Accrual-Method Requirement Dropped for Some Service Providers

BY VINAY S. NAVANI

Accrual-Method Requirement
Dropped for Some Service Providers

In Chief Counsel Notice CC-2001-010, the IRS announced a change in its litigation position that certain taxpayers must use the accrual method of accounting.

The IRS previously had told many cash-basis taxpayers, such as physicians and contractors, who provide services, that their use of materials in their trades or businesses constituted the sale of merchandise. Therefore, they were required to use the accrual method of accounting.

After outlining a series of court losses in this area, the new notice said the IRS was studying the issue. Until further guidance is available, the IRS will not assert that taxpayers in businesses similar to those considered by the courts must use inventory accounts and the accrual method of accounting. This change in position specifically affects paving, painting, roofing, drywalling and landscaping contractors; taxpayers who are required to use the accrual method under IRC section 448 are not affected.

—Vinay S. Navani, CPA, tax manager,
Wilkin & Guttenplan, PC,
East Brunswick, New Jersey.

NEWS

IRS sets start date for tax season

The IRS announced that tax season will start in late January and that it will issue refunds to taxpayers despite the partial shutdown of the federal government.

PODCAST

Why CPAs can’t wait on automation tools

What do accounting firms waiting on others to develop AI, automation, and data analytics tools have in common with a baseball fan sitting in a stadium filling with water at an exponential rate? The answer could determine your firm’s fate.