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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations requirements in the form of reporting, recordkeeping requirements or thirdparty disclosure statements. However, because the exemptions in sections 263A, 448, 460 and 471 are methods of accounting under the statute, taxpayers are required to request the consent of the Commissioner for a change in method of accounting under section 446e to implement the statutory exemptions. The IRS expects that these taxpayers will request this consent by filing Form 3115, Application for Change in Accounting Method.
Taxpayers may request these changes using reduced filing requirements by completing only certain parts of Form 3115. See Revenue Procedure 201840
201834 IRB 320. Revenue Procedure 201840 provides procedures for a taxpayer to make a change in method of accounting using the automatic change procedures of Revenue Procedure 2015
13 20155 IRB 419 in order to use the exemptions provided in sections 263A, 460 and/or 471. See also the revenue procedure accompanying these regulations for similar method change procedures to make a change in method of accounting to comply with these final regulations.
For purposes of the Paperwork Reduction Act of 1995 44 U.S.C.
3507c PRA, the reporting burden associated with the collection of information for the election statement and Form 3115 will be reflected in the PRA submission associated with the income tax returns under the OMB
control number 15450074 in the case of individual filers of Form 3115 and 15450123 in the case of business filers of Form 3115.
In 2018, the IRS released and invited comment on a draft of Form 3115 in order to give members of the public the opportunity to benefit from certain specific provisions made to the Code.
The IRS received no comments on the forms during the comment period.
Consequently, the IRS made the forms available in January 2019 for use by the public. The IRS notes that Form 3115
applies to changes of accounting methods generally and is therefore broader than sections 263A, 448, 460
and 471.
As discussed earlier, the reporting burdens associated with the proposed regulations are included in the aggregated burden estimates for OMB
control numbers 15450074 in the case of individual filers of Form 3115, 1545
0123 in the case of business filers of Form 3115 subject to Revenue Procedure 201943 and business filers that make the election under proposed 1.4482b2iiiB. The overall burden estimates associated with these
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OMB control numbers are aggregate amounts related to the entire package of forms associated with the applicable OMB control number and will include, but not isolate, the estimated burden of the tax forms that will be created or revised as a result of the information collections in these regulations. These numbers are therefore not specific to the burden imposed by these regulations.
The burdens have been reported for other income tax regulations that rely on the same information collections and the Treasury Department and the IRS
urge readers to recognize that these numbers are duplicates and to guard against overcounting the burdens imposed by tax provisions prior to the TCJA. No burden estimates specific to the forms affected by the regulations are currently available. For the OMB control numbers discussed in the preceding paragraphs, the Treasury Department and the IRS estimate PRA burdens on a taxpayer-type basis rather than a provision-specific basis. Those estimates capture both changes made by the TCJA and those that arise out of discretionary authority exercised in the final regulations and other regulations that affect the compliance burden for that form.
II. Regulatory Flexibility Act The Regulatory Flexibility Act 5
U.S.C. 601 et seq. RFA imposes certain requirements with respect to federal rules that are subject to the notice and comment requirements of section 553b of the Administrative Procedure Act 5 U.S.C. 551 et seq. and that are likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present an initial regulatory flexibility analysis IRFA of the proposed rules. At the proposed rule stage, the Treasury Department and the IRS had not determined whether the proposed rules, when finalized, would likely have a significant economic impact on a substantial number of small entities. The determination of whether the voluntary exemptions under sections 263A, 448, 460, and 471, and the regulations providing guidance with respect to such exemptions, will have a significant economic impact on a substantial number of small entities requires further study. However, because there is a possibility of significant economic impact on a substantial number of small entities, an IRFA was provided at the proposed rule stage. In accordance with section 604 of
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the RFA, following is the final regulatory flexibility analysis.
1. Reasons for and Objectives of the Rule As discussed earlier in the preamble, these regulations largely implement voluntary exemptions that relieve small business taxpayers from otherwise applicable restrictions and requirements under sections 263A, 448, 460, and 471.
Section 448 provides a general restriction for C corporations and partnerships with C corporation partners from using the cash method of accounting, and sections 263A, 460 and 471 impose specific rules on uniform capitalization of direct and indirect production costs, the percentage of completion method for long-term contracts, and accounting for inventory costs, respectively. Section 13102 of TCJA provided new statutory exemptions from certain of these rules and expanded the scope of existing statutory exemptions from certain of these rules to reduce compliance burdens for small taxpayers. The regulations clarify the exemption qualification requirements and provide guidance with respect to the applicable methods of accounting should a taxpayer choose to apply one or more exemptions.
The objective of the regulations is to provide clarity and certainty for small business taxpayers implementing the exemptions. Under the Code, small business taxpayers were able to implement these provisions for taxable years beginning after December 31, 2017
or, in the case of section 460, for contracts entered into after December 31, 2017 even in the absence of these regulations. Thus, the Treasury Department and the IRS expect that, at the time these regulations are published, many small business taxpayers may have already implemented some aspects of the regulations.
2. Significant Issues Raised by the Public Comments in Response to the IRFA and Comments Filed by the Chief Counsel for Advocacy of the Small Business Administration No public comments were received in response to the IRFA. Additionally, no comments were filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed regulations.
3. Affected Small Entities The voluntary exemptions under sections 263A, 448, 460 and 471
generally apply to taxpayers that meet the $25 million adjusted for inflation gross receipts test in section 448c and
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