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Irs Amended Return Form

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Irs Amended Return Form

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IRS Gives Tax Relief To Oklahoma Tornado Victims; Return Filing and Tax Payment Deadlines Extended to Sept. 30

Updated 7/02/2013 to include LeFlore, Okfuskee and Okmulgee counties.
Updated 6/13/2013 to include Canadian County.

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IR-2013-53, May 21, 2013

WASHINGTON –– After Monday’s devastating tornado in Moore and Oklahoma City,   the Internal Revenue Service today provided tax relief to individuals and businesses affected by this and other severe storms occurring in parts of Oklahoma.

Following Monday’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Canadian, Cleveland, LeFlore, Lincoln, McClain, Okfuskee, Oklahoma, Okmulgee and Pottawatomie counties will receive special tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on May 18, 2013. As a result, affected individuals and businesses will have until Sept. 30, 2013 to file these returns and pay any taxes due. This includes the June 17 and Sept. 16 deadlines for making estimated tax payments. A variety of business tax deadlines are also affected including the July 31 deadline for second quarter payroll and excise tax returns and the Sept. 3 deadline for truckers filing highway use tax returns.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The agency automatically provides this relief to any taxpayer located in the disaster area. Taxpayers need not contact the IRS to get this relief.

Beyond the relief provided to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who lives outside the disaster area but whose books, records or tax professional are located in the areas affected by these storms. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either last year’s or this year’s return. Claiming these casualty loss deductions on either an original or amended 2012 return will get the taxpayer an earlier refund but waiting to claim them on a 2013 return could result in greater tax savings depending upon other income factors.

In addition, the IRS is waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after May 18 and before June 3 if the deposits are made by June 3, 2013. Details on available relief can be found on the disaster relief page on IRS.gov.

The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

The IRS is actively monitoring the situation and will provide additional relief if needed.

See also: 

Tax Relief for Victims of Severe Storms and Tornadoes in Oklahoma

Extra Time Granted for Tax-Exempt Bond Issuers Affected by Severe Storms and Tornados in Oklahoma

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Page Last Reviewed or Updated: 04-Sep-2013

The Irs Amended Return Form

Irs amended return form Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Irs amended return form Hybrid method. Irs amended return form Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Irs amended return form Accounting Periods You must use a tax year to figure your taxable income. Irs amended return form A tax year is an annual accounting period for keeping records and reporting income and expenses. Irs amended return form An annual accounting period does not include a short tax year (discussed later). Irs amended return form You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Irs amended return form Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Irs amended return form A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Irs amended return form You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Irs amended return form This section discusses: A calendar year. Irs amended return form A fiscal year (including a period of 52 or 53 weeks). Irs amended return form A short tax year. Irs amended return form An improper tax year. Irs amended return form A change in tax year. Irs amended return form Special situations that apply to individuals. Irs amended return form Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Irs amended return form Special situations that apply to corporations. Irs amended return form Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Irs amended return form If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Irs amended return form If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Irs amended return form See Change in Tax Year, later. Irs amended return form Generally, anyone can adopt the calendar year. Irs amended return form However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Irs amended return form Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Irs amended return form If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Irs amended return form 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Irs amended return form If you make this election, your 52-53-week tax year must always end on the same day of the week. Irs amended return form Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Irs amended return form For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Irs amended return form Election. Irs amended return form   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Irs amended return form The month in which the new 52-53-week tax year ends. Irs amended return form The day of the week on which the tax year always ends. Irs amended return form The date the tax year ends. Irs amended return form It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Irs amended return form   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Irs amended return form   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Irs amended return form Example. Irs amended return form Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Irs amended return form For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Irs amended return form Short Tax Year A short tax year is a tax year of less than 12 months. Irs amended return form A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Irs amended return form Tax on a short period tax return is figured differently for each situation. Irs amended return form Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Irs amended return form Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Irs amended return form Example 1. Irs amended return form XYZ Corporation was organized on July 1, 2012. Irs amended return form It elected the calendar year as its tax year. Irs amended return form Therefore, its first tax return was due March 15, 2013. Irs amended return form This short period return will cover the period from July 1, 2012, through December 31, 2012. Irs amended return form Example 2. Irs amended return form A calendar year corporation dissolved on July 23, 2012. Irs amended return form Its final return is due by October 15, 2012. Irs amended return form It will cover the short period from January 1, 2012, through July 23, 2012. Irs amended return form Death of individual. Irs amended return form   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Irs amended return form The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Irs amended return form In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Irs amended return form Example. Irs amended return form   Agnes Green was a single, calendar year taxpayer. Irs amended return form She died on March 6, 2012. Irs amended return form Her final income tax return must be filed by April 15, 2013. Irs amended return form It will cover the short period from January 1, 2012, to March 6, 2012. Irs amended return form Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Irs amended return form The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Irs amended return form Figure tax for a short year under the general rule, explained below. Irs amended return form You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Irs amended return form General rule. Irs amended return form   Income tax for a short tax year must be annualized. Irs amended return form However, self-employment tax is figured on the actual self-employment income for the short period. Irs amended return form Individuals. Irs amended return form   An individual must figure income tax for the short tax year as follows. Irs amended return form Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Irs amended return form You must itemize deductions when you file a short period tax return. Irs amended return form Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Irs amended return form Subtract the amount in (2) from the amount in (1). Irs amended return form The result is your modified taxable income. Irs amended return form Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Irs amended return form The result is your annualized income. Irs amended return form Figure the total tax on your annualized income using the appropriate tax rate schedule. Irs amended return form Multiply the total tax by the number of months in the short tax year and divide the result by 12. Irs amended return form The result is your tax for the short tax year. Irs amended return form Relief procedure. Irs amended return form   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Irs amended return form It may result in less tax. Irs amended return form Under this procedure, the tax is figured by two separate methods. Irs amended return form If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Irs amended return form For more information, see section 443(b)(2) of the Internal Revenue Code. Irs amended return form Alternative minimum tax. Irs amended return form   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Irs amended return form Multiply the AMTI by 12. Irs amended return form Divide the result by the number of months in the short tax year. Irs amended return form Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Irs amended return form The result is the annualized AMT. Irs amended return form Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Irs amended return form   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Irs amended return form For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Irs amended return form Tax withheld from wages. Irs amended return form   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Irs amended return form Federal income tax is withheld on a calendar year basis. Irs amended return form The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Irs amended return form Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Irs amended return form For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Irs amended return form See Accounting Periods, earlier, for a description of permissible tax years. Irs amended return form To change to a proper tax year, you must do one of the following. Irs amended return form If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Irs amended return form Attach a completed Form 1128 to the amended tax return. Irs amended return form Write “FILED UNDER REV. Irs amended return form PROC. Irs amended return form 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Irs amended return form If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Irs amended return form Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Irs amended return form See the Instructions for Form 1128 for exceptions. Irs amended return form If you qualify for an automatic approval request, a user fee is not required. Irs amended return form Individuals Generally, individuals must adopt the calendar year as their tax year. Irs amended return form An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Irs amended return form Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Irs amended return form A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Irs amended return form The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Irs amended return form The following discussions provide the rules for partnerships, S corporations, and PSCs. Irs amended return form Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Irs amended return form The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Irs amended return form The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Irs amended return form The partnership can establish a business purpose for a different tax year. Irs amended return form The rules for the required tax year for partnerships are as follows. Irs amended return form If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Irs amended return form If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Irs amended return form A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Irs amended return form If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Irs amended return form If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Irs amended return form Least aggregate deferral of income. Irs amended return form   The tax year that results in the least aggregate deferral of income is determined as follows. Irs amended return form Figure the number of months of deferral for each partner using one partner's tax year. Irs amended return form Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Irs amended return form Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Irs amended return form Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Irs amended return form Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Irs amended return form   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Irs amended return form If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Irs amended return form However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Irs amended return form Example. Irs amended return form A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Irs amended return form A uses the calendar year and B uses a fiscal year ending November 30. Irs amended return form P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Irs amended return form Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Irs amended return form 5 -0- -0- B 11/30 0. Irs amended return form 5 11 5. Irs amended return form 5 Total Deferral 5. Irs amended return form 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Irs amended return form 5 1 0. Irs amended return form 5 B 11/30 0. Irs amended return form 5 -0- -0- Total Deferral 0. Irs amended return form 5 When determination is made. Irs amended return form   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Irs amended return form However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Irs amended return form This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Irs amended return form Short period return. Irs amended return form   When a partnership changes its tax year, a short period return must be filed. Irs amended return form The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Irs amended return form   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Irs amended return form The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Irs amended return form 706-1. Irs amended return form ” More information. Irs amended return form   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Irs amended return form S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Irs amended return form A permitted tax year is any of the following. Irs amended return form The calendar year. Irs amended return form A tax year elected under section 444 of the Internal Revenue Code. Irs amended return form See Section 444 Election, below for details. Irs amended return form A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Irs amended return form Any other tax year for which the corporation establishes a business purpose. Irs amended return form If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Irs amended return form For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Irs amended return form Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Irs amended return form The corporation makes an election under section 444 of the Internal Revenue Code. Irs amended return form See Section 444 Election, below for details. Irs amended return form The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Irs amended return form The corporation establishes a business purpose for a fiscal year. Irs amended return form See the Instructions for Form 1120 for general information about PSCs. Irs amended return form For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Irs amended return form Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Irs amended return form Certain restrictions apply to the election. Irs amended return form A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Irs amended return form The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Irs amended return form A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Irs amended return form It is not a member of a tiered structure (defined in section 1. Irs amended return form 444-2T of the regulations). Irs amended return form It has not previously had a section 444 election in effect. Irs amended return form It elects a year that meets the deferral period requirement. Irs amended return form Deferral period. Irs amended return form   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Irs amended return form Retaining tax year. Irs amended return form   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Irs amended return form This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Irs amended return form Adopting or changing tax year. Irs amended return form   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Irs amended return form The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Irs amended return form This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Irs amended return form If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Irs amended return form Example 1. Irs amended return form BD Partnership uses a calendar year, which is also its required tax year. Irs amended return form BD cannot make a section 444 election because the deferral period is zero. Irs amended return form Example 2. Irs amended return form E, a newly formed partnership, began operations on December 1. Irs amended return form E is owned by calendar year partners. Irs amended return form E wants to make a section 444 election to adopt a September 30 tax year. Irs amended return form E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Irs amended return form Making the election. Irs amended return form   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Irs amended return form Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Irs amended return form For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Irs amended return form Note. Irs amended return form If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Irs amended return form   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Irs amended return form Example 1. Irs amended return form AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Irs amended return form AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Irs amended return form Example 2. Irs amended return form The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Irs amended return form AB must file Form 8716 by March 17, 2013. Irs amended return form Example 3. Irs amended return form B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Irs amended return form B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Irs amended return form B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Irs amended return form Note. Irs amended return form The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Irs amended return form Extension of time for filing. Irs amended return form   There is an automatic extension of 12 months to make this election. Irs amended return form See the Form 8716 instructions for more information. Irs amended return form Terminating the election. Irs amended return form   The section 444 election remains in effect until it is terminated. Irs amended return form If the election is terminated, another section 444 election cannot be made for any tax year. Irs amended return form   The election ends when any of the following applies to the partnership, S corporation, or PSC. Irs amended return form The entity changes to its required tax year. Irs amended return form The entity liquidates. Irs amended return form The entity becomes a member of a tiered structure. Irs amended return form The IRS determines that the entity willfully failed to comply with the required payments or distributions. Irs amended return form   The election will also end if either of the following events occur. Irs amended return form An S corporation's S election is terminated. Irs amended return form However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Irs amended return form A PSC ceases to be a PSC. Irs amended return form If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Irs amended return form Required payment for partnership or S corporation. Irs amended return form   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Irs amended return form The required payment for that year (or any preceding tax year) is more than $500. Irs amended return form    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Irs amended return form   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Irs amended return form If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Irs amended return form If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Irs amended return form Applicable election year. Irs amended return form   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Irs amended return form Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Irs amended return form Required distribution for PSC. Irs amended return form   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Irs amended return form If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Irs amended return form The amount deferred is treated as paid or incurred in the following tax year. Irs amended return form   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Irs amended return form Back-up election. Irs amended return form   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Irs amended return form If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Irs amended return form Making back-up election. Irs amended return form   The general rules for making a section 444 election, as discussed earlier, apply. Irs amended return form When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Irs amended return form However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Irs amended return form Activating election. Irs amended return form   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Irs amended return form The due date for filing Form 8752 and making the payment is the later of the following dates. Irs amended return form May 15 of the calendar year following the calendar year in which the applicable election year begins. Irs amended return form 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Irs amended return form   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Irs amended return form ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Irs amended return form A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Irs amended return form However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Irs amended return form Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Irs amended return form See the Instructions for Form 1128 for details. Irs amended return form Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Irs amended return form A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Irs amended return form An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Irs amended return form Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Irs amended return form See the Instructions for Form 1128 for details. Irs amended return form Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Irs amended return form Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Irs amended return form You choose an accounting method when you file your first tax return. Irs amended return form If you later want to change your accounting method, you must get IRS approval. Irs amended return form See Change in Accounting Method, later. Irs amended return form No single accounting method is required of all taxpayers. Irs amended return form You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Irs amended return form In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Irs amended return form You must use the same accounting method from year to year. Irs amended return form An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Irs amended return form If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Irs amended return form Methods you can use. Irs amended return form   In general, you can compute your taxable income under any of the following accounting methods. Irs amended return form Cash method. Irs amended return form Accrual method. Irs amended return form Special methods of accounting for certain items of income and expenses. Irs amended return form A hybrid method which combines elements of two or more of the above accounting methods. Irs amended return form The cash and accrual methods of accounting are explained later. Irs amended return form Special methods. Irs amended return form   This publication does not discuss special methods of accounting for certain items of income or expenses. Irs amended return form For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Irs amended return form The following publications also discuss special methods of reporting income or expenses. Irs amended return form Publication 225, Farmer's Tax Guide. Irs amended return form Publication 535, Business Expenses. Irs amended return form Publication 537, Installment Sales. Irs amended return form Publication 946, How To Depreciate Property. Irs amended return form Hybrid method. Irs amended return form   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Irs amended return form However, the following restrictions apply. Irs amended return form If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Irs amended return form See Exceptions under Inventories, later. Irs amended return form Generally, you can use the cash method for all other items of income and expenses. Irs amended return form See Inventories, later. Irs amended return form If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Irs amended return form If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Irs amended return form Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Irs amended return form Business and personal items. Irs amended return form   You can account for business and personal items using different accounting methods. Irs amended return form For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Irs amended return form Two or more businesses. Irs amended return form   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Irs amended return form No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Irs amended return form Note. Irs amended return form If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Irs amended return form Cash Method Most individuals and many small businesses use the cash method of accounting. Irs amended return form Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Irs amended return form See Inventories, later, for exceptions to this rule. Irs amended return form Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Irs amended return form If you receive property and services, you must include their fair market value (FMV) in income. Irs amended return form Constructive receipt. Irs amended return form   Income is constructively received when an amount is credited to your account or made available to you without restriction. Irs amended return form You need not have possession of it. Irs amended return form If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Irs amended return form Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Irs amended return form Example. Irs amended return form You are a calendar year taxpayer. Irs amended return form Your bank credited, and made available, interest to your bank account in December 2012. Irs amended return form You did not withdraw it or enter it into your books until 2013. Irs amended return form You must include the amount in gross income for 2012, the year you constructively received it. Irs amended return form You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Irs amended return form You must report the income in the year the property is received or made available to you without restriction. Irs amended return form Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Irs amended return form This includes business expenses for which you contest liability. Irs amended return form However, you may not be able to deduct an expense paid in advance. Irs amended return form Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Irs amended return form Expense paid in advance. Irs amended return form   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Irs amended return form   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Irs amended return form 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Irs amended return form   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Irs amended return form See Change in Accounting Method, later. Irs amended return form Example 1. Irs amended return form You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Irs amended return form The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Irs amended return form Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Irs amended return form Example 2. Irs amended return form You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Irs amended return form The 12-month rule applies. Irs amended return form Therefore, the full $10,000 is deductible in 2012. Irs amended return form Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Irs amended return form (See Special rules for farming businesses, later. Irs amended return form ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Irs amended return form See Gross receipts test, below. Irs amended return form A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Irs amended return form See Gross receipts test, below. Irs amended return form A tax shelter. Irs amended return form Exceptions The following entities are not prohibited from using the cash method of accounting. Irs amended return form Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Irs amended return form A qualified personal service corporation (PSC). Irs amended return form Gross receipts test. Irs amended return form   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Irs amended return form A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Irs amended return form    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Irs amended return form See Gross receipts test for qualifying taxpayers, for more information. Irs amended return form Generally, a partnership applies the test at the partnership level. Irs amended return form Gross receipts for a short tax year are annualized. Irs amended return form Aggregation rules. Irs amended return form   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Irs amended return form Change to accrual method. Irs amended return form   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Irs amended return form Special rules for farming businesses. Irs amended return form   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Irs amended return form However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Irs amended return form For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Irs amended return form   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Irs amended return form For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Irs amended return form See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Irs amended return form Qualified PSC. Irs amended return form   A PSC that meets the following function and ownership tests can use the cash method. Irs amended return form Function test. Irs amended return form   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Irs amended return form Ownership test. Irs amended return form   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Irs amended return form Employees performing services for the corporation in a field qualifying under the function test. Irs amended return form Retired employees who had performed services in those fields. Irs amended return form The estate of an employee described in (1) or (2). Irs amended return form Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Irs amended return form   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Irs amended return form Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Irs amended return form Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Irs amended return form   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Irs amended return form Change to accrual method. Irs amended return form   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Irs amended return form A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Irs amended return form Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Irs amended return form The purpose of an accrual method of accounting is to match income and expenses in the correct year. Irs amended return form Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Irs amended return form Under this rule, you report an amount in your gross income on the earliest of the following dates. Irs amended return form When you receive payment. Irs amended return form When the income amount is due to you. Irs amended return form When you earn the income. Irs amended return form When title has passed. Irs amended return form Estimated income. Irs amended return form   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Irs amended return form Change in payment schedule. Irs amended return form   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Irs amended return form Continue this procedure until you complete the services, then account for the difference. Irs amended return form Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Irs amended return form However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Irs amended return form However, you cannot postpone including any payment beyond that tax year. Irs amended return form Service agreement. Irs amended return form   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Irs amended return form This includes an agreement providing for incidental replacement of parts or materials. Irs amended return form However, this applies only if you offer the property without a service agreement in the normal course of business. Irs amended return form Postponement not allowed. Irs amended return form   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Irs amended return form You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Irs amended return form You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Irs amended return form Examples. Irs amended return form   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Irs amended return form Example 1. Irs amended return form You manufacture, sell, and service computers. Irs amended return form You received payment in 2012 for a one-year contingent service contract on a computer you sold. Irs amended return form You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Irs amended return form Example 2. Irs amended return form You are in the television repair business. Irs amended return form You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Irs amended return form You include the payments in gross income as you earn them. Irs amended return form Example 3. Irs amended return form You own a dance studio. Irs amended return form On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Irs amended return form You give eight lessons in 2012. Irs amended return form Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Irs amended return form Example 4. Irs amended return form Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Irs amended return form You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Irs amended return form Guarantee or warranty. Irs amended return form   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Irs amended return form Prepaid rent. Irs amended return form   You cannot postpone reporting income from prepaid rent. Irs amended return form Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Irs amended return form You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Irs amended return form Books and records. Irs amended return form   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Irs amended return form Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Irs amended return form IRS approval. Irs amended return form   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Irs amended return form Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Irs amended return form However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Irs amended return form An agreement includes a gift certificate that can be redeemed for goods. Irs amended return form Amounts due and payable are considered received. Irs amended return form How to report payments. Irs amended return form   Generally, include an advance payment in income in the year in which you receive it. Irs amended return form However, you can use the alternative method, discussed next. Irs amended return form Alternative method of reporting. Irs amended return form   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Irs amended return form Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Irs amended return form Example 1. Irs amended return form You are a retailer. Irs amended return form You use an accrual method of accounting and account for the sale of goods when you ship the goods. Irs amended return form You use this method for both tax and financial reporting purposes. Irs amended return form You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Irs amended return form However, see Exception for inventory goods, later. Irs amended return form Example 2. Irs amended return form You are a calendar year taxpayer. Irs amended return form You manufacture household furniture and use an accrual method of accounting. Irs amended return form Under this method, you accrue income for your financial reports when you ship the furniture. Irs amended return form For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Irs amended return form In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Irs amended return form You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Irs amended return form For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Irs amended return form Information schedule. Irs amended return form   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Irs amended return form Total advance payments received in the current tax year. Irs amended return form Total advance payments received in earlier tax years and not included in income before the current tax year. Irs amended return form Total payments received in earlier tax years included in income for the current tax year. Irs amended return form Exception for inventory goods. Irs amended return form   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Irs amended return form You account for the advance payment under the alternative method (discussed earlier). Irs amended return form You have received a substantial advance payment on the agreement (discussed next). Irs amended return form You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Irs amended return form These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Irs amended return form   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Irs amended return form You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Irs amended return form If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Irs amended return form Note. Irs amended return form You must report any advance payments you receive after the second year in the year received. Irs amended return form No further deferral is allowed. Irs amended return form Substantial advance payments. Irs amended return form   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Irs amended return form Example. Irs amended return form You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Irs amended return form In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Irs amended return form The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Irs amended return form You receive the following advance payments under the contract. Irs amended return form 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Irs amended return form In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Irs amended return form Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Irs amended return form   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Irs amended return form You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Irs amended return form If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Irs amended return form   No further deferral is allowed. Irs amended return form You must include in gross income the advance payment you receive each remaining year of the contract. Irs amended return form Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Irs amended return form IRS approval. Irs amended return form   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Irs amended return form Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Irs amended return form The all-events test has been met. Irs amended return form The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Irs amended return form Economic performance has occurred. Irs amended return form Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Irs amended return form If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Irs amended return form If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Irs amended return form Example. Irs amended return form You are a calendar year taxpayer. Irs amended return form You buy office supplies in December 2012. Irs amended return form You receive the supplies and the bill in December, but you pay the bill in January 2013. Irs amended return form You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Irs amended return form Your office supplies may qualify as a recurring item, discussed later. Irs amended return form If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Irs amended return form Workers' compensation and tort liability. Irs amended return form   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Irs amended return form If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Irs amended return form Taxes. Irs amended return form   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Irs amended return form are paid. Irs amended return form However, you can elect to treat taxes as a recurring item, discussed later. Irs amended return form You can also elect to ratably accrue real estate taxes. Irs amended return form See chapter 5 of Publication 535 for information about real estate taxes. Irs amended return form Other liabilities. Irs amended return form   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Irs amended return form Interest. Irs amended return form   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Irs amended return form Compensation for services. Irs amended return form   Generally, economic performance occurs as an employee renders service to the employer. Irs amended return form However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Irs amended return form For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irs amended return form Vacation pay. Irs amended return form   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Irs amended return form If you pay it later than this, you must deduct it in the year actually paid. Irs amended return form An amount is vested if your right to it cannot be nullified or cancelled. Irs amended return form Exception for recurring items. Irs amended return form   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Irs amended return form The exception applies if all the following requirements are met. Irs amended return form The all-events test, discussed earlier, is met. Irs amended return form Economic performance occurs by the earlier of the following dates. Irs amended return form 8½ months after the close of the year. Irs amended return form The date you file a timely return (including extensions) for the year. Irs amended return form The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Irs amended return form Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Irs amended return form This exception does not apply to workers' compensation or tort liabilities. Irs amended return form Amended return. Irs amended return form   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Irs amended return form You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Irs amended return form Recurrence and consistency. Irs amended return form   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Irs amended return form A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Irs amended return form Materiality. Irs amended return form   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Irs amended return form   An item considered material for financial statement purposes is also considered material for tax purposes. Irs amended return form However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Irs amended return form Matching expenses with income. Irs amended return form   Costs directly associated with the revenue of a period are properly allocable to that period. Irs amended return form To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Irs amended return form fasab. Irs amended return form gov/accepted. Irs amended return form html) are an important factor. Irs amended return form   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Irs amended return form Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Irs amended return form However, the matching requirement is considered met for certain types of expenses. Irs amended return form These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Irs amended return form Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Irs amended return form Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Irs amended return form 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Irs amended return form If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Irs amended return form See Change in Accounting Method, later, for information on how to get IRS approval. Irs amended return form See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Irs amended return form Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Irs amended return form Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Irs amended return form See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Irs amended return form Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Irs amended return form If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Irs amended return form However, see Exceptions, next. Irs amended return form See also Accrual Method, earlier. Irs amended return form To figure taxable income, you must value your inventory at the beginning and end of each tax year. Irs amended return form To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Irs amended return form See Identifying Cost and Valuing Inventory, later. Irs amended return form The rules for valuing inventory are not the same for all businesses. Irs amended return form The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Irs amended return form Your inventory practices must be consistent from year to year. Irs amended return form The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Irs amended return form Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Irs amended return form These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Irs amended return form A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Irs amended return form irs. Irs amended return form gov/pub/irs-irbs/irb01–02. Irs amended return form pdf. Irs amended return form A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Irs amended return form irs. Irs amended return form gov/pub/irs-irbs/irb02–18. Irs amended return form pdf. Irs amended return form In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Irs amended return form Qualifying taxpayer. Irs amended return form   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Irs amended return form Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Irs amended return form You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Irs amended return form Gross receipts test for qualifying taxpayers. Irs amended return form   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Irs amended return form List each of the test years. Irs amended return form For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Irs amended return form Step 2. Irs amended return form Determine your average annual gross receipts for each test year listed in Step 1. Irs amended return form Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Irs amended return form Step 3. Irs amended return form You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Irs amended return form Qualifying small business taxpayer. Irs amended return form   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Irs amended return form Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Irs amended return form You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Irs amended return form Your principle business activity is an eligible business. Irs amended return form See Eligible business, later. Irs amended return form You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Irs amended return form Note. Irs amended return form Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Irs amended return form A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Irs amended return form See Special rules for farming businesses under Cash Method, earlier. Irs amended return form Gross receipts test for qualifying small business taxpayers. Irs amended return form   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Irs amended return form List each of the test years. Irs amended return form For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Irs amended return form Step 2. Irs amended return form Determine your average annual gross receipts for each test year listed in Step 1. Irs amended return form Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Irs amended return form Step 3. Irs amended return form You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Irs amended return form Eligible business. Irs amended return form   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Irs amended return form You have an eligible business if you meet any of the following requirements. Irs amended return form Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Irs amended return form NAICS codes 31-33 (manufacturing). Irs amended return form NAICS code 42 (wholesale trade). Irs amended return form NAICS codes 44-45 (retail trade). Irs amended return form NAICS codes 5111 and 5122 (information industries). Irs amended return form Your principal business activity is the provision of services, including the provision of property incident to those services. Irs amended return form Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Irs amended return form   Information about the NAICS codes can be found at http://www. Irs amended return form census. Irs amended return form gov/naics or in the instructions for your federal income tax return. Irs amended return form Gross receipts. Irs amended return form   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Irs amended return form See the definit