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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations receipts taken into account by the S
corporation under section 1363b.
D Example. The operation of this paragraph b3 is illustrated by the following examples:
1 Example 1. Taxpayer A is an individual who operates two separate and distinct trades or business that are reported on Schedule C, Profit or Loss from Business, of As Federal income tax return. For 2020, one trade or business has annual average gross receipts of $5 million, and the other trade or business has average annual gross receipts of $35 million. Under paragraph b3iiB of this section, for 2020, neither of As trades or businesses meets the gross receipts test of paragraph b3 of this section $5
million + $35 million = $40 million, which is greater than the inflationadjusted gross receipts test amount for 2020, which is $26 million.
2 Example 2. Taxpayer B is an individual who operates three separate and distinct trades or business that are reported on Schedule C of Bs Federal income tax return. For 2020, Business X
is a retail store with average annual gross receipts of $15 million, Business Y is a dance studio with average annual gross receipts of $6 million, and Business Z is a car repair shop with average annual gross receipts of $12
million. Under paragraph b3iiB of this section, Bs gross receipts are the combined amount derived from all three of Bs trades or businesses. Therefore, for 2020, X, Y and Z do not meet the gross receipts test of paragraph b3i of this section $15 million + $6 million + $12 million = $33 million, which is greater than the inflation-adjusted gross receipts test amount for 2020, which is $26 million.
iii Method of accounting. A change in the method of accounting used for exempt construction contracts described in paragraph b1ii of this section is a change in method of accounting under section 446 and the accompanying regulations. For rules distinguishing a change in method from adoption of a method, see 1.4601f3. A taxpayer changing its method of accounting must obtain the consent of the Commissioner in accordance with 1.4461e3. For rules relating to the clear reflection of income and the pattern of consistent treatment of an item, see section 446
and 1.4461. A change in method of accounting shall be implemented pursuant to the applicable administrative procedures to obtain the consent of the Commissioner to change a method of accounting under section 446e as published in the Internal Revenue Bulletin IRB see Revenue Procedure 201513 20155 IRB 419 or
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successor see 601.601d2 of this chapter. A taxpayer that uses the percentage of completion method for exempt contracts described in paragraph b1ii of this section that wants to change to another exempt contract method is to use the applicable administrative procedures to obtain the automatic consent of the Commissioner to change such method under section 446e as published in the IRB. A
taxpayer-initiated change in method of accounting will be permitted only on a cut-off basis, and thus, a section 481a adjustment will not be permitted or required. See 1.4604g.

d Applicability Dates. Paragraphs b1ii and b3 of this section apply, for contracts entered into in taxable years beginning on or after January 5, 2021. However, for contracts entered into after December 31, 2017, in a taxable year ending after December 31, 2017, and before January 5, 2021, a taxpayer may apply the paragraphs described in the first sentence of this paragraph d, provided that the taxpayer follows all the applicable rules contained in the regulations under section 460 for such taxable year and all subsequent taxable years.
Par. 20. Section 1.4604 is amended by revising the first sentence of paragraph f1 and adding paragraph i to read as follows:
1.4604 Methods of Accounting for longterm contracts.

f 1 Under section 56a3, a taxpayer subject to the AMT
must use the PCM to determine its AMTI from any long-term contract entered into on or after March 1, 1986, that is not a home construction contract, as defined in 1.4603b2.

i Applicability date. Paragraph f1
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 i, provided that the taxpayer follows all the applicable rules contained in the regulations under section 460 for such taxable year and all subsequent taxable years.

Par. 21. Section 1.4605 is amended:
1. In paragraph d1, by removing the language concerning contracts of homebuilders that do not satisfy the $10,000,000 gross receipts test described in 1.4603b3 or will not be
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completed within two years of the contract commencement date.
2. By revising paragraph d3.
The revision reads as follows:
1.4605

Cost allocation rules.

d
3 Large homebuilders. A taxpayer must capitalize the costs of home construction contracts under section 263A, unless the taxpayer estimates, when entering into the contract, that it will be completed within two years of the contract commencement date, and the taxpayer satisfies the gross receipts test of section 448c described in 1.4603b3 for the taxable year in which the contract is entered into.

Par. 22. Section 1.4606 is amended:
1. In paragraph b2 introductory text, by removing the language section 460e4 and adding in its place the language section 460e3.
2. By revising the first and last sentences of paragraph b2ii.
3. By designating the undesignated text after paragraph b3ii as paragraph b3iii.
4. In newly designated paragraph b3iii, by adding a sentence to the end of the paragraph.
5. In paragraph c1i, by revising the fifth sentence.
6. In paragraph c2i, by revising the third sentence.
7. In paragraph c2iv, by revising the first sentence.
8. In paragraph c3ii, by revising the first sentence.
9. In paragraph c3vi, by revising the first sentence.
10. In paragraph d2i, by removing the language whether or not the taxpayer would have been subject to the alternative minimum tax and adding in its place the language for taxpayers subject to the alternative minimum tax without regard to whether tentative minimum tax exceeds regular tax for the redetermination year.
11. By revising paragraph d4iA.
12. By designating paragraph h8ii Example 7 as paragraph h8iii.
13. By revising newly designated paragraph h8iii.
14. By adding paragraph k.
The revisions and additions read as follows:
1.4606

Look-back method.

b
2
ii is not a home construction contract but is estimated to be completed within a 2-year period by a taxpayer, other than a tax shelter
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