My Client is in the business of selling building materials and of fabricating custom metal components from purchased stock materials.
Since the beginning, the Client has recognized materials purchased for both lines of business at the time of purchase and the tax preparer has prepared the tax returns to match the financials. The Client has also not maintained an inventory balance in their financial statements.
The Client is cash basis for tax and book purposes.
To save money on shipping, the Client places large, irregularly timed purchase orders of materials. This has caused is significant variances in gross margins between years; the greatest variance between years being 23%.
Revenues for the business do not exceed $25 mil, so they qualify for the small business exemption as discussed in § 471.
Beginning in 2019, the Client began to maintain an inventory on their balance sheet to promote better management of their business.
I believe that since their business primarily involves the sale of goods, then they need to change their accounting method for inventories from cash to accrual.
Due to their size, I don't believe that they have to consider UNICAP.
I would love some assistance confirming that I'm on the right path, identifying what the proper DCN code for the 3115 is, and whether this adjustment qualifies for allocation over 3 years. Citations to authoritative sources on these topics would be greatly appreciated.
Since the beginning, the Client has recognized materials purchased for both lines of business at the time of purchase and the tax preparer has prepared the tax returns to match the financials. The Client has also not maintained an inventory balance in their financial statements.
The Client is cash basis for tax and book purposes.
To save money on shipping, the Client places large, irregularly timed purchase orders of materials. This has caused is significant variances in gross margins between years; the greatest variance between years being 23%.
Revenues for the business do not exceed $25 mil, so they qualify for the small business exemption as discussed in § 471.
Beginning in 2019, the Client began to maintain an inventory on their balance sheet to promote better management of their business.
I believe that since their business primarily involves the sale of goods, then they need to change their accounting method for inventories from cash to accrual.
Due to their size, I don't believe that they have to consider UNICAP.
I would love some assistance confirming that I'm on the right path, identifying what the proper DCN code for the 3115 is, and whether this adjustment qualifies for allocation over 3 years. Citations to authoritative sources on these topics would be greatly appreciated.
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