Highlights of the Final Regulations
Annual syndicate election.
The proposed regulations permit a taxpayer to elect to use the allocated taxable income or loss of the immediately preceding tax year to determine whether the taxpayer is a syndicate for the current tax year. A syndicate is a partnership or other entity (other than a C corporation) if more than 35% of the losses of that entity during the taxable year are allocable to limited partners or limited entrepreneurs. The final regulations provide additional relief by making the election an annual election. The election is valid only for the tax year for which it is made, and once made, cannot be revoked. The IRS intends to issue procedural guidance to address the revocation of an election made under the proposed regulations.
5-year written consent requirement relaxed.
The proposed regulations require a taxpayer that meets the gross receipts test in the current tax year to obtain the written consent of the Commissioner before changing to the cash method if the taxpayer had previously changed its overall method from the cash method during any of the five tax years ending with the current tax year. The final regulations remove the 5-year restriction on making automatic accounting method changes for certain situations.
Additional changes include the following topics:
- clarifications on inventory treated as non-incidental materials and supplies,
- treatment of inventory by taxpayers with and without an AFS, and
- inventory costs are clarified.