Accrual to Cash Method

[Edsel]

A cohort of mine says he can change the accounting method for one of my customers from accrual to cash.  I told him to try, and he would be paid if successful.  I hope he has better luck than I did last time I tried on one of my other clients.  He says he can do it on a 3315 without paying a user fee.

The relevant assets and liabilities for the year of 2018 calculate to net assets of $100,000.  The grand total relevant assets and liabilities for all accumulated years calculate to net assets of $300,000.

Question:  Which of the two numbers above will have to be presented to the IRS as the effect of the change?  I'm assuming the tax return for 2019 will need to be prepared under the new method because the IRS will take forever to approve or reject the change.

[jklcpa]

IRS Examiner's Guide on Changes in Accounting Method should have your answers:  https://www.irs.gov/irm/part4/irm_04-011-006#idm140266566991872

Also, from that guide:

[Edsel]

Thanks, and I guess I might can find out.  The link opens an IRS document 135 pages long, and references a 2012 Rev. Proc. for "automatic consent" items which is 343 pages long.

I believe I'll let this cohort of mine go down the road and see what happens.

I don't blame any reader for not answering the post, if that kind of knowledge is what's required.

Thanks anyway - you are always helpful.

[jklcpa]

The guide I linked to does have a table of contents that is clickable, but I agree that if you are unsure of how to handle the conversion then it may be preferable to have someone else help with this. Another good place for some of the answers is in the instructions to form 3115.

Anyway, the change is indeed requested on form 3115.  Perhaps your cohort is thinking of a change in method from cash to accrual, which the IRS would accept and one that is considered an "automatic" change request that does not require the user fee.

A request to change from accrual to cash is a "non-automatic" change request, and because it is non-automatic, the instructions do state that the user fee is required. 

Lastly, I'd guess that you didn't receive many views or other answers today because many are off enjoying the holiday and haven't seen the post yet.

[Edsel]

Thanks Judy - and a great Holiday season for you.

The change is from Accrual to Cash, and you've explained that this is not automatic.  I'll know this without reading the 343 pages.  My cohort promises there will not be a user fee.  We'll see.

 

[DANRVAN]

6 hours ago, jklcpa said:

A request to change from accrual to cash is a "non-automatic" change request,

TCJA changed that for "small business" with tax years beginning after 12/31/17.  It is now an auto change for qualified tax payers.

 

[DANRVAN]

7 hours ago, Edsel said:

references a 2012 Rev. Proc.

See Rev. Proc. 2018-40, if client has less than $25 million in gross receipts your cohort is correct.

[Edsel]

Interesting Dan, and thank you.

Appears if taxpayer's Gross Receipts are sufficiently low, the change from accrual to cash has the same status as an "automatic" change.