- quote -

From Pub 538: "You can account for business and personal
items using different accounting methods. 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."

- quote -

Again Pub 538: "If you operate two or more separate and
distinct businesses, you can use a different accounting
method for each. No business is separate and distinct,
however, unless a complete and separate set of books and
records is maintained for the business. 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."

It never occurred to me that one could just check the
"accrual method" box on Schedule C for the first year filed,
but now I can't see why not (with adequate non-IRS
accounting statements, of course).

-Mark Bole

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- quote -

As to the first question, it depends. If the LLC elects to
be treated as a corporation for tax purposes, then it may be
able to elect the accrual method of accounting; however, if
the LLC accepts its default status (i.e., disregarded
entity), then the owner's method of accounting will control
(because, for tax purposes, it is the owner, not the LLC,
earning the income and incurring the expenses).

As to the first question, again, if the LLC elects to be
treated as a corporation, it may be possible for the owner
to get LTCG treatment even though the corporation holds the
property for use in its trade or business and takes
depreciation. However, the IRS is likely to be very
suspicious of this maneuver, and is quite likely to attempt
to recharacterize the sale as a disguised contribution (and
payments by the LLC as disguised dividends) unless all of
the terms are on an arms' length basis, are properly
documented, and the terms of the written agreement are, in
fact, followed. If the LLC accepts its default status as a
disregard, then no, you cannot sell something to yourself
and recognize the gain, and that's what you're doing for
federal tax purposes if you sell something to your single
member LLC - selling to yourself. Keep in mind, however,
that the treatment may be different under applicable state
law.

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San Diego CPA <gcollect1[at]sbcglobal.net> wrote:

- quote -

Can an LLC be an accrual basis entity (when the owner is
cash basis)?

Can an owner get a capital gain by selling property to an
LLC? (That could be a major advantage, if he gets long-term
capital gain and the LLC expenses or depreciates quickly the
property.)

Seth

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"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

From an accounting perspective, if this is an accrual rather
than cash basis entity, and all the work has not been
completed or services delivered (i.e., the event presented),
then the matching principle would pretty much require that
the funds received be booked something like debit cash,
credit a liability account (e.g., prepaid income). If there
was a refund provision in the sale that stated if said event
does not take place, the advance sales amounts would be
refunded, then the all events test would not have been met
for tax purposes and tax would follow book and therefore,
income recognition would be deferred until 2009 in the above
facts. In fact, because most of the expenses would actually
be paid in 2008, there may even be a loss in 2008 that could
be carried forward into 2009 due to the combination of
current expenses and deferred income(some expenditures may
of course generate pre-paid expense assets). I think I just
talked myself into the position the original poster was
looking for while writing this response. This seems too
favorable to get to so easily. Anyone wish to rebut?

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:
- quote -

I agree. It reminds me of the case where a guy embezzled
several million dollars around Thanksgiving, and was caught
the following January. The bulk of the money was recovered.

While he was sitting in jail the embezzler got an assessment
notice from the IRS for tax on his stolen millions. When he
complained that he didn't get to keep the money, he was told
that he'd be allowed the deduction for the following year.

Stu

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- quote -

Yes.

- quote -

Some, not much (stuff produced to be provided to all
members).

- quote -

Probably half and half

- quote -

No (they're really memberships in a convention).

- quote -

Others do.

- quote -

Usually, yes; most of these are run by non-profits, and are
annual events. But a few are run by nonexempt entities.

- quote -

Nope.

Seth

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Seth Breidbart wrote:

- quote -

From am purely accounting standpoint, these seem to be
deposits, refundable if not earned when the event occurs.
This is what's called the matching principal, i.e. matching
income and expense.

I've not researched it, but am inclined to follow the old
dictum that income tax law closely follows income tax law.

What say others?

Holiday ChEAr$,
Harlan

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Seth Breidbart wrote:

- quote -

My first thought is: income in 2008 (nothing "phantom" about
it), and then a NOL carry-back in 2009.

However, your scenario raises a few questions, many of which
depend on the nature of the "event".

Is this taxpayer starting a business as a sole proprietor,
which will exist for at least three years? Will there be
any inventory? Will the customers be treating their ticket
purchases as legitimate business expenses on their part, or
personal expenses? Is there sales tax on the ticket
purchases?

The scope of my imagination does not currently include a
realistic situation where I would fork over cash now to a
private individual in exchange for the promise of attending
(or participating in, or reselling my ticket to) some event
two years hence. (Heck, even the Olympics don't sell tickets
to the public that far in advance, and they have a long
history...) Wouldn't this normally be something a non-profit
organization would handle? Or, wouldn't this normally be
something that customers would make a nominal deposit for,
rather than a full-price purchase, so far in advance?

-Mark Bole

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A cash-basis taxpayer decides to run an event. It will take
place in 2009. He sells tickets early, starting in 2007.
Essentially all the expenses will be in 2009, but most of
the income will be in 2008.

How does he avoid having to pay income tax in 2008 on
phantom income? Or is all he can do reclaim it in 2009 when
the expenses hit?

Seth

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