the gross receipts of the corporate partner are not taken into account in determining whether a partnership meets the gross receipts test of paragraph c2 of this section.
ii Aggregation of gross receipts. The aggregation rules in 1.4481Tf2ii apply for purposes of aggregating gross receipts for purposes of this section.
iii Treatment of short taxable year.
The short taxable year rules in 1.448
1Tf2iii apply for purposes of this section.
iv Determination of gross receipts.
The determination of gross receipts rules in 1.4481Tf2iv apply for purposes of this section.
v Gross receipts test amountA In general. For purposes of paragraph c of this section, the term gross receipts test amount means $25,000,000, adjusted annually for inflation in the manner provided in section 448c4. The inflation adjusted gross receipts test amount is published annually in guidance published in the Internal Revenue Bulletin see 601.601d2ii of this chapter.
B Example. Taxpayer A, a C
corporation, is a plumbing contractor that installs plumbing fixtures in customers homes or businesses. As gross receipts for the 20172019 taxable years are $20 million, $16 million, and $30 million, respectively. As average annual gross receipts for the three taxable-year period preceding the 2020
taxable year is $22 million $20 million
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