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USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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Dear Tax Professional, I have a question about the tax timing

Customer Question

Dear Tax Professional,
I have a question about the tax timing for accrual basis taxpayers. I understand that many taxpayers utilize the one-year deferral method prescribed by Rev. Proc. 2004-34, which permits a taxpayer to include the advance payment in gross income in the year of receipt to the extent recognized in its applicable financial statements for that year and include the remaining amount in the next succeeding taxable year.
However, I have a special case, which the company supposedly has the fiscal year ended at September 30, but it changes to S Corporation for the fiscal year 13-14. Therefore, the Company has to file two tax returns with the fiscal year from October 1 - September 30, 2014 and a short year from October 1 to December 31, 2014. If we adopt the Rev. Proc. 2004-34, we would recognize the revenue based on service performed in the fiscal year 13-14, but should we recognize all remaining cash receipts from fiscal year 13-14 in the short year tax return, which belong to the period from October 1 to December 31, 2014? Thank you!
Submitted: 2 years ago.
Category: Tax
Expert:  USTaxAdvising replied 2 years ago.


Based on my understanding of Revenue Procedure 2004-34 I would say that the remaining amount should be included in the short taxable year. (Section 5.02(2))

Note that Section 5.02(2) states that if the short taxable year is less than 92 days then the remaining amount to be recognized must be recognized in the short taxable year so long as it is recognized for book purposes.

Again, this is my understanding given the facts provided. If the income was not earned in 2014 for GAAP or book purposes then the answer could potentially be different.

Best regards,