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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6220
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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C- Corporation having Calendar year ending and Cash Basis of

Customer Question

C- Corporation having Calendar year ending and Cash Basis of Accounting intend to change accounting method to Accrual and also change year ending from Calendar to March 31 thereby Tax return will be from 01/01/15 to 03/31/16 can they do both change of accounting method and change in year together ? Can they file 15 months accounts what is the procedure and forms needs to be filed?
Submitted: 10 months ago.
Category: Tax
Expert:  Stephen G. replied 10 months ago.

First of all you can't file a tax return for 15 months.

You'll have to file an annual return for 2015 - 1/1/15 - 12/31/15

Then if you want to switch to a y/end of 3/31, you'll have to file a short period return for the period 1/1/16 - 3/31/16 & then you would go to 4/1/16 - 3/31/17 as your next return.

As far as changing from the Cash Basis of Accounting, you need to file Form 3115 and comply with all the instructions that basically require computing the adjustment to make the switch and then depending upon the results, which may be a "pick-up" of income, that adjustment may be spread over 4 years. This is all in the detail instructions to the 3115.

Here's a copy of a summary of certain of the main requirements related to the change:

Form 3115 you file this form to request permission to change your accounting from cash to accrual method of accounting. You must follow the prescribed procedure so you don’t inadvertently let income or deductions drop between the cracks—and so you gain some special benefits afforded to people who “play by the rules.”

Note that normally with cash-basis accounting, a firm delays reporting income and therefore delays paying taxes on the delayed income. What this means is that this “would have been reported earlier” income drops between the cracks when you switch from cash accounting to accrual accounting. The IRS watch carefully for this. Further, what your Form 3115 with its Sec. 481 adjustment (the cash to accrual adjustment) does, is report this amount. As stated above, if the 481 adjustment results in additional income, you get to split the amount over four years. If the 481 adjustment is a cut in taxable income, you can report the entire adjustment at once.

Expert:  Stephen G. replied 10 months ago.

As far as changing to a fiscal year, you should be able to qualify for an automatic approval. To get automatic approval, a corporation must fulfill certain criteria. It must not have not changed its accounting period in the previous 48 months. It must have no interest in a pass-through entity, such as an LLC. It must not be a shareholder in a foreign sales corporation or an interest in a domestic international sales corporation (a/k/a DISC). It cannot be a personal service corporation, or be part of a combined federal campaign. The corporation requesting the fiscal year change cannot be part of a consolidated group it is using. There is no fee for an automatic approval.

Expert:  Stephen G. replied 10 months ago.

You must fill out form 1128 to request a change in tax year for a C corporation. Mail your completed form 1128 to the National IRS office at: Internal Revenue Service Associate Chief Counsel, PO Box 7604, Ben Franklin Station, Washington, D.C.,###-##-####

Expert:  Stephen G. replied 10 months ago.

Just checking in. I realize that's a lot of material to absorb.

It seems everything to do with the IRS of any substance winds up being cumbersome & complex when it really shouldn't be.

Do you have any follow-up questions?

If not, please remember to rate my response as that is the only way we receive credit for our work.

Thanks very much,

Steve G.