Construction Today 2018 - Volume 16, Issue 3 - 125
IN THIS SECTION
instance, if filing a return for 2017, then the average three-year period
would be 2014 through 2016.
The law includes the receipt of controlled groups and entities
under common control. A controlled group, under this code section,
includes relationships over 50 percent as well as brother-sister groups
where five or fewer person own more than 50 percent. For example, if
the taxpayer has one company in Virginia with gross receipts of $14
million and another in North Carolina with gross receipts of $13 million and the taxpayer owns more than 50 percent of each, these gross
receipts would need to be added together to calculate average gross
receipts. In this example, average gross receipts exceed $25 million
because of common ownership, so the taxpayer would be required to
use percentage-of-completion accounting.
'The good news is that
some contractors will
truly benefit from the
changes in tax law.'
Making a Change
If average gross receipts are less than $25 million, taxpayers may consider changing their method of accounting. Doing so will require you
file a Form 3115 with the IRS. Changing from accrual method to cash
method is considered an automatic change. Since this is an automatic
change, no user fee is required with the request.
This change may result in a section 481 adjustment. This reports
any change in income between the old and new method and can be
either a positive or negative adjustment:
* Negative Adjustment - This is when the change benefits the
taxpayer. In this instance, the change is realized in one year. An
example of a negative adjustment would be a company that had
accounts receivable on their accrual books but the income is
removed when electing cash basis.
* Positive Adjustment - When the change increases taxes due by
the taxpayer, this positive adjustment is paid over four years. An
example would be accounts payable previously expensed under
the accrual method that would not be deductible under the cash
method of accounting until those expenses were paid.
When changing long-term contracting methods; the user fee is
$8,600. Changing long-term contracting methods is done on a
cut-off basis so there is no 481 adjustment previously mentioned.
This means your old contracts beginning before Dec. 31, 2017, are
StructureTech NY is
expanding its capabilities
to take on large projects.
Already a leading airport
support facilities provider, Aeroterm is becoming
126 StructureTech NY
136 Durr Mechanical Construction
Inc. - HRSG Project
140 Conti Solar
143 Carl Walker Construction
handled under the old method of accounting and new contracts use the new method
of accounting selected.
Look at the Whole Picture
The changes afforded with the TCJA may be
beneficial for some contractors, but sometimes there are costs associated with making
the change. When considering changes, it is
always advisable to look at all angles of the
issue and ramifications of those decisions.
What may appear to be short-term gain may
actually be long-term pain.
The good news is that some contractors
will truly benefit from the changes in law.
Please consult with your tax advisor to determine the most advantageous method for
Jennifer French is a partner in PBMares, a Williamsburg, Va.-based accounting
and business-consulting firm. She can be reached at firstname.lastname@example.org.
VOLUME 16, ISSUE 3 CONSTRUCTION-TODAY.COM