Discussion:Request to change accrual to cash for corp
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Discussion Forum Index --> Advanced Tax Questions --> Request to change accrual to cash for corp
Discussion Forum Index --> Tax Questions --> Request to change accrual to cash for corp
| 23 May 2008 | |
| Got a client who inadvertently reported his income as Accrual for initial return (1120S). I'm filing the 3115 to get it straightened out and I have a $22K net 481(a) adjustment (less income) that I need to make to get him on the cash basis. From what I read it looks like I don't have to amend last years returns, just make the adjustment and disclose it on the 3115, Where do I enter the adjustment? I was thinking Other Income and Losses on top of this years 1120S...
Do I have this right...Is there a better way to handle the situation. The only reason they reported accrual is because he uses Quickbooks for his billing and the reports default to accrual... he has a lot of receivables and next to no payables and I think he'd be better off as a cash basis tax payer. Thanks for your help. | |
| 27 May 2008 | |
| Somebody help me - As I recall, you haven't fully adopted an accounting method until the second return is filed using that method. If that is correct, then you can amend without doing the 3115. But what's the source for this? | |
| 27 May 2008 | |
| Oly, I believe you are correct in connection with an impermissable accounting method, e.g., use of cash method when you are not permitted to use it. Use of an impermissable method once is an error, twice is adoption of the impermissable method which then requires 3115 to change. | |
| 28 May 2008 | |
| JD & Riley - I think you're right, I'm recalling a correction of a depreciable life error in the first year. We fixed it before the 2nd year was filed, so we didn't have to do a 3115. But now I see there is a special dispensation for depreciation changes in Reg Section 1.446-1(e)(2)(ii)(d). Different situation than here.
So Taxgal, yes, you can enter the 481 adjustment in this year's Other Income (Loss), with a corresponding M-1 adjustment. | |
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