Where Form 1120 Schedule M 3 Indirectly 2019-2024

Hi, my name is Mike Resnick and I'm an associate in the tax department at Sutherland. I'm joined today by a partner in the tax department, LM McElroy, and in this discussion today, we'd like to speak with you about changes in methods of accounting. That's right, Mike. Invariably, when a company is thinking about a method of accounting, it's because they're interested in changing their method of accounting. Companies frequently change their method of accounting when they want to either accelerate deductions or defer income recognition. Importantly, accounting method changes can also be considered when a taxpayer wants to prevent the service from taking unfavorable action. Let's turn and talk a little bit more about changes in methods of accounting. Sure, Ellen. And before we dive into exactly what a change in method of accounting is, it's important to note that under the Internal Revenue Code section 446e, taxpayers must obtain IRS consent in order to make a change in a method of accounting. So, whenever a taxpayer is considering making a change, they must also consider that the IRS will be consenting and recognizing that change. That's right. And even though the government has never specifically defined what is a method of accounting in their regulations under 446, they have defined what is a change in method of accounting, and that definition is pretty broad. It can be a change in an overall plan of accounting, and those are generally thought of as cash accrual and hybrid methods, or it can be a change in the treatment of a material item. A material item is generally thought of as something like depreciation or inventory or capitalization. The regulations further define a material item as an item involving the proper time for inclusion of an item of expense or...