SCorp cash to accrual and SH basis

[BHoffman]

How does changing from cash to accrual affect shareholder's basis? Thanks!

[TAXNJ]

How does changing from cash to accrual affect shareholder's basis? Thanks!

See if this helps:

http://forum.thetaxbook.com/showthread.php?27685-3115-accrual-basis-to-cash-basis&highlight=CASH+ACCRUAL

[BHoffman]

I read the whole post and found it to be entertaining, but I'd still like an opinion. I think the basis is increased.

This client is a construction contractor whose 3 year average revenues exceed $10m. That's the reason for the change in method.

[Maribeth]

You will have a §481(a) adjustment over the 4 years. As this adjustment is taken into income, your client's basis will increase accordingly.

[Snaggletooth]

Why does the formula change?

Beth - haven't seen a post from you in ages. Good to hear from you.

Don't know why a change to accrual method would result in a sudden change in basis. The formula is (barring a few remote situations):

1) Basis beginning year plus
2) Contributions plus
3) Taxable income plus
4) Non-taxable income minus
5) Withdrawals minus
6) Non-deductible expenses minus
7) Losses not to exceed the above

Why should anything change in the above application? In future years the accrual basis will result in different numbers to plug into the formula, but the formula should remain intact, right?

The "different numbers" referred to above includes the income adjustments referred to by Maribeth. But this doesn't happen outside the scope of the formula.

[BHoffman]

Thanks! I agree with you both and will let the 481a adjustment increase the basis. . That makes perfect sense.