Farm and Small Business Expensing Tax Relief Act

“(j) Election for small businesses To expense certain acquisition and production costs

“(1) In general—If the amount paid or incurred by an eligible taxpayer to acquire or produce any item of tangible property does not exceed $5,000 (or such higher amount as the Secretary may prescribe by regulations), then, notwithstanding subsection (a), the taxpayer may elect to treat such amount as an expense which is not chargeable to capital account nor treated as a material or supply. Any amount so treated shall be allowed as a deduction for the taxable year in which the property is acquired or produced.

“(2) Eligible taxpayer—For purposes of this subsection—

“(A) In general—The term eligible taxpayer means, with respect to any taxable year, a taxpayer—

“(i) who meets the gross receipts test of subparagraph (B) for the taxable year, and

“(ii) who, as of the beginning of the taxable year, has in effect written accounting procedures meeting such requirements as the Secretary may prescribe with respect to the expensing of amounts described in paragraph (1).

“(B) Gross receipts test—A taxpayer meets the gross receipts test of this subparagraph for any taxable year if the average annual gross receipts of such taxpayer for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $10,000,000.

“(C) Rules relating to gross receipts test—For purposes of subparagraph (B)—

“(i) the rules of paragraphs (2) and (3) of section 448(c) shall apply, and

“(ii) in the case of a partnership, S corporation, trust, estate, or other pass-thru entity, the gross receipts test shall apply at the entity level.

“(3) Election—Any election under this subsection for any taxable year shall—

“(A) specify the items of tangible property to which the election applies, and

“(B) be made, in such manner as the Secretary may prescribe, on the taxpayer's return of the tax imposed by this chapter for the taxable year.

“(4) Coordination with section 179—This subsection shall be applied before section 179.

“(5) Regulations—The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this subsection, including regulations providing for—

“(A) exceptions for property which is inventory or land or for which the taxpayer makes an election for optional treatment under section 162; and

“(B) the aggregation of all amounts paid or incurred with respect to any item of tangible property.

“(6) Rule of construction—If, for any taxable year, a taxpayer is not an eligible taxpayer (or is an eligible taxpayer who does not elect to have this subsection apply), nothing in this subsection shall be construed as prohibiting the expensing of any amount paid or incurred during the taxable year to acquire or produce any item of tangible property if such expensing is permitted under any safe harbor or other provision of the regulations prescribed under this section.

“(7) Cross reference—For capitalization of certain expenses where a taxpayer produces property or acquires property for resale, see section 263A.”