SECTION 4. QUALIFYING SMALL

BUSINESS TAXPAYER EXCEPTION

.01 Pursuant to his discretion under §§ 446 and 471, and to simplify the recordkeeping requirements of a qualifying small business taxpayer, the Commissioner, as a matter of administrative convenience, will allow a qualifying small business taxpayer to use the cash method as described in this revenue procedure for a trade or business described in this section 4.01 (eligible trade or business). No inference is intended regarding whether a taxpayer that does not satisfy the qualifying small business taxpayer exception of this section 4.01 is permitted to use the cash method.

(1) A qualifying small business taxpayer that reasonably determines that its principal business activity ( i.e., the activity from which the taxpayer derived the largest percentage of its gross receipts) for its prior taxable year is described in a North American Industry Classification System (“NAICS”) code other than one of the ineligible codes listed below may

December 26, 2001 614 2001–52 I.R.B.

tions will not be treated as gross receipts for purposes of the average annual gross receipts limitation. See §§ 448(c)(2) and 1.448–1T(f)(2)(ii). .04 Taxpayer not in existence for 3 taxable years. If a taxpayer has been in existence for less than the 3–taxable-year period referred to in section 5.01 of this revenue procedure, the taxpayer must determine its average annual gross receipts for the number of years (including short taxable years) that the taxpayer has been in existence. See § 448(c)(3)(A).

.05 Treatment of short taxable years. In the case of a short taxable year, a taxpayer’s gross receipts must be annualized by multiplying the gross receipts for the short taxable year by 12 and then dividing the result by the number of months in the short taxable year. See §§ 448(c)(3)(B) and 1.448–1T(f)(2)(iii).

.06 Treatment of predecessors. Any reference to taxpayer in this section 5 includes a reference to any predecessor of that taxpayer. See § 448(c)(3)(D).