Advance payments per regs sec 1.451-5

[Max W]

This is a new client that hasn't filed 1120 for 4 years, 2010-2013.

 

The 2009 copy that I received has a statement re 1-451-5 (d).

 

The financials and 2009 return do not indicate how the advance payments are

arrived at.  The payments in the statement are broken into 3 categories; 1. Advance pmts rec'd in taxable year, $600K.; 2. Advance pmts rec'd in prior taxable years not included in income before current taxable year $100K; 3. Advance pmts rec'd in prior years included in inccome in current taxable year $25K.

 

The business is luxury yacht sales.

 

I would assume that a spread sheet or some cumulative record of each sale would be kept 

showing when the advance payments become taxable income.

 

I would appreciate any input on this.

[Elrod]

Max, Your assumption would be correct.  They need to produce their records for each year, and 2009's records could also assist you in completion.

 

This may also help you.............   http://www.irs.gov/irb/2004-22_IRB/ar17.html

 

Good luck.

[Max W]

Elrod, thanks for your help.

 

The regs, use a phrase, "inventoriable costs and expenditures". Is this just an IRS lawyer's way of saying cost basis?

 

If that is the case, then I think I understand the basic procedure.  Once that cost figure is reached, there are two additional years to report the advance payments as a sale.