Taxpayer sells computer software, and provides ongoing software support services that its customers renew on an annual basis. For many years, taxpayer has recognized revenue from these support services contracts in the year of receipt, even though some of the services won't be earned until the subsequent tax year.
Should this taxpayer file for a change in accounting method, and elect to defer this revenue? Would it be permissable to take the change all in one year? For example, at the end of year X1, the amount that would have been deferred revenue on the balance sheet was $100,000; at the end of year X2, it would have been $150,000; at the end of year X3, it would have been $200,000. When/how should taxpayer apply for to change its method?
Should this taxpayer file for a change in accounting method, and elect to defer this revenue? Would it be permissable to take the change all in one year? For example, at the end of year X1, the amount that would have been deferred revenue on the balance sheet was $100,000; at the end of year X2, it would have been $150,000; at the end of year X3, it would have been $200,000. When/how should taxpayer apply for to change its method?
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