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.

SPONSORED REPORT

The technology assessment engagement

Are you working with the best technology? Do you know how to help your clients determine if their technology stack measures up? In this free report, J. Carlton Collins, CPA, explains how to answer those questions via a technology assessment engagement.

FEATURE

Maximizing the higher education tax credits

A counterintuitive strategy can save taxes by including otherwise excludable scholarships in gross income.