Question

Browne and Red, both C corporations, formed the BR Partnership on January 1, 2019. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BRs gross receipts were $22 million, $28 million, $31 million, and $32 million, respectively, for the next four tax years. Describe the methods of accounting available to BR in each tax year.

Answer 1

A PARTNERSHIP FIRM WITH BOTH C CORPORATION MAY NOT USE CASH METHOD OF ACCOUNTING, BUT THERE IS AN EXCEPTION TO THIS RULE THAT IF GROSS RECEIPTS ARE BELOW $5 MILLION.

SO HERE IN THE ABOVE BROWNE AND RED CASE THEY MAY USE CASH OR ACCURAL METHOD FOR 2014, 2015, 2016, ALTHOUGH THE GROSS RECEIPTS OF 2016 EXCEEDING $5 MILLION LIMIT THE AVERAGE GROSS RECEIPT OF LAST THREE YEAR IS STILL BELOW $5 MILLION.

BUT IN YEAR 2017 THEY HACE TO CHANGE THE ACCOUNTING METHOD TO ACCURAL METHOD.