I'm Stuck :(

[BHoffman]

I have one Partnership and one S Corp with the same question.  I'm so tired.   I'm trying hard to read IRC sections and instructions, etc and my eyes see the words but my brain is not translating the information into anything I can understand, and I can't seem to stop thinking about this and so I can't rest...like a snake eating its own tail...

It's a simple question:  When determining whether a business is required to change their method from cash to accrual due to gross revenues, what 3 years am I supposed to look at?

If the answer is 2013, 2014, 2015 then they are under the wire for 2016 but must change in 2017.  

If the answer is 2014, 2015, 2016 then I have some 3115 forms to file.

Can someone help me out?  

 

[Lynn EA USTCP in Louisiana]

It is the previous 3 years, 13 14 15 so they should be under the wire for 2026 but must change for 2017

[BHoffman]

Thank you so much!  

[Lynn EA USTCP in Louisiana]

But, see below - 

Generally, a small business can use either the overall cash method of accounting or an overall accrual method of accounting. Under the cash method (which is typically simpler than the accrual method), a taxpayer can defer income until cash is received; conversely, it must wait to deduct expenses until the amounts are paid. The overall cash method of accounting is available for S corporations, partnerships that do not have a C corporation as a partner, and personal service corporations (PSCs). A PSC performs activities in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; and substantially all the stock of the corporation is held by employees performing services for the corporation in connection with those activities. C corporations and partnerships with a C corporation as a partner can use the cash method if their average annual gross receipts for the prior three tax years are less than $5 million. For a group of C corporations that files a consolidated return, the gross receipts of all the corporations in the group are aggregated for the $5 million test. - See more at: http://www.thetaxadviser.com/issues/2013/jun/clinic-story-11.html#sthash.8QazSYeJ.dpuf

[BHoffman]

Right.  That's the stuff my brain can't assimilate and I've read it a thousand times today...

[Lion EA]

What about an S-corporation?  What's the gross receipts amount?

[Lynn EA USTCP in Louisiana]

If your clients are partnerships without a C corp as a partner they may use the cash method.

if your client is an S corp they may use the cash method. 

If your client is a Personal service corp they may use the cash method.

If your client is a C corp, and their annual income the previous year exceeded the magic $5 mil threshold and are cash basis they must do a 3year look back to see if they are required to change to accrual. 

 

[Lion EA]

Thank you, Lynn.  I finished an S-corp by the deadline and was having second thoughts after reading this thread.  But, they're around 3-4 million gross receipts.  Now that I know it's only the C-corps that have to watch the threshold, I'm calm again.  Just C-corps, right?

And, I do have some LLCs with some vague outside entities that sometimes end up being a partner or shareholder and sometimes a lender, but I had these two new LLCs send out W-9s.

[BHoffman]

My Clients are partnerships and SCorps   Whew and thanks again so very much!