SECTION 2. BACKGROUND

.01 Under § 448(d)(5), prior to its amendment by the Act, taxpayers using an accrual method of accounting and performing services were not required to accrue any portion of their service-related income that, on the basis of their experience, would not be collected. The Act modifies § 448(d)(5) to provide that a NAE method is now available only for taxpayers using an accrual method who either provide services in fields described in § 448(d)(2)(A) ( i.e., health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting), or who meet the $5 million annual gross receipts test of § 448(c). As under prior law, a NAE method is available only to taxpayers not charging interest or penalties for failure to timely pay the amount charged.

.02 The Act also provides that the Service and the Treasury Department will issue regulations to permit taxpayers to determine the uncollectible amounts using alternative computations or formulas, including safe harbors, that, based on experience, accurately reflect the amount of income that the taxpayers will not collect. The amendments by the Act are effective for taxable years ending after March 9, 2002.