Federal Tax Accounting (2019)

Author(s): Frank L. Brunetti

Published: Sep 24, 2018
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ISBN: 9780808050858
Product Number: 10044656-0002
Volumes: 1
Update Frequency: Annually
356 Pages

Federal Tax Accounting (2019) advises tax preparers, accountants, attorneys, and other professionals about timing issues, i.e. when an item, such as income, deduction, or credit may be reported on a tax return. Tax accounting rules govern the tax incidents of when tax events must be taken into account for federal income tax purposes. The "when" question is the subject of this book. In general, tax accounting is not concerned with whether an item is includable in income or deductible or even with the character of the item but when it may be reported.

One may ask “how can a book’s sole subject be when?

Consider the following issues which relate to timing:

  • Under the annual accounting doctrine, should tax accounting be transactional or periodic?
  • Should an item of income be considered income upon receipt even though the taxpayer might be obligated to return the item? What if the item is in dispute; should it be picked up as income or be deferred?
  • If a taxpayer takes a deduction in a previous year but recovers the item in a subsequent year, should the item recovered be income?
  • If the taxpayer dissolves his corporation and recognizes capital gain and is obligated to pay a liability of the corporation, is the deduction ordinary or capital?
  • What tax year should a partnership, S corporation, personal holding company or regular corporation use? What are the alternatives for the taxpayer? Can taxpayers make elections to use tax years other than those that are required?
  • If the taxpayer is using an erroneous tax year, how is the error corrected?
  • What are the requirements for choosing methods of accounting?
  • How does a taxpayer adopt a method of accounting?
  • Should the taxpayer be using the cash method of accounting; if so how should the taxpayer maintain his books? How should the books clearly reflect income?
  • When a taxpayer receives a promissory note, does the taxpayer have income? Can the taxpayer defer income?
  • If a taxpayer is involved in a commercial transaction and deposits the money in escrow until the following year, when does the taxpayer have income?
  • If a taxpayer decides to prepay some year-end expenses, can the taxpayer take a deduction before the expenses are utilized?
  • What are the rules for the taxpayer who is required to use the accrual method of accounting?
  • Is title important to an accrual method taxpayer?
  • What if the income is recognized but may not be collected; can the accrual taxpayer not report income?
  • If an accrual method taxpayer receives prepaid income, must it always recognize income?
  • How does prepaid income relate to generally accepted accounting principles and financial accounting?
  • If a taxpayer is using an erroneous method of accounting, can it change to a proper method or must it seek permission from the Commissioner?
  • What if the Commissioner determines that a taxpayer is using an improper method of accounting; what are the consequences?
  • What are the rules for the sale of containers, routable spare parts, COD sales, consignment etc.?
  • Can small businesses which sell merchandise use the cash method under certain circumstances?
  • If a taxpayer is required to use the uniform capitalization rules under IRC §263A what exceptions are there?
  • What is the small reseller exception?
  • What is the small producer exception?
  • How does a taxpayer determine ending inventory including additional uniform capitalization costs?
  • If a taxpayer is a reseller, what items will be purchasing cost, labor costs, and handling cost?
  • What are the simplified methods for determining additional IRC §263A cost to ending inventory?
  • How are these methods implemented?
  • What are the tax accounting rules for multiple businesses? Can a business maintain two separate methods of accounting?
  • What are the interest capitalization rules required under IRC §263A?
  • If the taxpayer is engaged in an installment sale, will the installment sale be qualified under IRC §453?
  • What are the exceptions to IRC §453?
  • How is installment gain determined?
  • If the taxpayer engages in a contingent payment sale, how is the sale reported?
  • Can dealers engage in installment sales?
  • What are the related party rules that impact tax accounting (including installment sales)?
  • What are the rules required for non-dealers who sell property for more than $5 million?
  • What are the rules for long-term contracts, manufacturing contracts, and construction contracts?
  • How is the completed contract method implemented?
  • How is the percentage of completion method implemented?
  • Which taxpayers who are producing goods are permitted a domestic production deduction? How is the domestic production deduction computed and applied?
  • How does time value of money transaction impact tax accounting transactions?
  • What is the AFR?
  • Are private annuities available?
  • How are self-canceling notes determined and utilized?
  • How is personal interest handled for tax accounting purposes?
  • How is investment interest determined and handled for tax accounting purposes?
  • What are the original issue discount rules applicable to tax accounting?
  • What are below-market loans and what are the issues related thereto?

This and much more is the subject of Federal Tax Accounting.

Tax accounting rules are found in all areas of federal income tax. These rules often involve many issues that are visible and, in some cases, invisible, governing items that are includable in income, deductible or creditable.

Many of the issues that arise in an audit depend on resolution of tax accounting issues. As a result tax accounting issues have become more and more important and receive more scrutiny in determining tax policy.

Tax practitioners need to have a thorough understanding of tax accounting to be able to analyze and solve tax problems.

Over the years tax accounting has become more and more complex as the need for revenue has increased. The tax accounting rules do not always match up with generally accepted accounting principles and, in fact, often deviate from them. The goal of tax accounting is to produce income and to protect government revenue as opposed to informing the public of information necessary for a financial decision.

Tax accounting is not transactional but periodic which means that on an annual basis taxpayers must determine whether they have income or losses. There are several ameliorative provisions such as net operating losses, the tax benefit rule, etc.. which may balance out certain tax accounting principles. Indeed, a substantial portion of every tax problem that practitioners face inevitably involves a tax accounting issue.

Federal Tax Accounting (2019) is now available in an eBook format which you can download to your computer instantly.

  • Table of Contents
  • Federal Tax Accounting (2019)

    Topics and Content

     

    • Chapter 1 Introduction
      • §1.01 Overview
      • §1.02 Financial Accounting vs. Tax Accounting
      • §1.03 Why Study Tax Accounting?
      • §1.04 Tax Records Maintenance
    • Chapter 2 Tax Accounting Doctrines
      • § 2.01 Annual Accounting Doctrine
      • §2.02 Claim of Right Doctrine
      • §2.03 Section 1341 Relief for Repayment of Claim of Right Receipts
    • Chapter 3 The Entiity's Tax Year
      • §3.01 Introduction
      • §3.02 Claendar Year
      • §3.03 Fiscal Year
      • §3.04 The 52-53 Week Taxable Year
      • §3.05 Short Tax Year
      • §3.06 Required Tax Years
      • §3.07 Adoption, Change or Retention of Taxable Year
      • §3.08 General Terms and Conditions
      • §3.09 Automatic Approvals
      • §3.10 Alternative Tax year(s)
      • §3.11 Ownership Taxable Year
      • §3.12 Corporations
      • §3.13 Partnerships
      • §3.14 IRC §444 Election
      • §3.15 Back-Up IRC §444 Elections
      • §3.16 Correction of Erroneous Tax Year
      • §3.17 Correction of Improper Taxable Year
      • §3.18 Final Entity Year
      • §3.19 Case Study
    • Chapter 4 Methods of Accounting
      • §4.01 Methods of Accounting
      • §4.02 Material Items
      • §4.03 Clear Reflection of Income
      • §4.04 Consistency and Predictability
      • §4.05 Adopting an Accounting Method
      • §4.06 Restrictions on Use of Accounting Methods
    • Chapter 5 The Cash Receipts and Disbursements Method
      • §5.01 Generally
      • §5.02 Income Recognition
      • §5.03 Cash Equivalency Doctrine
      • §5.04 Receipt of Property
      • §5.05 Expenses--Deduction
      • §5.06 Interest Expense
      • §5.07 Limitation on Cash Method's Use
    • Chapter 6 The Accrual Method
      • §6.01 Generally
      • §6.02 Income Recognition
      • §6.03 Prepaid Income
      • §6.04 Service Warrranty Income
      • §6.05 Deposits as Income
      • §6.06 Expenses--Deduction
      • §6.07 Economic Performance and Accrual of Expenses
      • §6.08 Real Property Taxes
      • §6.09 Disputed Liabilities
      • §6.10 Deferred Compensation
    • Chapter 7 Change in Accounting Method
      • §7.01 Change in Accounting Method
      • §7.02 Taxpayer-Initiated Changes
      • §7.03 Commissioner's Consent
      • §7.04 Taxpayer Applications for Change (Form 3115)
      • §7.05 Consent Agreements
      • §7.06 Year of Change
      • §7.07 IRC §481 Adjustment
      • §7.08 IRC §481 Adjustment Period
      • §7.09 IRS-Initiated Changes
      • §7.10 Automatic Consent Proecedures
      • §7.11 Hat Creek Problem
    • Chapter 8 Inventory
      • §8.01 Inventory
      • §8.02 Best Accounting Practice
      • §8.03 Clear Reflection of Income
      • §8.04 Election of Accounting Method
      • §8.05 Unacceptable Accounting Methods
      • §8.06 Cost Flow Assumptions/Methods
      • §8.07 Valuation Methods
      • §8.08 Lower of Cost- or Market-Valuation
      • §8.10 Inventoriable Items
      • §8.11 Non Inventoriable Items
      • §8.12 Periodic Physical Counts
      • §8.13 Spare Parts
      • §8.14 Containers
      • §8.15 Materials and Supplies
      • §8.16 Shrinkage
      • §8.17 Passage of Title to Goods
      • §8.18 Cash Basis Taxpayers
      • §8.19 Qualifying Small Business Taxpayer
    • Chapter 9 Uniform Capitalization Rules
      • §9.01 Uniform Capitalization Rules
      • §9.02 Taxpayers/Activities to Which Rules are Applicable
      • §9.03 Property Subject to UNICAP
      • §9.04 Costs Subject to UNICAP
      • §9.05 Purchasing Costs
      • §9.06 Labor Costs
      • §9.07 Handling Costs
      • §9.08 Storage Costs
      • §9.09 Service Costs
      • §9.10 Mixed Service Costs
      • §9.11 Simplified Service Cost Methods
      • §9.12 Allocation of Direct and Indirect Costs
      • §9.13 Simplified Production Method without Historical Absorption Ratio Election
      • §9.14 Simplified Resale Method without Historical Absorption Ratio Election
      • §9.15 Interest Capitalization Rules
    • Chapter 10 Installment/Method Sales
      • §10.01 Generally
      • §10.02 Benefits/Detriments
      • §10.03 Application of Method
      • §10.04 Taxpayers Not Applying Method
      • §10.05 Computation of Installment Gain
      • §10.06 Recapture Income
      • §10.07 Contingent Payment Sales
      • §10.08 Dealer Rules
      • §10.09 Related Party Rules
      • §10.10 Non-Dealer Rules
      • §10.11 Mortgages and Other Liabilities
      • §10.12 Disposition of Installment Obligations
      • §10.13 Modification of Installment Obligations
      • §10.14 Default and Repossession of Real Property
    • Chapter 11 Long-Term Contracts
      • §11.01 Long Term Contracts
      • §11.02 Generally
      • §11.03 Manufacturng Contracts
      • §11.04 Construction Contracts
      • §11.05 Completed Contract Method (CCM)
      • §11.06 Percentage of Competion Method (PCM)
      • §11.07 Ten-Percent Method
      • §11.08 Look-Back Method
      • §11.09 Special Rules
      • §11.10 Accounting Method Change
    • Chapter 12 Domestic Manufacturing Deduction
      • §12.01 Domestic Manufacturing Deduction
      • §12.02 Generally
      • §12.03 Application of Deduction
      • §12.04 Eligible Taxpayers
      • §12.05 Qualified Production Activities Income
      • §12.06 Domestic Production Gross Receipts
      • §12.07 Qualified Production Income
      • §12.08 Allocation of Gross Receipts
      • §12.09 Expanded Affiliated Groups
      • §12.10 Partnerships
      • §12.11 S Corporations
      • §12.12 Filling in Form 8903
    • Chapter 13 Distinguishing between Capital Expenditures and Repairs
      • §13.01 Introduction
      • §13,02 Election to Capitalize and Depreciate Certain Materials and Supplies
      • §13.03 Optional Method of Accounting for Rotable and Termporary Spare Parts
      • §13.04 Sale or Disposition of Materials and Supplies
      • §13.05 Amounts Paid to Acquire or Produce Tangible Property
      • §13.06 Small Business Taxpayer
      • §13.07 Summary of Changes in Methods of Accounting Related to Dispositions of MACRS Property
    • Chapter 14 Time Value of Money
      • §14.01 Time of Value of Money
      • §14.02 Original Issue Discount (OID)
      • §14.03 Below Market Loans

     

    • Appendix 1 IRS Form 1128: Application to Adopt, Change, or Retain a Tax Year
    • Appendix 2 IRS Form 8716: Election to Have a Tax Year Other Than a Required Tax Year
    • Appendix 3 IRS Form 2553: Election by a Small Business Corporation
    • Appendix 4 IRS Form 3115: Application for Change in Accounting Method-Repairs
    • Appendix 5 IRS Form 3115: Application for Change in Accounting Method (Blank)
    • Appendix 6 IRS Instructions for Form 3115
    • Appendix 7 Steps for Determining and Applying the Uniform Capitalization Rules
    • Appendix 8 Capitalizable and Non-Capitalizable Costs
    • Appendix 9 IRS Publication Capitalization Period of Direct and Indirect Costs
    • Appendix 10 IRS UNICAP Flow Chart
    • Appendix 11 IRS Form 6252: Installment Sale Income
    • Appendix 12 IRS Form 8903 Domestic Production Activities Deduction
    • Appendix 13 Form 8697: Interest Computation under the Look-Back Method for Completed Long-Term Contracts
    • Appendix 14 Determination of Tax Year
    • Appendix 15 Cash Method Accounting Flow Charts
    • Appendix 16 Accrual Method Accounting Flow Charts
    • Appendix 17 Change in Accounting Method
    • Appendix 18 Uniform Capitalization Rules
    • Appendix 19 Installment Sales
    • Appendix 20 Long Term Contracts
    • Appendix 21 Lookback Rule
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