Discussion:Audit help - Accrual vs Completed Contract
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Discussion Forum Index --> Advanced Tax Questions --> Audit help - Accrual vs Completed Contract
Discussion Forum Index --> Tax Questions --> Audit help - Accrual vs Completed Contract
| 28 April 2008 | |
| I have a construction company under audit that had been using the cash basis of accounting and went over the $5M mark a couple years ago. Woops! *embarrassed*
The auditor will obviously want to switch the prior 3 years to accrual basis, and I am hoping to counter by switching to completed contract. But I am wondering if I am too late to elect completed contract. Does this have to be done by the due date of those old returns? | |
RoyDaleOne (talk|edits) said: | 28 April 2008 |
| Contact me direct if you want to discuss. | |
| 29 April 2008 | |
| Anybody have any thoughts on switching to completed contract method on a return under audit? | |
RoyDaleOne (talk|edits) said: | 29 April 2008 |
| The problem with the completed contract method is generally there is a large difference between that method and the PCM method that must be used for AMT, thereby, negating most of the benefits from using such methodology. | |
| 29 April 2008 | |
| Thanks again, Roy. I will cross that bridge later. I was hoping to play this card if I need to and tell the auditor that there is going to be a lot of work but minimal adjustments to taxable income on the prior years. And then recommend that we make the change in method on the next fiscal year's return to get them in compliance going forward. I just didn't want the auditor to reply that it's too late to elect completed contract. | |
| 29 April 2008 | |
| When you're on completed contract and revenues are less than $7.5 million you are exempt from the AMT adjustment as I recall. And then when your three year average exceeds $10 million you must switch to % of completion. | |
RoyDaleOne (talk|edits) said: | 29 April 2008 |
| Sole proprietorships (Schedule C), S corporations (1120-S), and partnerships (1065) do not have a gross receipts exception. Therefore, percentage of completion for alternative minimum tax purposes is required for non-home construction contracts. | |
RoyDaleOne (talk|edits) said: | 30 April 2008 |
| See: REV. PROC. 2002-18 | |
RoyDaleOne (talk|edits) said: | 30 April 2008 |
Nonautomatic Changes in Accounting Method
The rules and procedures for obtaining IRS approval for taxpayer-initiated accounting method changes that do not receive automatic IRS consent are found in Rev. Proc. 9727 (1997-1 CB 680). Generally, accounting method changes granted under Rev. Proc. 97-27 result in "audit protection" for taxpayers (i.e., the taxpayer will not be required to retroactively change the method in question in an earlier year because of an audit). However, subject to certain exceptions, once a taxpayer is contacted by the Service to schedule an audit, a request for change in accounting method can no longer be filed. | |
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