ACME Partnership has had the following gross receipts since its formation: $21.8 million in 2019, $24.6 million in 2020, $28.8 million in 2021, $23 million in 2022, and $32 million in 2023. ACME is not a tax shelter. Partner Meile, Inc. is a C corporation. In which tax years (2019 to 2023) must ACME use the accrual method?
A) 2019 and all following years, because it has a partner that is a C corporation.
B) 2021 to 2023, because gross receipts are more than $25 million in 2021.
C) 2022 and 2023, because average annual gross receipts are more than $25 million in 2021.
D) 2021 and 2023 because those are the only years in which gross receipts exceeded $25 million.
E) ACME can always use the cash method because it is not a tax shelter.

Question

Quizplus · Accepted Answer

The accrual method is required for tax years where the three-year average annual gross receipts exceed $25 million, calculated by averaging the gross receipts of the three preceding tax years. For ACME, this threshold is surpassed in 2021 (averaging 2018, 2019, and 2020), necessitating the accrual method for 2022 and 2023.

ACME Partnership Has Had the Following Gross Receipts Since Its