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Our S-corp 3 year average gross receipts will exceed the $10…

Our S-corp 3 year...

Our S-corp 3 year average gross receipts will exceed the $10 million thershold in 2017. I know we have to file form 3115 to change our accounting method from cash to accrual but I am unclear if that will be in effect on the 2017 return or the 2018 return. Thoughts?

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Answered in 19 minutes by:
10/25/2017
Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 100
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
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You must file Form 3115 during the tax year for which the change is requested. File the form as early as possible during the year of change to provide adequate time for the IRS to respond prior to the due date of the return for the year of change. The IRS normally sends an acknowledgement of receipt within 60 days after receiving a Form 3115. It would be effective for 2017.

Specific instructions - You will attach the original Form 3115 to the corp return for the year of change. The original Form 3115 does not need to be signed. ALSO, you will file a copy of the signed Form 3115 no earlier than the first day of the year of change and NO LATER than the date the original is filed with the federal income tax for the year of change. For more information on where to file, I am attaching a link to the instructions for the form (https://www.irs.gov/instructions/i3115).

Please let me know if this addresses your question, or if you have any follow up questions. Thanks!

Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 100
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
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Customer reply replied 4 months ago
Even though the company will exceed the 3 year 10 million average in gross receipts for 2017 the change is effective for 2017? So, the company would file the 2017 return on an accrual basis with a 481a adjustment based on the 2016 balance sheet? Is that the proper way to file or would the accrual basis be applicable for tax years 2018 going forward and the 481a adjustment based on the 2017 balance sheet. Thanks
PDtax
PDtax, Owner
Category: Tax
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My understanding is you measure the impact of the 481A adjustment in the year prior to the change, incorporating the impact of that and future years (as if you always used the accrual method) and then spread that adjustment over the next four years.

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Fred Rook
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