Inventory Requirement Question

[geekgirldany]

My question is can a business qualify under the either Revenue Procedure 2001–10 or Revenue Procedure 2002–28? Or does it have to be both.

Sorry my mind is crazy right now. This is concerning an audit. Another person is handling it... but seems like I'm doing a good bit of research on it.

The IRS is placing my client under the 2002-28 but I just did the chart on Pub 538 Accounting Periods and methods under 2001–10, 1 million in average annual gross receipts. I just did a calculation on this based for 2003 and it appears that they are just under the 1 million mark for each year. So if this is true then they would fit under the Revenue Procedure 2001–10 not the 2002-28. The Revenue Procedure 2002-28 is causing problems because the IRS is contending that they are not a eligible business for 2002-28. But are placing them under that category.

Any comments or advice would be appreciated I just need to talk this out.

[Bees Knees]

$1 million or less

If you did the calculations and the $1 million or less average annual gross receipts test applies under Rev. Proc. 2001-10, then your client is safe. Rev. Proc. 2001-10 applies to ALL businesses, no questions asked.

[JON]

Inventory

Even under cash IRS is still calling it prepaids.

[Unregistered]

Even under cash IRS is still calling it prepaids.

Many people have the misconception that going cash basis means you get to write off purchases as COGS. If you read the entire procedure you'll see that what was inventory is now accounted for as non-incidental supplies. They also want you to use the COGS section on Schedule C to determine COGS. Cash basis means you don't include Accounts Payable in purchases and Accounts Receivable in Sales.(Or to be more accurate, the changes in same from the previous year end.)

[geekgirldany]

Thank you guys for answering. I just got a copy of a letter today from the CPA that he gave the agent. The letter states that the 2002-28 does not apply to the client. Then gives reasons if it did they still did not have to change to accural. I'm not sure if the CPA showed the agent a break down like I did showing the annual gross sales are under a 1 million each year or what.

The conclusion from the agent states 2002-28 procedure and goes into GREAT detail about it. There was some miscommunication on the part of the agent. I think the CPA knows but just did not explain to the client very well. That is where I came in trying to figure this out again. But I have to say that I thought they were to be classified under the 2002-28 code too because I did not read the publication on how to calculate annual gross sales. So I have learned alot... I mean alot through all this. I hope everything will go well with them. They are meeting with the agents supervisor in two weeks.


Thank you all again