In addition, if the purchase, production, or sale of merchandise is an income- producing factor, the taxpayer cannot use the cash method of accounting. 448 disallows a C corporation or a partnership that has a C corporation as a partner from using it. Small business taxpayer exceptions include:Ĭash - basis accounting method : Although the cash method of accounting is considered a permissible method under Sec. The exceptions are meant more to reduce compliance costs rather than to reduce taxes, but they often do both. Although small taxpayer testing may be time- consuming, the tax and time benefits of a small taxpayer classification may be critical to certain taxpayers. Although these exceptions are meant to simplify tax law implementation, the rules for evaluating whether a business qualifies for the exceptions can be convoluted and highly computational. Various exceptions are available to small business taxpayers to help them avoid some of the Internal Revenue Code's more burdensome and complex requirements.
