Under certain circumstances,a cash method taxpayer must treat prepayments the same as an accrual method taxpayer.

Question

Quizplus · Accepted Answer

Under the "all events test," a cash method taxpayer must treat prepayments as income in the year they receive them if: 1) the taxpayer has already performed all of the services or delivered all of the goods by the end of the year, or 2) the taxpayer has received payment for services or goods that will be performed or delivered within the next tax year but has included those amounts in the taxpayer's books and records for the current tax year. This is similar to how an accrual method taxpayer recognizes income for prepayments.

Under Certain Circumstances,a Cash Method Taxpayer Must Treat Prepayments the Same