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IR-2020-38, February 21, 2020

WASHINGTON – The Treasury Department and Internal Revenue Service today issued Revenue Procedure 2020-13 (PDF) providing procedures for farmers who have elected out of certain capitalization rules and want to apply the small business taxpayer exemption in the same taxable year.

The Tax Cuts and Jobs Act (TCJA) added a provision exempting small business taxpayers from the capitalization rules under section 263A. A taxpayer, other than a tax shelter, qualifies as a small business taxpayer by satisfying the gross receipts test for the taxable year. To satisfy the gross receipts test, a farming business must have gross receipts of $25 million or less for taxable years beginning in 2018, and $26 million or less for taxable years beginning in 2019. 

Unlike the section 263A(d)(3) election, the small business taxpayer exemption does not require the special rules for the use of the Alternative Depreciation System (ADS) or characterization of certain property as section 1245 property.

Today’s guidance provides procedures for farmers to revoke their election under section 263A(d)(3) and apply the small business taxpayer exemption under section 263A(i) in the same taxable year. It also provides procedures for eligible farmers that want to make an election under section 263A(d)(3) in the same taxable year that they no longer qualify as small business taxpayers.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.