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IRS extends recurring item deadlines.

The Tax Clinic item, "Adopting the Recurring Item Exception to Economic Performance," TTA, May 1991, at 296, discussed the need for filing a recurring item statement with a 1991 return. However, Ann. 92-30 granted a one-year extension and made other changes to the recurring item exception rules.

Electing the

recurring item

exception

If a taxpayer never incurred a type of liability that was eligible for the recurring item exception before the first year beginning after 1991, the taxpayer may adopt this exception as an accounting method for that type of liability for the first tax year beginning after 1991 that the type of liability is incurred by the taxpayer.

However, if a taxpayer has incurred a type of liability eligible for the exception before its first tax year beginning after 1991, the taxpayer may change to the recurring item exception method of accounting for that type of liability for the first tax year beginning after 1991. The transitional adjustment under Sec. 481(a) is taken into account ratably over three years.

The recurring item exception could have been adopted without obtaining IRS consent by attaching a statement to an income tax return for the tax year that included July 19, 1984. If that return was filed before June 20, 1985 without this statement, the statement could have been attached to the following year's return (Ann. 85-121).

Therefore, if the recurring item exception was previously adopted for a particular type of liability, a new statement for that type of liability should not be attached to the return for the first tax year beginning after 1991. If a statement is attached in this situation, the Service may seek an explanation as to why no transitional adjustment is reported.

Adoption vs. change

If the recurring item exception method of accounting is adopted, there generally should be no transitional adjustment. On the other hand, if there is a change to this accounting method, a transitional adjustment is required.

Retroactive change

The final regulations also will permit a taxpayer to change to the recurring item exception for the first tax year beginning after 1989 or 1990, on either the original or amended return for the tax year (a "retroactive change"). The manner of making this retroactive change will be prescribed in these final regulations which, according to Ann. 92-30, were expected in early 1992.
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Article Details
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Author:Josephs, Stuart R.
Publication:The Tax Adviser
Article Type:Brief Article
Date:May 1, 1992
Words:389
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