Taxpayers using PCM cautioned by IRS on delaying income recognition.
The Tax Adviser › Vol. 28 Nbr. 9, September 1997
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Summary
Percentage of completion method
A 1997 IRS coordinated issue paper warned contractors, developers, and other taxpayers who might use the percentage of completion (PCM) accounting method to delay issue recognition. Contractors cannot delay subcontractor-related cost recognition so as to delay PCM income recognition, according to the IRS. In the issue paper, the IRS dismissed the taxpayer's characterization of the relationship between contractor and subcontractor, the taxpayer's accounting method changes, and other reasoning used to defend income deferral under PCM.See the full content of this document
Extract
Taxpayers using PCM cautioned by IRS on delaying income recognition.
Due to the nature of their work and the uncertain environment in which they operate, contractors and real estate developers are more in tune with estimates of job costs than any other business segment. Cost estimates are extremely important to these businesses, as they determine the a...
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