Updated November 5, 2026. Quick answer: A corporation or partnership meets the section 448(c) gross receipts test for 2027, and may use the cash method of accounting, if its average annual gross receipts for the three prior years do not exceed $33,000,000, per Rev. Proc. 2026-35, section 3.32, up from $32,000,000 for 2026. Exactly $33,000,000 passes, because the test is “does not exceed”.
The 2027 test amount
The Revenue Procedure states: “For taxable years beginning in 2027, a corporation or partnership meets the gross receipts test of § 448(c) for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $33,000,000.”
| Year | Average annual gross receipts must not exceed | Source |
|---|---|---|
| Statute (base) | $25,000,000 | 26 U.S.C. 448(c)(1) |
| 2026 | $32,000,000 | Rev. Proc. 2025-32, section 4.30 |
| 2027 | $33,000,000 | Rev. Proc. 2026-35, section 3.32 |
Who the test applies to
The statute’s general rule bars the cash method for “C corporation,” “partnership which has a C corporation as a partner, or” “tax shelter,” and then provides that those rules “shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year.” A sole proprietor, a partnership with no C corporation partner and an S corporation are not on that list unless they are tax shelters.
How receipts are counted, and a check
The statute adds: “Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.” A short year is handled this way: “Gross receipts for any taxable year of less than 12 months shall be annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.” Related businesses are combined: “All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one person for purposes of paragraph (1).”
Illustration: receipts of $30,000,000 (invented, for the computation), $33,000,000 (invented, for the computation) and $36,000,000 (invented, for the computation) in the three prior years average $33,000,000 (computed), which does not exceed the 2027 amount, so the test is met. If the third year were $36,000,001 (invented, for the computation), the average would be above $33,000,000 (computed) and the test would be failed.
How the dollar amount moves
The statute indexes the original amount: the dollar amount in paragraph (1) “shall be increased by an amount equal to” that amount times a cost-of-living adjustment, with base year 2017, and “If any amount as increased under the preceding sentence is not a multiple of $1,000,000, such amount shall be rounded to the nearest multiple of $1,000,000.”
Check: with a $25,000,000 base and rounding to the nearest $1,000,000, a $33,000,000 result means the unrounded amount was at least $32,500,000 (computed) and below $33,500,000 (computed), a factor from 1.30 to 1.34 (computed); the 2026 result of $32,000,000 corresponds to a factor from 1.26 to 1.30 (computed). The factor itself is the IRS’s figure and is not recomputed here. The same test, run over five years, defines an eligible small business for the employer child care credit, covered on the employer-provided child care credit for 2027.
Where gross receipts show up
Gross receipts are reported on the return itself. For partnerships see Form 1065 lines 1a to 3, gross receipts and cost of goods sold, and for sole proprietors see Schedule C line 1, gross receipts or sales. The test is separate from the section 179 and excess business loss limits for 2027, on the section 179 limit for 2027 and the excess business loss limit for 2027.
Common mistakes
- Using one year’s receipts. The test averages the three taxable years that end before the year being tested.
- Ignoring related businesses. Entities treated as a single employer are tested together as one person.
- Forgetting to subtract returns and allowances from gross receipts.
- Using $32,000,000 for 2027. That is the 2026 amount; the 2027 amount is $33,000,000.
Related: Form 1065 lines 1a to 3, gross receipts and cost of goods sold, Schedule C line 1, gross receipts or sales, and the employer-provided child care credit for 2027.
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Answer againSources
- Internal Revenue Service, Rev. Proc. 2026-35, tax year 2027 inflation-adjusted items: www.irs.gov
- Internal Revenue Service, Rev. Proc. 2025-32, tax year 2026 inflation-adjusted amounts, as modified by the One, Big, Beautiful Bill Act: www.irs.gov
- 26 U.S.C. 448, Limitation on use of cash method of accounting (U.S. Code, 2024 edition, U.S. Government Publishing Office): www.govinfo.gov
Read from the primary documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.