C Corp requirement to change to accrual

[cred65]

Is the requirement based on the previous three years average, or does it include the current year plus the two previous years average?

TIA

[Lynn EA USTCP in Louisiana]

Is the requirement based on the previous three years average, or does it include the current year plus the two previous years average?

TIA

Average of previous three years

Lynn Jacobs, EA

Notary Public

Kenner, La

[BulldogTom]

You may want to have a chat with your client about voluntarily changing to Accrual before the IRS does it for them. If the company is going to continue to grow and have these revenues, they are going to go to accrual regardless of if they want to or not. If they elect to make the switch, they get 4 years to take the accrual variance into income. If the IRS imposes the method of accounting, it all comes in at once.

One other thing that can happen is if taxable income goes over 1 million in the year of the switch, you are now under more restrictive Estimated tax rules. Some of your safe harbor goes away. I know this because my company is under the new rules because in the last year of our 481 election, we ended up in this boat. Sucks.

Tom

Lodi, CA