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of accounting since its incorporation, and its owners claim
that they do not understand the accrual method of accounting.
Petitioner contends, based on section 448, that it is a small
business with gross receipts of less than $5 million; it is
exempt from the provision that requires a C corporation to
adopt the accrual method of accounting; and, thus, it should be
allowed to continue to use the cash method to report income for
tax purposes.
Section 448 provides:
SEC. 448. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.
(a) General Rule.–-Except as otherwise provided
in this section, in the case of a–-
(1) C corporation,
* * * * * * *
taxable income shall not be computed under the cash
receipts and disbursements method of accounting.
(b) Exceptions.--
* * * * * * *
(3) Entities with gross receipts of not
more than $5,000,000.–-Paragraphs (1) and (2) of
subsection (a) shall not apply to any
corporation or partnership for any taxable year
if, for all prior taxable years beginning after
December 31, 1985, such entity * * * met the
$5,000,000 gross receipts test * * *.
The effect of section 448 on section 446(b) is explained
in section 1.448-1T(c), Temporary Income Tax Regs., 52 Fed.
Reg. 22767 (June 16, 1987), which, in pertinent part, provides:
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Last modified: May 25, 2011