‘‘(B) FRESH START BASIS.—As of the first
day of the taxable year in which an activity
ceases to be a qualified small business activity,
the basis of the activity’s assets for purposes of
determining the regular tax shall be used in
computing the adjustments and preferences re-
quired under sections 56 and 57.
‘‘(f) ELECTION TO BE TREATED AS OTHER THAN
A QUALIFIED SMALL BUSINESS ACTIVITY.—An activity
may elect to be treated for all taxable years as other than
a qualified small business activity. Such election shall be
made on or before the due date of the activity’s return
(determined without regard to extensions) for the later
of—
‘‘(1) the first taxable year that the activity is
a qualified small business activity, or
‘‘(2) the first taxable year beginning after De-
cember 31, 1992.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part VI of subchapter A of chapter 1 is amended by
inserting after the item relating to section 58 the following
new item:
‘‘Sec. 58A. Special exceptions for small businesses.’’
SEC. 104. INCREASE IN PERMITTED NUMBER OF SUB-
CHAPTER S SHAREHOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining
small business corporation) is amended by striking ‘‘35’’
and inserting ‘‘50’’.
TITLE II—ACCOUNTING
PROVISIONS
SEC. 201. INFLATION-ADJUSTED FIFO INVENTORY METHOD
FOR CERTAIN SMALL BUSINESSES.
(a) GENERAL RULE.—Subpart D of part II of
subchapter E of chapter 1 (relating to inventories) is
amended by adding at the end thereof the following new
section:
‘‘SEC. 475. INFLATION-ADJUSTED FIFO INVENTORY METH-
OD FOR CERTAIN SMALL BUSINESSES.
‘‘(a) GENERAL RULE.—An eligible small business
may elect to use the inflation-adjusted FIFO inventory
method for purposes of valuing all of its inventories.
‘‘(b) 
INFLATION-ADJUSTED
FIFO 
INVENTORY
METHOD OF VALUING INVENTORIES.—For purposes of
this section—
‘‘(1) 
IN
GENERAL.—The 
inflation-adjusted
FIFO inventory method of valuing inventories is a
method of valuing inventories under which—
‘‘(A) the taxpayer maintains its inventory
under the first-in, first-out method authorized
by section 471, and
‘‘(B) cost of goods sold is increased each
taxable year by an amount computed by mul-
tiplying the applicable Consumer Price Index
increase by so much of the total beginning of
the year FIFO inventory (computed in subpara-
graph (A)) as does not exceed the total ending
of the year FIFO inventory.
‘‘(2) APPLICABLE CONSUMER PRICE INDEX IN-
CREASE.—The term ‘applicable Consumer Price
Index increase’ means the percentage increase (if
any) in the Consumer Price Index for all-urban con-
sumers published by the Department of Labor dur-
ing the calendar year ending with or within the tax-
able year of the taxpayer.
‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of
this section, a taxpayer is an eligible small business for
any taxable year if the average annual gross receipts of
the taxpayer for the 3 preceding taxable years do not ex-
ceed $10,000,000. For purposes of the preceding sentence,
rules similar to the rules of paragraphs (2) and (3) of sec-
tion 448(c) shall apply.
‘‘(d) 6-YEAR AVERAGING FOR INCREASES IN INVEN-
TORY VALUE.—The beginning inventory for the first tax-
able year for which the method described in subsection (b)
is used (and for all subsequent years that the method is
used) shall be valued at cost. Any change in the inventory
amount resulting from the application of the preceding
sentence shall be taken into account ratably in each of
the 6 taxable years beginning with the first taxable year
for which the method described in subsection (b) is first
used.
‘‘(e) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) ELECTION.—
‘‘(A) IN
GENERAL.—The election under
this section may be made without the consent
of the Secretary.
‘‘(B) PERIOD
TO
WHICH
ELECTION
AP-
PLIES.—The election under this section shall
apply—
‘‘(i) to the taxable year for which it is
made, and
‘‘(ii) to all subsequent taxable years
for which the taxpayer is an eligible small
business, unless the taxpayer secures the
consent of the Secretary to the revocation
of such election.
‘‘(2) CHANGES IN METHOD OF ACCOUNTING.—
‘‘(A) TAXPAYERS
CHANGING
FROM
LIFO
TO
THE
METHOD
UNDER
THIS
SECTION.—In
the case of a change from a LIFO method
under section 472 or 474 to an election under
this section—
‘‘(i) beginning inventory shall be re-
stated to FIFO as described in subsection
(b), and
‘‘(ii) the difference between restated
inventory computed in clause (i) and the
basis of the taxpayer’s inventory computed
under LIFO will be treated as an increase
to basis of inventory with no corresponding
increase to income.
‘‘(B) TAXPAYERS
CHANGING
FROM
THE
METHOD
UNDER
THIS
SECTION
TO
LIFO.—A
taxpayer changing its method of accounting to
LIFO from the method prescribed in this sec-
tion—
‘‘(i) may change its method of ac-
counting without the consent of the Com-
missioner, provided the taxpayer has not
used the LIFO method within the past six
taxable years, and
‘‘(ii) must comply with section 472
and the regulations thereunder regarding
the adoption of LIFO.
‘‘(C) TAXPAYERS
CHANGING
FROM
THE
METHOD
UNDER
THIS
SECTION
TO
FIFO.—A
taxpayer changing its method of accounting to
FIFO from the method prescribed in this sec-
tion may change its method of accounting with-
out the consent of the Commissioner.
‘‘(f) REGULATIONS.—The Secretary shall be author-
ized to prescribe regulations necessary to carry out the
purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for subpart D of part II of subchapter E of chapter 1
is amended by adding at the end thereof the following new
item:
‘‘Sec. 475. Inflation-adjusted FIFO method for certain small busi-
nesses.’’
SEC. 202. EXEMPT SMALL BUSINESS FROM THE UNIFORM
CAPITALIZATION RULES.
(a) AMENDMENTS TO SECTION 263A.—
(1) IN
GENERAL.—Subsection (c) of section
263A is amended by adding at the end thereof the
following new paragraph:
‘‘(7) TAXPAYERS
WITH
GROSS
RECEIPTS
OF
$10,000,000 OR LESS.—
‘‘(A) IN GENERAL.—This section shall not
apply to any taxpayer if the average annual
gross receipts of the taxpayer (or any prede-
cessor) for the 3-taxable year period ending
with the taxable year preceding such taxable
year do not exceed $10,000,000. For purposes
of the preceding sentence, rules similar to the
rules of paragraphs (2) and (3) of section
448(c) shall apply.
‘‘(B) CHANGES IN METHOD OF ACCOUNT-
ING.—Except as otherwise provided by the Sec-
retary through regulations (or other administra-
tive guidance), a taxpayer changing its method
of accounting by reason of satisfying or failing
to satisfy the $10,000,000 average annual gross
receipts test in subparagraph (A) must obtain
the consent of the Secretary to change its meth-
od of accounting.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph 2 of section 263A(b) is
amended to read as follows:
‘‘(2) PROPERTY ACQUIRED FOR RESALE.—Real
or personal property described in section 1221(1)
which is acquired by the taxpayer for resale.’’
(B) Subsection (i)(2) of section 263A is
amended by striking ‘‘in the case of property
described in subsection (b)(2)’’.
(b) AMENDMENT TO SECTION 471.—Section 471 (re-
lating to general rules for inventories) is amended by re-
designating subsection (b) as subsection (c) and inserting
after subsection (a) the following new subsection:
‘‘(b) COST CAPITALIZATION FOR TAXPAYERS WITH
GROSS RECEIPTS THAT DO NOT EXCEED $1,000,000.—
‘‘(1) IN GENERAL.—If a taxpayer’s average an-
nual gross receipts for its immediately preceding
three taxable years do not exceed $1,000,000 the
taxpayer shall not be required to include in its in-
ventory costs any indirect costs incurred. For pur-
poses of the preceding sentence, indirect costs in-
clude all costs other than direct costs of acquiring
or producing the inventory. For purposes of this
subsection, rules similar to the rules of paragraphs
(2) and (3) of section 448(c) shall apply in deter-
mining whether a taxpayer has average annual gross
receipts that do not exceed $1,000,000.
‘‘(2) CHANGES IN METHOD OF ACCOUNTING.—
Except as otherwise provided by the Secretary
through regulations (or other administrative guid-
ance), a taxpayer changing its method of accounting
by reason of satisfying or failing the $1,000,000 av-
erage annual gross receipts test in paragraph (1)
must obtain the consent of the Secretary to change
its method of accounting for indirect costs under
paragraph (1).’’.
(c) AMENDMENT TO SECTION 263.—Section 263 (re-
lating to capital expenditures) is amended by adding at
the end thereof the following new subsection:
‘‘(j) COST CAPITALIZATION FOR TAXPAYERS WITH
GROSS RECEIPTS THAT DO NOT EXCEED $1,000,000.—
If a taxpayer’s average annual gross receipts for its imme-
diately preceding 3 taxable years do not exceed
$1,000,000, the taxpayer shall not be required to capital-
ize any indirect costs incurred in the taxpayer’s current
taxable year to its capital expenditures. For purposes of
the preceding sentence, indirect costs include all costs
other than direct costs. For purposes of this subsection,
rules similar to the rules of paragraphs (2) and (3) of sec-
tion 448(c) shall apply in determining whether a taxpayer
has average annual gross receipts that do not exceed
$1,000,000.’’.
(d) EFFECTIVE DATES.—
(1) SPECIAL RULE APPLICABLE TO INVENTORY
PROPERTY.—
(A) IN GENERAL.—The amendments made
by subsections (a) and (b) shall apply to taxable
years beginning after December 31, 1992.
(B) CHANGE
IN
METHOD
OF
ACCOUNT-
ING.—If the taxpayer is permitted by the
amendments made by this section to change its
method of accounting with respect to inventory
for its 1st taxable year beginning after Decem-
ber 31, 1992—
(i) such change shall be treated as ini-
tiated by the taxpayer,
(ii) such change shall be treated as
made with the consent of the Secretary,
(iii) the net amount of adjustments
required by section 481 of the Internal
Revenue Code of 1986 shall be taken into
account over a period not longer than 3
years.
In applying clause (iii), however, the Secretary
may prescribe any other administrative proce-
dures (for example, a cut-off method) for
effecting the permitted method change which
would prevent duplications or omissions of in-
come or deductions, and thus make adjustments
under section 481 unnecessary.
(2) NONINVENTORY
EFFECTIVE
DATE.—The
amendments made by subsection (c) shall apply with
respect to costs incurred in taxable years beginning
after December 31, 1992.
SEC. 203. EXEMPTION OF SMALL BUSINESSES FROM LONG-
TERM CONTRACT RULES.
(a) GENERAL RULE.—
(1) Paragraph (1) of section 460(e) is amended
to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) Subsections (a), (b), and (c) (1) and
(2) shall not apply to any home construction
contract.
‘‘(B) This section shall not apply to any
other contract entered into by a taxpayer whose
average annual gross receipts for the 3 taxable
years immediately preceding the taxable year in
which such contract is entered into do not ex-
ceed $10,000,000.
In the case of a home construction contract with re-
spect to which the requirements of subparagraph
(B) are not met, section 263A shall apply notwith-
standing subsection (c)(4) thereof.’’.
(2) The subsection heading for subsection (e) of
section 460 is amended by striking ‘‘CONSTRUC-
TION’’.
(b) AMT EXCEPTION FOR SMALL CONTRACTORS.—
Paragraph (3) of section 56(a) is amended to read as fol-
lows:
‘‘(3) TREATMENT
OF
CERTAIN
LONG-TERM
CONTRACTS.—In the case of any long-term contract
entered into by the taxpayer on or after March 1,
1986, the taxable income from such contract shall be
determined under the percentage of completion
method of accounting (as modified by section
460(b)). The preceding sentence shall not apply to
any contract described in section 460(e)(1).’’.
(c) AMENDMENTS TO SECTION 451.—Section 451 is
amended by adding at the end thereof the following new
subsection:
‘‘(h) SPECIAL RULE
FOR DETERMINING INCOME
FROM
A LONG-TERM CONTRACT
FOR ELIGIBLE TAX-
PAYERS.—
‘‘(1) IN GENERAL.—A taxpayer shall not be re-
quired to allocate indirect costs to any long-term
contract entered into during a taxable year for which
the taxpayer is an eligible taxpayer.
‘‘(2) ELIGIBLE
TAXPAYER.—For purposes of
this subsection, an ‘eligible taxpayer’ is a taxpayer
whose average annual gross receipts for the 3 tax-
able years immediately preceding the current taxable
year do not exceed $1,000,000. For purposes of the
preceding sentence, rules similar to the rules of
paragraphs (2) and (3) of section 448(c) shall apply
in determining whether a taxpayer has average an-
nual gross receipts that do not exceed $1,000,000.
‘‘(3) INDIRECT COSTS.—For purposes of this
subsection, indirect costs are all costs other than di-
rect costs.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contracts entered into in taxable
years beginning after December 31, 1992.
Æ
HR 104 IH——2