Modified Cash basis deducting SEP contribution paid in 2007

[jmc]

1) A Modified Cash basis S corp. approved and accrued SEP IRA contribution for employees including a shareholder/employee. Tax law allows SEP IRA to be deductible as a pension plan expense retroactively, even if it's paid in the following year. Is there a problem for a Modified Cash basis taxpayer to deduct the contribution paid in 2007 on its 2006 tax return?

2) Should Modified cash/Tax basis taxpayers mark "Cash" or "Other then specify" for Method of Accounting on tax returns? If they need to change it to "Other", is it considered to be a Change in Accounting Method?

[jerome]

The accounting method has nothing to do with SEP IRA deductions. Contributions made in 2007 for the 2006 tax year are deductible in 2006 under section 404(a)(6) even if the taxpayer is under a cash method of accounting.