The American Institute of CPAs (AICPA) has called on the Internal Revenue Service (IRS) to provide guidance concerning adjustments attributable to conversions from S corporations to C corporations under section 481(d) of the Tax Cuts and Jobs Act (TCJA).
The comments from the institute are reportedly in response to final regulations issued by the department of the treasury and the IRS on section 481(d) in October 2019.
Comments previously submitted by the AICPA had addressed specific issues that arise when an eligible terminated S corporation is required to change from the cash method of accounting to an “accrual method” of accounting, as a result of the S corporation’s revocation of its election to be taxed under subchapter S.
The AICPA has recommended that the treasury and IRS permit “affected taxpayers” to correct the tax treatment of the adoption of the accrual method of accounting by a QSub affected by an S corporation election revocation allowed under the TCJA.
Additionally the institute has suggested that affected QSub’s be allowed to make the correction on the 2020 tax return by including a statement with the adjustment to taxable income equal to the “unamortized balance” of the prior adjustment amortized erroneously under section 481(d).
The correcting adjustment would also be included in its entirety in the taxpayer’s taxable income for the 2020 taxable year.
The institute said that this approach will allow taxpayers to take “timely action” in order to prepare their 2020 tax returns and will also “assist fiscal year-end taxpayers’ that need to request an extension of time to file their tax returns.