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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
Par. 7. 1.263A7 is amended:
1. By revising paragraph a3i.
2. By redesignating paragraph a4 as paragraph a4i.
3. By adding a paragraph a4 subject heading.
4. By revising the newly-designated paragraph a4i subject heading.
5. By adding paragraph a4ii.
6. In paragraph b1, by removing the language Rev. Proc. 9727 199721
I.R.B.10 and adding in its place the language Revenue Procedure 201513
20155 IRB 419.
7. In paragraph b2ii, by removing the language Rev. Proc. 20029 2002
1 C.B. 327 and Rev. Proc. 9727 1991
1 C.B. 680 and adding the language Revenue Procedure 201513, 20155
IRB 419 or successor in its place.
The revisions and additions read as follows:

1.263A7 Changing a method of accounting under section 263A.

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a
3
i For taxable years beginning after December 31, 2017, resellers of real or personal property or producers of real or tangible personal property whose average annual gross receipts for the immediately preceding 3-taxable-year period, or lesser period if the taxpayer was not in existence for the three preceding taxable years, annualized as required, exceed the gross receipts test of section 448c and the accompanying regulations where the taxpayer was not subject to section 263A in the prior taxable year;

4 Applicability datesi In general.
ii Changes made by Tax Cuts and Jobs Act Pub. L. 11597. Paragraph a3i of this section applies to taxable years beginning on or after January 5, 2021. However, for a taxable year beginning after December 31, 2017, and before January 5, 2021, a taxpayer may apply the paragraph described in the first sentence of this paragraph a4ii, provided that the taxpayer follows all the applicable rules contained in the regulations under section 263A for such taxable year and all subsequent taxable years.

Par. 8. Section 1.263A8 is amended by adding a sentence to the end of paragraph a1 to read as follows:
1.263A8
interest.

Requirement to capitalize
a 1 However, a taxpayer, other than a tax shelter prohibited from using the cash receipts and disbursements method of
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accounting under section 448a3, that meets the gross receipts test of section 448c for the taxable year is not required to capitalize costs, including interest, under section 263A. See 1.263A1j.

Par. 9. Section 1.263A9 is amended by adding a sentence to the end of paragraph e2 to read as follows:
1.263A9

The avoided cost method.

e
2 A taxpayer is an eligible taxpayer for a taxable year for purposes of this paragraph e if the taxpayer is a small business taxpayer, as defined in 1.263A1j.

Par. 10. Section 1.263A15 is amended by adding paragraph a4 to read as follows:
1.263A15 Effective dates, transitional rules, and anti-abuse rule.

a
4 The last sentence of each of 1.263A8a1 and 1.263A9e2
apply to taxable years beginning on or after January 5, 2021. However, for a taxable year beginning after December 31, 2017, and before January 5, 2021, a taxpayer may apply the last sentence of each of 1.263A8a1 and 1.263A
9e2, provided that the taxpayer follows all the applicable rules contained in the regulations under section 263A for such taxable year and all subsequent taxable years.

Par. 11. Section 1.381c51 is amended:
1. In paragraph a6, by designating Examples 1 and 2 as paragraphs a6i and ii, respectively.
2. In newly-designated paragraphs a6i and ii, by redesignating the paragraphs in the first column as the paragraphs in the second column:
Old paragraphs a6ii and ii
a6iii and ii

New paragraphs a6iA and B
a6iiA and B

3. In newly designated paragraphs a6iiA and B, by removing the language small reseller and adding in its place the language small business taxpayer everywhere it appears.
4. By adding a sentence to the end of paragraph f.
The addition reads as follows:

1.381c51

Inventory method.

f The designations of paragraphs a6iiA and B of this
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section and removal of the term small reseller and replacement with the term small business taxpayer apply to taxable years beginning on or after January 5, 2021.
Par. 12. 1.4461 is amended:
1. In paragraph a4i, by revising the first sentence.
2. By revising paragraph c2i.
3. By adding paragraph c3.
The revisions and additions read as follows:
1.4461 General rule for methods of accounting.

a
4
i Except in the case of a taxpayer qualifying as a small business taxpayer for the taxable year under section 471c, in all cases in which the production, purchase or sale of merchandise of any kind is an incomeproducing factor, merchandise on hand including finished goods, work in progress, raw materials, and supplies at the beginning and end of the year shall be taken into account in computing the taxable income of the year.

c
2
i In any case in which it is necessary to use an inventory, the accrual method of accounting must be used with regard to purchases and sales unless:
A The taxpayer qualifies as a small business taxpayer for the taxable year under section 471c, or B Otherwise authorized under paragraph c2ii of this section.

3 Applicability date. The first sentence of paragraph a4i of this section and paragraph c2i of this section apply to taxable years beginning on or after January 5, 2021. However, for a taxable year beginning after December 31, 2017, and before January 5, 2021, a taxpayer may apply the rules provided in the first sentence of this paragraph c3, provided that the taxpayer follows all the applicable rules contained in the regulations under section 446 for such taxable year and all subsequent taxable years.

Par. 13. Section 1.4481 is amended by adding new first and second sentences to paragraphs g1 and h1
to read as follows:
1.4481 Limitation on the use of the cash receipts and disbursements method of accounting.

g 1 The rules provided in paragraph g of this section
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