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financeguru2, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 136
Experience:  Several years of complex tax experience
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I need to make an accounting method change client to

Customer Question

I need to make an accounting method change for a client to NOT deduct accrued bonuses as they do not satisfy the all-events test. They have incorrectly been deducting this is the past. Could you tell me if this is an automatic change and what change number this would be?
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
Also, this client is converting to an S corp. Can we or are we required to pick up the entire 481(a) adjustment when converting to an S corp (from a C corp)?
Expert:  financeguru2 replied 2 years ago.
Hello, please find the answers to your questions below. Once you have reviewed the answer, please respond to me if I have not answered your question completely before rating the answer. If I have fully answered your question, please rate the answer accordingly. Thank you.
1) The accounting method change you described is automatic change #28 per the instructions to Form 3115.
2) No 481(a) adjustment would apply under the conversion of a C corporation to an S corporation, since that is not a change in accounting method but simply a change in entity structure. However, the built in gains tax would apply to effectively tax any appreciated property inside the C corporation (including unrealized receivables and goodwill) at C corporation tax rates when sold even once the corporation is converted to an S corporation. The period for built in gains tax does expire after some time depending on the law at the time of conversion. These built in gains lookback periods have ranged from 5-10 years in recent history, but change frequently based on various tax acts passed by Congress.