SECTION 3. INTERIM GUIDANCE

FOR DEFINING QUALIFIED SMALL BUSINESS

.01 Corporations and partnerships .

A corporation (including an S corporation) or partnership is a qualified small business with respect to any taxable year if the corporation or partnership:

(1) Has gross receipts, as defined in section 3.04 of this notice, of less than $5,000,000 for the taxable year, and

(2) Did not have gross receipts, as defined in section 3.04 of this notice, for any taxable year before the 5–taxable-year period ending with the taxable year.

.02 Other businesses .

Any person (other than an entity described in section 3.01 of this notice) is a qualified small business if the person meets the requirements of section 3.01(1) and (2) of this notice taking into account the person’s aggregate gross receipts, as defined in section 3.04 of this notice, received in carrying on all the person’s trades or businesses.

.03 Tax exempt organizations .

Organizations exempt from income tax under § 501 are not qualified small businesses even if they satisfy the requirements of sections 3.01 or 3.02 of this notice.

.04 Determination of gross receipts .

The term “gross receipts” in section 3 of this notice means gross receipts as de

termined under § 448(c)(3) (without regard to § 448(c)(3)(A)) and § 1.448– 1T(f)(2)(iii) and (iv) of the Income Tax Regulations. The definition of gross receipts under § 41(c)(7) and § 1.41–3(c) does not apply for purposes of § 41(h).

.05 Aggregation rule .

For purposes of the gross receipts rules in sections 3.01 and 3.02 of this notice, all members of a controlled group, as defined in § 1.41–6(a)(3)(ii), for a taxable year are treated as a single taxpayer. Thus, the aggregate gross receipts of all members of a controlled group for a taxable year must be taken into account in determining whether the requirements of section 3.01(1) and (2) of this notice are satisfied.

.06 Examples .

The following examples illustrate the application of section 3 of this notice:

(1) Corp A, a calendar year corporation, is not a tax-exempt organization under § 501 or a member of a controlled group in taxable year 2016. Corp A has gross receipts, as determined under section 3.04 of this notice, of $1 million, $7 million, $4 million, $3 million, and $4 million for taxable years 2012, 2013, 2014, 2015, and 2016, respectively. Corp A did not have gross receipts, as determined under section 3.04 of this notice, for any taxable year prior to 2012. Corp A is a qualified small business for taxable year 2016 because it has less than $5,000,000 in gross receipts for taxable year 2016 and did not have gross receipts before taxable year 2012 (before the 5–taxable-year period ending with 2016). Corp A’s gross receipts in taxable years 2012–2015 are not relevant in determining whether Corp A is a qualified small business in taxable year 2016. Because Corp A had gross receipts in taxable year 2012, Corp A is not a qualified small business in taxable year 2017, regardless of its gross receipts in 2017.

(2) Corp A, Corp B, and Corp C are calendar year taxpayers that are not taxexempt organizations under § 501 and are members of a controlled group for taxable year 2016 (Corp ABC controlled group). Corp A has gross receipts, as determined under section 3.04 of this notice, of $1

Bulletin No. 2017–16 1101 April 17, 2017

makes the payroll tax credit election in the time and manner described in section 4.02 of this notice.

(2) Amount of election.

Each member of a controlled group can separately elect the least of: (a) The electing member’s allocable share of the group’s research credit, as determined under § 1.41–6T(c), (b) The electing member’s allocable share of the $250,000 amount, as determined under section 4.05(3) of this notice, or (c) In the case of an electing member other than a partnership or S corporation, the amount of the electing member’s business credit carryforward under § 39 carried from the taxable year (determined before the application of § 41(h)).

(3) $250,000 amount .

The $250,000 amount is allocated for purposes of section 4.05(2)(b) of this notice to each member of a controlled group in the same manner as the group’s research credit is allocated under § 1.41– 6T(c), regardless of whether all members of the controlled group make the payroll tax credit election. Thus, the $250,000 amount is allocated to each member of a controlled group on a proportionate basis to its share of the aggregate of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums (collectively referred to as QREs) taken into account for the taxable year by such controlled group for purposes of the research credit.

(4) Example .

The following example illustrates the application of section 4.05 of this notice:

A, B, and C, all calendar year partnerships, are the only members of a controlled group (ABC controlled group) and are qualified small businesses under section 3 of this notice. A and B, but not C, make a payroll tax credit election for taxable year 2016 by completing the portion of their Forms 6765 relating to the payroll tax credit election and attaching the completed Forms 6765 to their timely filed (including extensions) Forms 1065, U.S. Return of Partnership Income, for taxable

million, $7 million, $4 million, $3 million, and $4 million for taxable years 2012, 2013, 2014, 2015, and 2016, respectively. Corp B has gross receipts, as determined under section 3.04 of this notice, of $500,000, $1 million, $2 million, $1 million, and $1 million for taxable years 2012, 2013, 2014, 2015, and 2016, respectively. Neither Corp A nor Corp B had gross receipts, as determined under section 3.04 of this notice, for any taxable year prior to 2012. Corp C has gross receipts, as determined under section 3.04 of this notice, of $1 million, $3 million, $4 million, $3 million, $1 million, and $500,000 for taxable years 2011, 2012, 2013, 2014, 2015, and 2016, respectively. Corp A, Corp B, and Corp C are not qualified small businesses for taxable year 2016 because the aggregate gross receipts of Corp ABC controlled group for taxable year 2016 are not less than $5 million ($4 million (Corp A) - $1 million (Corp B)

• $500,000 (Corp C)). In addition, neither Corp A, Corp B, nor Corp C is a qualified small business in taxable year 2016 because Corp C had gross receipts in taxable year 2011 (before the 5–taxableyear period ending with 2016).