Determine the change in squawk box accounting

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Reference no: EM132650052

Squawk Box Company (Squawk Box), a C corporation, started business in 2011. Squawk Box used the cash method for financial and tax reporting purposes for years 2011 through 2018. During years 2011 through 2014, annual gross receipts did not exceed $5,000,000; however, in 2015 annual gross receipts were $18,375,000; in 2016 they were $22,750,000, in 2017 they were $27,125,000 and in 2018 they were 27,212,500. (See Table 1 below) If determined using the accrual method, Squawk Box's books at the start of tax year 2018 would show the following: Accounts Receivable, $825,000; Accounts Payable, $450,000; and Inventory, $605,000; and at the start of tax year 2019 would show: Accounts Receivable, $950,000; Accounts Payable, $480,000; and Inventory, $650,000. In 2019 Squawk Box has gross receipts of $27,250,000 determined using the accrual basis of accounting.

Question a. Using current IRC §448,[1] determine whether Squawk Box is required to change from the cash method to the accrual method for 2018 or 2019 and whether Squawk Box should make this change under the automatic consent procedures of Revenue Procedure 2018-31 or should use Revenue Procedure 2019-43.

Note: In addition to documents posted on Blackboard, students are strongly encouraged to review additional materials on CCH-Intelliconnect, available through the school's online library.

Question b. Determine whether the change in Squawk Box's accounting method will require an adjustment of income under IRC §481 and determine the timing of the recognition of this adjustment.

Question c. Prepare an excel worksheet calculating any IRC §481 adjustment and determining the total taxable income that Taxpayer will recognize.

Question d. Prepare Form 3115, referring to forms and instructions available at https://www.irs.gov, Be sure to also follow instructions in the materials provided on Blackboard.

Question e. Draft a tax memorandum to Martin Bear, Partner at Bull & Bear, with the results of your research and suggestions. Attach the documents you have prepared. The memorandum itself should be no longer than three single-spaced pages in length.

Reference no: EM132650052

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