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Back tax relief Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Back tax relief Hybrid method. Back tax relief Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Back tax relief Accounting Periods You must use a tax year to figure your taxable income. Back tax relief A tax year is an annual accounting period for keeping records and reporting income and expenses. Back tax relief An annual accounting period does not include a short tax year (discussed later). Back tax relief You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Back tax relief Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Back tax relief A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Back tax relief You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Back tax relief This section discusses: A calendar year. Back tax relief A fiscal year (including a period of 52 or 53 weeks). Back tax relief A short tax year. Back tax relief An improper tax year. Back tax relief A change in tax year. Back tax relief Special situations that apply to individuals. Back tax relief Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Back tax relief Special situations that apply to corporations. Back tax relief Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Back tax relief If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Back tax relief If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Back tax relief See Change in Tax Year, later. Back tax relief Generally, anyone can adopt the calendar year. Back tax relief However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Back tax relief Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Back tax relief If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Back tax relief 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Back tax relief If you make this election, your 52-53-week tax year must always end on the same day of the week. Back tax relief Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Back tax relief For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Back tax relief Election. Back tax relief   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Back tax relief The month in which the new 52-53-week tax year ends. Back tax relief The day of the week on which the tax year always ends. Back tax relief The date the tax year ends. Back tax relief It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Back tax relief   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Back tax relief   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Back tax relief Example. Back tax relief Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Back tax relief For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Back tax relief Short Tax Year A short tax year is a tax year of less than 12 months. Back tax relief A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Back tax relief Tax on a short period tax return is figured differently for each situation. Back tax relief Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Back tax relief Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Back tax relief Example 1. Back tax relief XYZ Corporation was organized on July 1, 2012. Back tax relief It elected the calendar year as its tax year. Back tax relief Therefore, its first tax return was due March 15, 2013. Back tax relief This short period return will cover the period from July 1, 2012, through December 31, 2012. Back tax relief Example 2. Back tax relief A calendar year corporation dissolved on July 23, 2012. Back tax relief Its final return is due by October 15, 2012. Back tax relief It will cover the short period from January 1, 2012, through July 23, 2012. Back tax relief Death of individual. Back tax relief   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Back tax relief The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Back tax relief In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Back tax relief Example. Back tax relief   Agnes Green was a single, calendar year taxpayer. Back tax relief She died on March 6, 2012. Back tax relief Her final income tax return must be filed by April 15, 2013. Back tax relief It will cover the short period from January 1, 2012, to March 6, 2012. Back tax relief Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Back tax relief The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Back tax relief Figure tax for a short year under the general rule, explained below. Back tax relief You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Back tax relief General rule. Back tax relief   Income tax for a short tax year must be annualized. Back tax relief However, self-employment tax is figured on the actual self-employment income for the short period. Back tax relief Individuals. Back tax relief   An individual must figure income tax for the short tax year as follows. Back tax relief Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Back tax relief You must itemize deductions when you file a short period tax return. Back tax relief Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Back tax relief Subtract the amount in (2) from the amount in (1). Back tax relief The result is your modified taxable income. Back tax relief Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Back tax relief The result is your annualized income. Back tax relief Figure the total tax on your annualized income using the appropriate tax rate schedule. Back tax relief Multiply the total tax by the number of months in the short tax year and divide the result by 12. Back tax relief The result is your tax for the short tax year. Back tax relief Relief procedure. Back tax relief   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Back tax relief It may result in less tax. Back tax relief Under this procedure, the tax is figured by two separate methods. Back tax relief If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Back tax relief For more information, see section 443(b)(2) of the Internal Revenue Code. Back tax relief Alternative minimum tax. Back tax relief   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Back tax relief Multiply the AMTI by 12. Back tax relief Divide the result by the number of months in the short tax year. Back tax relief Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Back tax relief The result is the annualized AMT. Back tax relief Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Back tax relief   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Back tax relief For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Back tax relief Tax withheld from wages. Back tax relief   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Back tax relief Federal income tax is withheld on a calendar year basis. Back tax relief The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Back tax relief Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Back tax relief For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Back tax relief See Accounting Periods, earlier, for a description of permissible tax years. Back tax relief To change to a proper tax year, you must do one of the following. Back tax relief If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Back tax relief Attach a completed Form 1128 to the amended tax return. Back tax relief Write “FILED UNDER REV. Back tax relief PROC. Back tax relief 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Back tax relief If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Back tax relief Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Back tax relief See the Instructions for Form 1128 for exceptions. Back tax relief If you qualify for an automatic approval request, a user fee is not required. Back tax relief Individuals Generally, individuals must adopt the calendar year as their tax year. Back tax relief An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Back tax relief Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Back tax relief A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Back tax relief The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Back tax relief The following discussions provide the rules for partnerships, S corporations, and PSCs. Back tax relief Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Back tax relief The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Back tax relief The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Back tax relief The partnership can establish a business purpose for a different tax year. Back tax relief The rules for the required tax year for partnerships are as follows. Back tax relief If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Back tax relief If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Back tax relief A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Back tax relief If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Back tax relief If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Back tax relief Least aggregate deferral of income. Back tax relief   The tax year that results in the least aggregate deferral of income is determined as follows. Back tax relief Figure the number of months of deferral for each partner using one partner's tax year. Back tax relief Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Back tax relief Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Back tax relief Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Back tax relief Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Back tax relief   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Back tax relief If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Back tax relief However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Back tax relief Example. Back tax relief A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Back tax relief A uses the calendar year and B uses a fiscal year ending November 30. Back tax relief P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Back tax relief Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Back tax relief 5 -0- -0- B 11/30 0. Back tax relief 5 11 5. Back tax relief 5 Total Deferral 5. Back tax relief 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Back tax relief 5 1 0. Back tax relief 5 B 11/30 0. Back tax relief 5 -0- -0- Total Deferral 0. Back tax relief 5 When determination is made. Back tax relief   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Back tax relief However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Back tax relief This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Back tax relief Short period return. Back tax relief   When a partnership changes its tax year, a short period return must be filed. Back tax relief The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Back tax relief   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Back tax relief The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Back tax relief 706-1. Back tax relief ” More information. Back tax relief   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Back tax relief S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Back tax relief A permitted tax year is any of the following. Back tax relief The calendar year. Back tax relief A tax year elected under section 444 of the Internal Revenue Code. Back tax relief See Section 444 Election, below for details. Back tax relief A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Back tax relief Any other tax year for which the corporation establishes a business purpose. Back tax relief If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Back tax relief For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Back tax relief Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Back tax relief The corporation makes an election under section 444 of the Internal Revenue Code. Back tax relief See Section 444 Election, below for details. Back tax relief The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Back tax relief The corporation establishes a business purpose for a fiscal year. Back tax relief See the Instructions for Form 1120 for general information about PSCs. Back tax relief For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Back tax relief Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Back tax relief Certain restrictions apply to the election. Back tax relief A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Back tax relief The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Back tax relief A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Back tax relief It is not a member of a tiered structure (defined in section 1. Back tax relief 444-2T of the regulations). Back tax relief It has not previously had a section 444 election in effect. Back tax relief It elects a year that meets the deferral period requirement. Back tax relief Deferral period. Back tax relief   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Back tax relief Retaining tax year. Back tax relief   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Back tax relief This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Back tax relief Adopting or changing tax year. Back tax relief   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Back tax relief The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Back tax relief This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Back tax relief If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Back tax relief Example 1. Back tax relief BD Partnership uses a calendar year, which is also its required tax year. Back tax relief BD cannot make a section 444 election because the deferral period is zero. Back tax relief Example 2. Back tax relief E, a newly formed partnership, began operations on December 1. Back tax relief E is owned by calendar year partners. Back tax relief E wants to make a section 444 election to adopt a September 30 tax year. Back tax relief E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Back tax relief Making the election. Back tax relief   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Back tax relief Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Back tax relief For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Back tax relief Note. Back tax relief If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Back tax relief   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Back tax relief Example 1. Back tax relief AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Back tax relief AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Back tax relief Example 2. Back tax relief The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Back tax relief AB must file Form 8716 by March 17, 2013. Back tax relief Example 3. Back tax relief B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Back tax relief B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Back tax relief B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Back tax relief Note. Back tax relief The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Back tax relief Extension of time for filing. Back tax relief   There is an automatic extension of 12 months to make this election. Back tax relief See the Form 8716 instructions for more information. Back tax relief Terminating the election. Back tax relief   The section 444 election remains in effect until it is terminated. Back tax relief If the election is terminated, another section 444 election cannot be made for any tax year. Back tax relief   The election ends when any of the following applies to the partnership, S corporation, or PSC. Back tax relief The entity changes to its required tax year. Back tax relief The entity liquidates. Back tax relief The entity becomes a member of a tiered structure. Back tax relief The IRS determines that the entity willfully failed to comply with the required payments or distributions. Back tax relief   The election will also end if either of the following events occur. Back tax relief An S corporation's S election is terminated. Back tax relief However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Back tax relief A PSC ceases to be a PSC. Back tax relief If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Back tax relief Required payment for partnership or S corporation. Back tax relief   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Back tax relief The required payment for that year (or any preceding tax year) is more than $500. Back tax relief    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Back tax relief   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Back tax relief If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Back tax relief If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Back tax relief Applicable election year. Back tax relief   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Back tax relief Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Back tax relief Required distribution for PSC. Back tax relief   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Back tax relief If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Back tax relief The amount deferred is treated as paid or incurred in the following tax year. Back tax relief   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Back tax relief Back-up election. Back tax relief   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Back tax relief If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Back tax relief Making back-up election. Back tax relief   The general rules for making a section 444 election, as discussed earlier, apply. Back tax relief When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Back tax relief However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Back tax relief Activating election. Back tax relief   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Back tax relief The due date for filing Form 8752 and making the payment is the later of the following dates. Back tax relief May 15 of the calendar year following the calendar year in which the applicable election year begins. Back tax relief 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Back tax relief   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Back tax relief ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Back tax relief A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Back tax relief However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Back tax relief Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Back tax relief See the Instructions for Form 1128 for details. Back tax relief Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Back tax relief A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Back tax relief An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Back tax relief Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Back tax relief See the Instructions for Form 1128 for details. Back tax relief Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Back tax relief Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Back tax relief You choose an accounting method when you file your first tax return. Back tax relief If you later want to change your accounting method, you must get IRS approval. Back tax relief See Change in Accounting Method, later. Back tax relief No single accounting method is required of all taxpayers. Back tax relief You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Back tax relief In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Back tax relief You must use the same accounting method from year to year. Back tax relief An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Back tax relief If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Back tax relief Methods you can use. Back tax relief   In general, you can compute your taxable income under any of the following accounting methods. Back tax relief Cash method. Back tax relief Accrual method. Back tax relief Special methods of accounting for certain items of income and expenses. Back tax relief A hybrid method which combines elements of two or more of the above accounting methods. Back tax relief The cash and accrual methods of accounting are explained later. Back tax relief Special methods. Back tax relief   This publication does not discuss special methods of accounting for certain items of income or expenses. Back tax relief For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Back tax relief The following publications also discuss special methods of reporting income or expenses. Back tax relief Publication 225, Farmer's Tax Guide. Back tax relief Publication 535, Business Expenses. Back tax relief Publication 537, Installment Sales. Back tax relief Publication 946, How To Depreciate Property. Back tax relief Hybrid method. Back tax relief   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Back tax relief However, the following restrictions apply. Back tax relief If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Back tax relief See Exceptions under Inventories, later. Back tax relief Generally, you can use the cash method for all other items of income and expenses. Back tax relief See Inventories, later. Back tax relief If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Back tax relief If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Back tax relief Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Back tax relief Business and personal items. Back tax relief   You can account for business and personal items using different accounting methods. Back tax relief For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Back tax relief Two or more businesses. Back tax relief   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Back tax relief No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Back tax relief Note. Back tax relief If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Back tax relief Cash Method Most individuals and many small businesses use the cash method of accounting. Back tax relief Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Back tax relief See Inventories, later, for exceptions to this rule. Back tax relief Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Back tax relief If you receive property and services, you must include their fair market value (FMV) in income. Back tax relief Constructive receipt. Back tax relief   Income is constructively received when an amount is credited to your account or made available to you without restriction. Back tax relief You need not have possession of it. Back tax relief If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Back tax relief Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Back tax relief Example. Back tax relief You are a calendar year taxpayer. Back tax relief Your bank credited, and made available, interest to your bank account in December 2012. Back tax relief You did not withdraw it or enter it into your books until 2013. Back tax relief You must include the amount in gross income for 2012, the year you constructively received it. Back tax relief You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Back tax relief You must report the income in the year the property is received or made available to you without restriction. Back tax relief Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Back tax relief This includes business expenses for which you contest liability. Back tax relief However, you may not be able to deduct an expense paid in advance. Back tax relief Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Back tax relief Expense paid in advance. Back tax relief   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Back tax relief   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Back tax relief 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Back tax relief   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Back tax relief See Change in Accounting Method, later. Back tax relief Example 1. Back tax relief You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Back tax relief The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Back tax relief Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Back tax relief Example 2. Back tax relief You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Back tax relief The 12-month rule applies. Back tax relief Therefore, the full $10,000 is deductible in 2012. Back tax relief Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Back tax relief (See Special rules for farming businesses, later. Back tax relief ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Back tax relief See Gross receipts test, below. Back tax relief A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Back tax relief See Gross receipts test, below. Back tax relief A tax shelter. Back tax relief Exceptions The following entities are not prohibited from using the cash method of accounting. Back tax relief Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Back tax relief A qualified personal service corporation (PSC). Back tax relief Gross receipts test. Back tax relief   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Back tax relief A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Back tax relief    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Back tax relief See Gross receipts test for qualifying taxpayers, for more information. Back tax relief Generally, a partnership applies the test at the partnership level. Back tax relief Gross receipts for a short tax year are annualized. Back tax relief Aggregation rules. Back tax relief   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Back tax relief Change to accrual method. Back tax relief   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Back tax relief Special rules for farming businesses. Back tax relief   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Back tax relief However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Back tax relief For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Back tax relief   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Back tax relief For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Back tax relief See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Back tax relief Qualified PSC. Back tax relief   A PSC that meets the following function and ownership tests can use the cash method. Back tax relief Function test. Back tax relief   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Back tax relief Ownership test. Back tax relief   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Back tax relief Employees performing services for the corporation in a field qualifying under the function test. Back tax relief Retired employees who had performed services in those fields. Back tax relief The estate of an employee described in (1) or (2). Back tax relief Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Back tax relief   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Back tax relief Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Back tax relief Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Back tax relief   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Back tax relief Change to accrual method. Back tax relief   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Back tax relief A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Back tax relief Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Back tax relief The purpose of an accrual method of accounting is to match income and expenses in the correct year. Back tax relief Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Back tax relief Under this rule, you report an amount in your gross income on the earliest of the following dates. Back tax relief When you receive payment. Back tax relief When the income amount is due to you. Back tax relief When you earn the income. Back tax relief When title has passed. Back tax relief Estimated income. Back tax relief   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Back tax relief Change in payment schedule. Back tax relief   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Back tax relief Continue this procedure until you complete the services, then account for the difference. Back tax relief Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Back tax relief However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Back tax relief However, you cannot postpone including any payment beyond that tax year. Back tax relief Service agreement. Back tax relief   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Back tax relief This includes an agreement providing for incidental replacement of parts or materials. Back tax relief However, this applies only if you offer the property without a service agreement in the normal course of business. Back tax relief Postponement not allowed. Back tax relief   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Back tax relief You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Back tax relief You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Back tax relief Examples. Back tax relief   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Back tax relief Example 1. Back tax relief You manufacture, sell, and service computers. Back tax relief You received payment in 2012 for a one-year contingent service contract on a computer you sold. Back tax relief You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Back tax relief Example 2. Back tax relief You are in the television repair business. Back tax relief You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Back tax relief You include the payments in gross income as you earn them. Back tax relief Example 3. Back tax relief You own a dance studio. Back tax relief On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Back tax relief You give eight lessons in 2012. Back tax relief Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Back tax relief Example 4. Back tax relief Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Back tax relief You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Back tax relief Guarantee or warranty. Back tax relief   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Back tax relief Prepaid rent. Back tax relief   You cannot postpone reporting income from prepaid rent. Back tax relief Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Back tax relief You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Back tax relief Books and records. Back tax relief   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Back tax relief Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Back tax relief IRS approval. Back tax relief   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Back tax relief Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Back tax relief However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Back tax relief An agreement includes a gift certificate that can be redeemed for goods. Back tax relief Amounts due and payable are considered received. Back tax relief How to report payments. Back tax relief   Generally, include an advance payment in income in the year in which you receive it. Back tax relief However, you can use the alternative method, discussed next. Back tax relief Alternative method of reporting. Back tax relief   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Back tax relief Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Back tax relief Example 1. Back tax relief You are a retailer. Back tax relief You use an accrual method of accounting and account for the sale of goods when you ship the goods. Back tax relief You use this method for both tax and financial reporting purposes. Back tax relief You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Back tax relief However, see Exception for inventory goods, later. Back tax relief Example 2. Back tax relief You are a calendar year taxpayer. Back tax relief You manufacture household furniture and use an accrual method of accounting. Back tax relief Under this method, you accrue income for your financial reports when you ship the furniture. Back tax relief For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Back tax relief In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Back tax relief You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Back tax relief For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Back tax relief Information schedule. Back tax relief   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Back tax relief Total advance payments received in the current tax year. Back tax relief Total advance payments received in earlier tax years and not included in income before the current tax year. Back tax relief Total payments received in earlier tax years included in income for the current tax year. Back tax relief Exception for inventory goods. Back tax relief   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Back tax relief You account for the advance payment under the alternative method (discussed earlier). Back tax relief You have received a substantial advance payment on the agreement (discussed next). Back tax relief You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Back tax relief These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Back tax relief   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Back tax relief You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Back tax relief If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Back tax relief Note. Back tax relief You must report any advance payments you receive after the second year in the year received. Back tax relief No further deferral is allowed. Back tax relief Substantial advance payments. Back tax relief   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Back tax relief Example. Back tax relief You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Back tax relief In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Back tax relief The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Back tax relief You receive the following advance payments under the contract. Back tax relief 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Back tax relief In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Back tax relief Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Back tax relief   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Back tax relief You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Back tax relief If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Back tax relief   No further deferral is allowed. Back tax relief You must include in gross income the advance payment you receive each remaining year of the contract. Back tax relief Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Back tax relief IRS approval. Back tax relief   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Back tax relief Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Back tax relief The all-events test has been met. Back tax relief The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Back tax relief Economic performance has occurred. Back tax relief Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Back tax relief If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Back tax relief If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Back tax relief Example. Back tax relief You are a calendar year taxpayer. Back tax relief You buy office supplies in December 2012. Back tax relief You receive the supplies and the bill in December, but you pay the bill in January 2013. Back tax relief You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Back tax relief Your office supplies may qualify as a recurring item, discussed later. Back tax relief If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Back tax relief Workers' compensation and tort liability. Back tax relief   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Back tax relief If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Back tax relief Taxes. Back tax relief   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Back tax relief are paid. Back tax relief However, you can elect to treat taxes as a recurring item, discussed later. Back tax relief You can also elect to ratably accrue real estate taxes. Back tax relief See chapter 5 of Publication 535 for information about real estate taxes. Back tax relief Other liabilities. Back tax relief   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Back tax relief Interest. Back tax relief   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Back tax relief Compensation for services. Back tax relief   Generally, economic performance occurs as an employee renders service to the employer. Back tax relief However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Back tax relief For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Back tax relief Vacation pay. Back tax relief   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Back tax relief If you pay it later than this, you must deduct it in the year actually paid. Back tax relief An amount is vested if your right to it cannot be nullified or cancelled. Back tax relief Exception for recurring items. Back tax relief   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Back tax relief The exception applies if all the following requirements are met. Back tax relief The all-events test, discussed earlier, is met. Back tax relief Economic performance occurs by the earlier of the following dates. Back tax relief 8½ months after the close of the year. Back tax relief The date you file a timely return (including extensions) for the year. Back tax relief The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Back tax relief Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Back tax relief This exception does not apply to workers' compensation or tort liabilities. Back tax relief Amended return. Back tax relief   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Back tax relief You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Back tax relief Recurrence and consistency. Back tax relief   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Back tax relief A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Back tax relief Materiality. Back tax relief   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Back tax relief   An item considered material for financial statement purposes is also considered material for tax purposes. Back tax relief However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Back tax relief Matching expenses with income. Back tax relief   Costs directly associated with the revenue of a period are properly allocable to that period. Back tax relief To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Back tax relief fasab. Back tax relief gov/accepted. Back tax relief html) are an important factor. Back tax relief   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Back tax relief Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Back tax relief However, the matching requirement is considered met for certain types of expenses. Back tax relief These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Back tax relief Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Back tax relief Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Back tax relief 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Back tax relief If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Back tax relief See Change in Accounting Method, later, for information on how to get IRS approval. Back tax relief See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Back tax relief Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Back tax relief Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Back tax relief See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Back tax relief Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Back tax relief If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Back tax relief However, see Exceptions, next. Back tax relief See also Accrual Method, earlier. Back tax relief To figure taxable income, you must value your inventory at the beginning and end of each tax year. Back tax relief To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Back tax relief See Identifying Cost and Valuing Inventory, later. Back tax relief The rules for valuing inventory are not the same for all businesses. Back tax relief The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Back tax relief Your inventory practices must be consistent from year to year. Back tax relief The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Back tax relief Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Back tax relief These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Back tax relief A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Back tax relief irs. Back tax relief gov/pub/irs-irbs/irb01–02. Back tax relief pdf. Back tax relief A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Back tax relief irs. Back tax relief gov/pub/irs-irbs/irb02–18. Back tax relief pdf. Back tax relief In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Back tax relief Qualifying taxpayer. Back tax relief   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Back tax relief Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Back tax relief You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Back tax relief Gross receipts test for qualifying taxpayers. Back tax relief   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Back tax relief List each of the test years. Back tax relief For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Back tax relief Step 2. Back tax relief Determine your average annual gross receipts for each test year listed in Step 1. Back tax relief Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Back tax relief Step 3. Back tax relief You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Back tax relief Qualifying small business taxpayer. Back tax relief   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Back tax relief Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Back tax relief You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Back tax relief Your principle business activity is an eligible business. Back tax relief See Eligible business, later. Back tax relief You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Back tax relief Note. Back tax relief Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Back tax relief A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Back tax relief See Special rules for farming businesses under Cash Method, earlier. Back tax relief Gross receipts test for qualifying small business taxpayers. Back tax relief   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Back tax relief List each of the test years. Back tax relief For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Back tax relief Step 2. Back tax relief Determine your average annual gross receipts for each test year listed in Step 1. Back tax relief Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Back tax relief Step 3. Back tax relief You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Back tax relief Eligible business. Back tax relief   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Back tax relief You have an eligible business if you meet any of the following requirements. Back tax relief Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Back tax relief NAICS codes 31-33 (manufacturing). Back tax relief NAICS code 42 (wholesale trade). Back tax relief NAICS codes 44-45 (retail trade). Back tax relief NAICS codes 5111 and 5122 (information industries). Back tax relief Your principal business activity is the provision of services, including the provision of property incident to those services. Back tax relief Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Back tax relief   Information about the NAICS codes can be found at http://www. Back tax relief census. Back tax relief gov/naics or in the instructions for your federal income tax return. Back tax relief Gross receipts. Back tax relief   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Back tax relief See the definit
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Indian Arts and Crafts Board

The Indian Arts and Crafts Board enforces the Indian Arts and Crafts Act of 1990 that prohibits false advertising in the marketing of Indian arts or crafts. The Board also provides certified Indian-owned business listings, provides Federally recognized tribes with business assistance, and operates several Indian Arts and Crafts museums.

Contact the Agency or Department

Website: Indian Arts and Crafts Board

E-mail:

Address: 1849 C St NW
MS 2528-MIB

Washington, DC 20240

Toll-free: (888) 278-3253

The Back Tax Relief

Back tax relief Publication 561 - Additional Material Table of Contents Tax Publications for Individual Taxpayers and Commonly Used Tax Forms Tax Publications for Individual Taxpayers and Commonly Used Tax Forms. Back tax relief  Summary: This is a listing of tax publications and commonly used tax forms. Back tax relief The text states:Tax Publications for Individual Taxpayers. Back tax relief  See How to Get Tax Help for a variety of ways to get publications, including by computer, phone, and mail. Back tax relief General Guides. Back tax relief   1--Your Rights as a Taxpayer 17--Your Federal Income Tax (For Individuals) 334--Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 509--Tax Calendars for 2007 553--Highlights of 2006 Tax Changes 910--IRS Guide to Free Tax Services Specialized Publications. Back tax relief   3--Armed Forces' Tax Guide 54--Tax Guide for U. Back tax relief S. Back tax relief Citizens and Residents Aliens Abroad 225--Farmer's Tax Guide 463--Travel, Entertainment, Gift, and Car Expenses 501--Exemptions, Standard Deduction, and Filing Information 502--Medical and Dental Expenses 503--Child and Dependent Care Expenses 504--Divorced or Separated Individuals 505--Tax Withholding and Estimated Tax 514--Foreign Tax Credit for Individuals 516--U. Back tax relief S. Back tax relief Government Civilian Employees Stationed Abroad 517--Social Security and Other Information for Members of the Clergy and Religious Workers 519--U. Back tax relief S. Back tax relief Tax Guide for Aliens 520--Scholarships and Fellowships 521--Moving Expenses 523--Selling Your Home 524--Credit for the Elderly or the Disabled 525--Taxable and Nontaxable Income 526--Charitable Contributions 527--Residential Rental Property 529--Miscellaneous Deductions 530--Tax Information for First-Time Homeowners 531--Reporting Tip Income 536--Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 537--Installment Sales 541--Partnerships 544--Sales and Other Dispositions of Assets 547--Casualties, Disasters, and Thefts 550--Investment Income and Expenses 551--Basis of Assets 552--Recordkeeping for Individuals 554--Older Americans' Tax Guide 555--Community Property 556--Examination of Returns, Appeal Rights, and Claims for Refund 559--Survivors, Executors, and Administrators 561--Determining the Value of Donated Property 564--Mutual Fund Distributions 570--Tax Guide for Individuals With Income From U. Back tax relief S. Back tax relief Possessions 571--Tax-Sheltered Annuity Plans (403(b) Plans) 575--Pension and Annuity Income 584--Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 587--Business Use of Your Home (Including Use by Daycare Providers) 590--Individual Retirement Arrangements (IRAs) 593--Tax Highlights for U. Back tax relief S. Back tax relief Citizens and Residents Going Abroad 594--What You Should Know About the IRS Collection Process 596--Earned Income Credit (EIC) 721--Tax Guide to U. Back tax relief S. Back tax relief Civil Service Retirement Benefits 901--U. Back tax relief S. Back tax relief Tax Treaties 907--Tax Highlights for Persons with Disabilities 908--Bankruptcy Tax Guide 915--Social Security and Equivalent Railroad Retirement Benefits 919--How Do I Adjust My Tax Withholding? 925--Passive Activity and At-Risk Rules 926--Household Employer's Tax Guide 929--Tax Rules for Children and Dependents 936--Home Mortgage Interest Deduction 946--How to Depreciate Property 947--Practice Before the IRS and Power of Attorney 950--Introduction to Estate and Gift Taxes 967--The IRS Will Figure Your Tax 969--Health Savings Accounts and Other Tax-Favored Health Plans 970--Tax Benefits for Education 971--Innocent Spouse Relief 972--Child Tax Credit 1542--Per Diem Rates 1544--Reporting Cash Payments of Over $10,000 (Received in a Trade or Business) 1546--The Taxpayer Advocate Service of the IRS - How to Get Help With Unresolved Tax Problems Spanish Language Publications. Back tax relief   1SP--Derechos del Contribuyente 579SP--Cómo Preparar la Declaración de Impuesto Federal 594SP--Que es lo que Debemos Saber sobre el Proceso de Cobro del IRS 596SP--Crédito por Ingreso del Trabajo 850--English-Spanish Glossary of Words and Phrases Used in Publications Issued by the Internal Revenue Service 1544SP--Informe de Pagos en Efectivo en Exceso de $10,000 (Recibidos en una Ocupación o Negocio) Commonly Used Tax Forms. Back tax relief  See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone, and mail. Back tax relief 1040--U. Back tax relief S. Back tax relief Individual Income Tax Return Schedule A&B--Itemized Deductions & Interest and Ordinary Dividends Schedule C--Profit or Loss From Business Schedule C-EZ--Net Profit From Business Schedule D--Capital Gains and Losses Schedule D-1--Continuation Sheet for Schedule D Schedule E--Supplemental Income and Loss Schedule EIC--Earned Income Credit Schedule F--Profit or Loss From Farming Schedule H--Household Employment Taxes Schedule J--Income Averaging for Farmers and Fishermen Schedule R--Credit for the Elderly or the Disabled Schedule SE--Self-Employment Tax 1040A--U. Back tax relief S. Back tax relief Individual Income Tax Return Schedule 1--Interest and Ordinary Dividends for Form 1040A Filers Schedule 2--Child and Dependent Care Expenses for Form 1040A Filers Schedule 3--Credit for the Elderly or the Disabled for Form 1040A Filers 1040EZ--Income Tax Return for Single and Joint Filers With No Dependents 1040-ES--Estimated Tax for Individuals 1040X--Amended U. Back tax relief S. Back tax relief Individual Income Tax Return 2106--Employee Business Expenses 2106-EZ--Unreimbursed Employee Business Expenses 2210--Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2441--Child and Dependent Care Expenses 2848--Power of Attorney and Declaration of Representative 3903--Moving Expenses 4562--Depreciation and Amortization 4868--Application for Automatic Extension of Time To File U. Back tax relief S. Back tax relief Individual Income Tax Return 4952--Investment Interest Expense Deduction 5329--Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 6251--Alternative Minimum Tax--Individuals 8283--Noncash Charitable Contributions 8582--Passive Activity Loss Limitations 8606--Nondeductible IRAs 8812--Additional Child Tax Credit 8822--Change of Address 8829--Expenses for Business Use of Your Home 8863--Education Credits 9465--Installment Agreement Request Prev  Up  Next   Home   More Online Publications