Page 100 - BusinessStructures & Forms

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
purchases of inventory items. See the December 22, 2019. See section 481(d). filed, whichever is later. Keep records that
instructions for Form 1125-A. Also, see the Instructions for Form 3115. verify the corporation's basis in property
• A corporation engaged in farming must Exceptions to the general section for as long as they are needed to figure
use an accrual method. For exceptions, 481(a) adjustment period may apply. Also, the basis of the original or replacement
see section 447 and Pub. 225. in some cases, a corporation can elect to property.
• Special rules apply to long-term modify the section 481(a) adjustment The corporation should keep copies of
contracts. See section 460. period. The corporation may have to all filed returns. They help in preparing
• Dealers in securities must use the complete the appropriate lines of Form future and amended returns and in the
mark-to-market accounting method. 3115 to make an election. See the calculation of earnings and profits.
Dealers in commodities and traders in Instructions for Form 3115 for more
securities and commodities can elect to information and exceptions. Other Forms and
use the mark-to-market accounting
If the net section 481(a) adjustment is
method. See section 475. positive, report the ratable portion on Form Statements That May Be
Small business taxpayer. For tax years 1120, line 10, as other income. If the net Required
beginning in 2022, a corporation qualifies section 481(a) adjustment is negative, Amended return. Use Form 1120-X,
as a small business taxpayer if (a) it has report the ratable portion on line 26 as a Amended U.S. Corporation Income Tax
average annual gross receipts of $27 deduction. Return, to correct a previously filed Form
million or less for the 3 prior tax years, and 1120.
(b) it is not a tax shelter (as defined in Accounting Period
section 448(d)(3)). A corporation must figure its taxable Reportable transaction disclosure
A small business taxpayer can account income on the basis of a tax year. A tax statement. Disclose information for each
for inventory by (a) treating the inventory year is the annual accounting period a reportable transaction in which the
as non-incidental materials and supplies, corporation uses to keep its records and corporation participated. Form 8886,
or (b) conforming to its treatment of report its income and expenses. Reportable Transaction Disclosure
inventory in an applicable financial Generally, corporations can use a Statement, must be filed for each tax year
statement (as defined in section 451(b) calendar year or a fiscal year. Personal that the federal income tax liability of the
(3)). If it does not have an applicable service corporations, however, must use a corporation is affected by its participation
financial statement, it can use the method calendar year unless they meet one of the in the transaction. The following are
of accounting used in its books and exceptions discussed later under Personal reportable transactions.
records prepared according to its Service Corporation. 1. Any listed transaction, which is a
accounting procedures. Change of tax year. Generally, a transaction that is the same as or
Change in accounting method. corporation, including a personal service substantially similar to one of the types of
transactions that the IRS has determined
Generally, the corporation must get IRS corporation, must get the consent of the to be a tax avoidance transaction and
consent to change either an overall IRS before changing its tax year by filing identified by notice, regulation, or other
method of accounting or the accounting Form 1128, Application To Adopt, published guidance as a listed
treatment of any material item for income Change, or Retain a Tax Year. However, transaction.
tax purposes. To obtain consent, the exceptions may apply. See the
corporation must generally file Form 3115, Instructions for Form 1128 and Pub. 538 2. Any transaction offered under
Application for Change in Accounting for more information. conditions of confidentiality for which the
Method, during the tax year for which the corporation (or a related party) paid an
change is requested. See the Instructions Rounding Off to advisor a fee of at least $250,000.
for Form 3115 and Pub. 538 for more Whole Dollars 3. Certain transactions for which the
information and exceptions. Also see the corporation (or a related party) has
Instructions for Form 3115 for procedures The corporation may enter decimal points contractual protection against
that may apply for obtaining automatic and cents when completing its return. disallowance of the tax benefits.
consent to change certain methods of However, the corporation should round off 4. Certain transactions resulting in a
accounting, non-automatic change cents to whole dollars on its return, forms, loss of at least $10 million in any single
procedures, and reduced Form 3115 filing and schedules to make completing its year or $20 million in any combination of
requirements. return easier. The corporation must either years.
Section 481(a) adjustment. If the round off all amounts on its return to whole 5. Any transaction identified by the
dollars, or use cents for all amounts. To
corporation's taxable income for the round, drop amounts under 50 cents and IRS by notice, regulation, or other
current tax year is figured under a method increase amounts from 50 to 99 cents to published guidance as a “transaction of
of accounting different from the method the next dollar. For example, $8.40 rounds interest.”
used in the preceding tax year, the to $8 and $8.50 rounds to $9.
corporation may have to make an For more information, see Regulations
adjustment under section 481(a) to If two or more amounts must be added section 1.6011-4. Also, see the
prevent amounts of income or expense to figure the amount to enter on a line, Instructions for Form 8886.
from being duplicated or omitted. The include cents when adding the amounts Penalties. The corporation may have
section 481(a) adjustment period is and round off only the total. to pay a penalty if it is required to disclose
generally 1 year for a net negative a reportable transaction under section
adjustment and 4 years for a net positive Recordkeeping 6011 and fails to properly complete and
adjustment. For an eligible terminated S Keep the corporation's records for as long file Form 8886. Penalties may also apply
corporation, the section 481(a) adjustment as they may be needed for the under section 6707A if the corporation
period is generally 6 years for a negative administration of any provision of the fails to file Form 8886 with its corporate
or positive adjustment that is attributable Internal Revenue Code. Usually, records return, fails to provide a copy of Form
to the S corporation's revocation of its that support an item of income, deduction, 8886 to the Office of Tax Shelter Analysis
election under section 1362(a) after or credit on the return must be kept for 3 (OTSA), or files a form that fails to include
December 21, 2017, and before years from the date the return is due or all the information required (or includes

-6- Instructions for Form 1120