Methods

The IRS issued proposed regulations expanding the types of contracts eligible for the home construction contract exemption from the percentage of completion method and amending the rules for taxpayer-initiated changes in methods of accounting to comply with Sec. 460 and the regulations thereunder.

Currently, IFRS do not allow for the use of the LIFO inventory method, jeopardizing its use for U.S. tax purposes due to the LIFO conformity requirement in Sec. 472. The disallowance of the use of LIFO for tax purposes would result in a large current tax bill for many of the companies that use the method.

This item discusses the difficulties that arise when trying to determine whether an issue is under consideration for purposes of the 90-day or 120-day windows; it examines a recently released technical advice memorandum that illustrates the complex nature of this problem in the context of a nonautomatic accounting method change request.

The IRS released CCA 200834019, addressing whether a retailer could use the recurring-item exception of Sec. 461(h)(3) to treat its cash rebate liability as incurred in the year of the sale of the rebate-eligible product.

This item analyzes changing a method of accounting for deferred revenue from an impermissible method to a permissible method.

Editor: Frank J. O’Connell Jr., CPA, Esq. Taxpayers often want to change either their overall method of accounting (e.g., cash versus accrual) or their method of accounting for a specific item (e.g., inventory). There are varied reasons a taxpayer may request a change. However, as demonstrated by the Tax Court

The IRS has provided automobile resellers the option to use an alternative dollar-value last-in, first-out (LIFO) pooling method.

A mistake made in a taxpayer’s LIFO computation may repeat in later year returns if staff preparing the computation take a “same as last year” approach. When the mistake ultimately is detected, there is a question of whether the mistake represents a method of accounting or an error.

An accounting method can be described as a regular practice for determining when to recognize items of income or expense in taxable income.

In order to resolve confusion with respect to accounting and inventory methods to be used after corporate reorganizations or liquidations, the IRS issued proposed regulations in November 2007 (REG-151884-03).

The IRS provided procedures for taxpayers, under certain conditions, to request to revise the year of change for a pending Form 3115, Application for Change in Accounting Method.

Treasury issued final corporate estimated tax regulations under Sec. 6655 that establish a comprehensive set of rules for corporations using the annualized income installment method.

Rev. Rul. 2007-3 holds that the mere execution of a service or insurance contract by an accrual method taxpayer/payor (TP) does not satisfy the all-events test for incurring a liability.

While there is no official guidance binding the IRS to review a Form 3115 within a particular time period, taxpayers generally expect the Service to review and respond to Forms 3115 before the extended due date for filing the taxpayer’s income tax return. Unfortunately, given the backlog of method change requests, the IRS is not always able to respond to a taxpayer’s requests by that date.

The IRS has ruled that a service provider’s request for a change in accounting method for mixed service costs does not qualify for audit protection because the service provider received written notification, citing the treatment of mixed service costs as an issue under consideration.

Editor: Frank J. O’Connell, Jr., CPA, Esq. Taxpayers using percentage-of-completion accounting have an opportunity for gross profit deferral following a mid-contract change in ownership. Taxpayers that acquire contracts in taxable transactions may wish to consider opportunities to defer gross profit resulting from the deemed constructive-completion rules that apply to taxable

Editor: Annette B. Smith, CPA Taxpayers periodically assess the validity of their tax positions. Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, has made this assessment even more detailed, and the questions have become more probing. This increased awareness has many companies in a quandary