Oregon Tax Consultants Practice Exam

What is the threshold for the average annual gross receipts to fall under the Uniform Capitalization Rules since 2018?

1. $10 million

2. $25 million

3. $50 million

4. $75 million

The correct answer is: $25 million

The correct threshold for the average annual gross receipts that allow a taxpayer to be exempt from the Uniform Capitalization (UNICAP) Rules is indeed $25 million. This threshold was adjusted in 2018, increasing from the previous amount of $10 million. The Uniform Capitalization Rules require certain taxpayers to capitalize direct and indirect costs related to the production of inventory or property produced. If a business's average annual gross receipts exceed the threshold, it must follow these capitalization requirements. However, if the gross receipts are below that threshold, the business can use simpler accounting practices, allowing for a more streamlined approach when calculating income and expenses. This adjustment in the threshold was made to alleviate the burden on smaller taxpayers, enabling them to avoid the complexities associated with the UNICAP requirements. Therefore, by being below the $25 million threshold, businesses benefit from reduced compliance costs and increased cash flow, making the structure of the tax system more favorable for smaller operations.