Taxpayers Prohibited from Using the Cash Method
The following taxpayers are prohibited from using the cash method:
1. If your business's average annual gross receipts exceed for the prior three years exceed $10 million.
2. C corporations and partnerships with C corporations as a partner with average annual gross receipts exceeding $5 million at any time after 1985.
3. Tax Shelters may not use the cash method.
4. Tax-exempt trusts with unrelated business income.
5. Principal business activities prohibited in Revenue Procedure 2002-28:
- Retail trade: NAICS Code: 44-45
- Wholesale trade: NAICS Code: 42
- Manufacturing: NAICS Code: 31-33
- Mining activity: NAICS Code: 211-212
- Information industries: NAICS Code: 5111-5122
You determine your principal business activity by reference to the North American Industry Classification System (NAICS) code published by the Department of Commerce (www.census.gov).
Principal Business Activity:
The Principal activity of a business refers to the business activity that produces the largest percentage of gross receipts in the prior year or the largest average percentage over the three prior years.
- Return to the Tax Basics for Startups Table of Contents to find related links.