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Tax Accounting Ideas and Federal Income Tax Implications

Leslie J. Schneider and Patrick J. Smith
IPB Tax Insider
April 3, 2018

TO:   All Tax Accounting Clients

Enclosed are excerpts from two speeches that we have recently given that address issues of widespread importance to taxpayers in the area of accounting methods.

The first speech outline addresses tax accounting ideas that we have recommended to reduce a taxpayer’s taxable income for 2017 or to shift taxable income from 2017 to 2018 to take advantage of the tax rate differential between those two years. While the 2017 calendar year is over, nevertheless, it is still possible for calendar-year taxpayers to affect taxable income for 2017 through the mechanism of automatic consent accounting method changes that are effective for 2017. In contrast, for fiscal year taxpayers whose 2018 fiscal year has not yet ended, it may still be possible to make advance consent accounting method changes for that taxable year.

The second speech outline addresses the tax accounting ramifications of three recent FASB pronouncements that take effect in 2018. The subjects addressed in these pronouncements are: (1) the timing of revenue recognition (including our evaluation of the application of new sections 451(b) and (c)); (2) accounting for retirement benefits and its impact on the tax basis of inventories and fixed assets; and (3) accounting for leases. Each of these financial accounting pronouncements may have a significant impact on a taxpayer’s tax accounting methods, notwithstanding that the pronouncements are directed solely at a taxpayer’s financial accounting treatment of the affected items. We previously sent a separate alert on the subject of accounting for retirement benefits, but are including the material from that alert again here for completeness.

These pronouncements will require action by taxpayers in 2018. Accordingly, if you would like to discuss any of these action items, or any of the tax accounting ideas that we address in the first speech outline, please contact us at (202) 393-7600.

Les Schneider
Patrick Smith
Ivins, Phillips & Barker