Discussion:Cash to accrual
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Discussion Forum Index --> Basic Tax Questions --> Cash to accrual
Discussion Forum Index --> Tax Questions --> Cash to accrual
| 9 January 2008 | |
| Dear Tax Professionals:
Can a rental real estate Limited Liability Company who has been filing for many years as a cash basis taxpayer file a Form 3115 and change to the accrual. The Company's tenants pay their rent promptly but there are always many payables. For the first year the LLC made this request there would be much tax savings. Would the IRS approve such a request? What are the Pros and the Cons? Thank you. | |
| 9 January 2008 | |
| Seems like a bit of work for what would most likely be a one-time benefit (I'm assuming that the payables stay relatively consistent from year to year).
Plus, if all the rent is paid promptly, isn't there cash available to just pay the bills before year end? Perhaps I'm oversimplifying your question. | |
| January 9, 2008 | |
| I have never filed a 3115 to do a cash to accrual conversion. It's been a long time since I've done one, but the idea is that the preferred method is accrual anyway, so it won't be challenged or kicked back. Just start filing accrual. I don't know if that's currently acceptable or not, but it used to be. | |
| 9 January 2008 | |
| If IRS wished to routinely challenge an allowable method which more clearly reflects income, I'd think it would give itself the freedom to do so by discussing criteria in a Rev. Proc. Have they?
Even accrual to cash, the latter less clearly reflecting income, can be approved, no? | |
| January 9, 2008 | |
| I've always done a 3115 for accrual to cash, back when that made some sense....but thanks for the affirmation that going cash to accrual is usually a green light thing. | |
| 10 January 2008 | |
| This is an automatic consent change. In other words, no approval is necessary. | |
| 10 January 2008 | |
Thank you all for your sagacious advice. Wouldn't my client have to file the form 3115 and pay the fee if they opt for the change? The automatic approval wouldn't change that would it? Also, if they make the change, how aggressive could they be about accruing property taxes?
Thanks | |
