Question

(T/F) An advance payment received in June 2016 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Answer 1

An advance payment received by an accrual basis and calendar year taxpayer for services to be provided over a multi-year period can be spread over multiple tax years.

Step-by-step explanation:

The statement is true. An advance payment received by an accrual basis and calendar year taxpayer for services to be provided over a multi-year period can be spread over multiple tax years.

1. First, determine if the taxpayer is using the accrual basis of accounting, which recognizes income when it is earned, regardless of when the payment is received.
2. If the taxpayer is using the accrual basis and receives an advance payment, they can spread the income over the period in which the services will be provided, as long as the services are not completed by the end of the tax year in which the payment is received.
3. In this case, since the services will be provided over a 36-month period and the payment was received in June 2016, the income can be spread over four tax years: 2016, 2017, 2018, and 2019.