Tax accounting (methods and periods)

LLC’s use of deferral method for advance payments upheld

The Tax Court found that an IRS Criminal Investigations Division agent and his wife, a school manager, could use the deferral method to report certain advance payments relating to their private school LLC-partnership. Further, the court upheld the treatment of payments that the couple made to the LLC-partnership as capital

Accounting method changes to be allowed in corporate reorganizations

The IRS on Wednesday announced a change in its policy on automatic accounting method changes in corporate reorganizations (Rev. Proc. 2012-39). Taxpayers that engage in a tax-free reorganization or liquidation under Sec. 381(a) after Aug. 31, 2011, will be allowed to make automatic accounting method changes in the tax year

American Institute of CPAs recommends changes to tangible property guidance

On July 16, 2012, the AICPA submitted a comment letter to the IRS recommending various changes and simplifications to the voluminous and complex regulations regarding the treatment of expenditures incurred in selling, acquiring, producing, or improving tangible assets (T.D. 9564 and REG-168745-03) and the revenue procedures governing the accounting method

FAF review of FIN 48 shows it meets its objectives

The Financial Accounting Foundation (FAF) issued a post-implementation review (PIR) of FIN 48 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes). The PIR is a new process designed to help the FAF trustees with efforts to evaluate the effectiveness of accounting standards as well as the standard-setting process.

Side effects of cost segregation

Increased current cash flows and net-present-value savings from accelerated tax depreciation resulting from cost-segregation studies have been discussed in the JofA and other professional literature. But the initial cost-segregation decision can determine later tax side effects, both positive and negative. This article explores some of the tax benefits and drawbacks

Review of FIN 48 isn’t necessary, FASB decides

FASB has concluded that it is not necessary to review or reconsider FIN 48 as a result of a “post-implementation review” conducted by FASB’s parent organization, the Financial Accounting Foundation (FAF). The FAF review found that FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), is resulting

IRS suspends repair/capitalization exams pending accounting method changes

On Thursday, the IRS issued a Large Business & Industry (LB&I) Directive for field examinations on the repair vs. capitalization issue that essentially suspended current examinations so as to permit taxpayers to file accounting method changes under just-issued revenue procedures (LB&I-4-0312-004). Taxpayers that are subject to the new temporary regulations

Much-anticipated guidance issued on accounting method changes for repair regs.

In December 2011, the IRS issued long-awaited temporary regulations on the treatment of tangible property repairs. On Wednesday, it issued two revenue procedures detailing how taxpayers may obtain IRS automatic consent to the accounting method changes required by the rules. Rev. Proc. 2012-19 addresses repair and maintenance, materials and supplies,

Disallowed deduction equals change in accounting method

The Fifth Circuit Court of Appeals upheld a Tax Court decision that a change in accounting method occurred when the IRS disallowed an accrual-basis taxpayer’s deduction for inventory purchased on account from a related-party cash-basis taxpayer. Therefore, the taxpayer was required to include amounts erroneously deducted in closed tax years

Act Public Before Going Public

After several years of increasing numbers of U.S. companies making initial public stock offerings, starting in late summer 2011, some companies postponed going public as economic and market conditions grew turbulent and uncertain. But even a holding pattern might have some advantages if companies use that time to better prepare

Final Regulations Simplify Accounting Rules in Corporate Reorganizations

The IRS issued final regulations (TD 9534) intended to clarify and simplify rules concerning continuity of accounting methods and inventory methods in certain tax-free corporate reorganizations and liquidations. The regulations revise regulations under IRC §§ 381(c)(4) and 381(c)(5) and adopt with nonsubstantive modifications proposed regulations issued in 2007 (REG-151884-03). They

Act 2 for Business Tax Incentives

Enacted in the waning days of the 111th Congress, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act, PL 111-312) was a creature of political compromise. But the act nonetheless built upon already attractive incentives that had been passed only a few months

How the IRS Examines Repair and Maintenance Costs

Taxpayers are generally allowed to deduct the cost of making incidental repairs to their property used in carrying on any trade or business under IRC § 162 and Treas. Reg. § 1.162-4. However, to be deductible currently, a repair cost must not be subject to capitalization under IRC § 263(a).

Audit Guide Covers Capitalization Rules

Practitioners have been making use of a resource arising from the IRS’ ongoing audit initiative concerning capitalization rules. The IRS issued Capitalization v. Repairs Audit Technique Guide (LB&I-4-0910-023) as a framework for examining agents to follow when determining whether a business’s expenses should be capitalized or an immediate deduction allowed,

Automatic Procedures for Changing Accounting Methods Updated, Expanded

The IRS on Monday released updated procedures under which taxpayers can receive automatic consent to change their accounting methods (Revenue Procedure 2011-14). The revenue procedure updates prior guidance contained in Revenue Procedures 2008-52 and 2009-39 and gives additional accounting method changes for which taxpayers can obtain automatic consent. The revenue

IRS Updates Guidance on Adequate Disclosure of Positions

The IRS has released updated guidance identifying when a taxpayer’s disclosure of an item or position in an income tax return is adequate for purposes of reducing the understatement of tax penalty and the tax return preparer penalty for understatement due to unreasonable positions (Revenue Procedure 2011-13). The IRS regularly

IASB Proposes Amendment to Aspect of Deferred Tax Accounting

The International Accounting Standards Board (IASB) on Friday published for public comment an exposure draft, Deferred Tax: Recovery of Underlying Assets, that would amend one aspect of IAS 12, Income Taxes. The IASB said it is setting an exposure period of 60 days—shorter than its normal 120 days—because the amendments

The Proper Timing of Workers' Compensation Deductions

For companies with more than a de minimis amount in their workers’ compensation reserve, it may be worthwhile to review the details underlying the reserve amount. The reason? These days a significant portion of a workers’ compensation reserve likely results from amounts due to medical service providers for treatment already

New Accounting Methods Subject to Automatic Change Procedures

The IRS has issued new guidance on automatic accounting method changes. Revenue Procedure 2009-39 provides certain additions, modifications and clarifications to Revenue Procedures 2008-52 and 97-27 (as modified, amplified and clarified by various other revenue procedures). Revenue Procedure 2008-52 provides procedures for taxpayers to obtain automatic consent for certain changes

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