I have a client who has average annual gross receipts that are over $10M and will need to switch to accrual and percentage of completion accounting methods for 2009. Unfortunately the 481 adjustment is a very high positive number - 2008 A/R is very high and payable are very low. Even taking it over 4 years still leaves a very high number (should have caught this sooner). Client is currently an S Corp - I know that they cannot split the company in two with common ownership pursuant to Construction Contractor guide from IRS. This is going to place a huge tax burden on them because on the acrrual they will have much more taxable income plus the 481 adjustmen to pick up - we are talking possibly over a $1m in taxable income. They are currently cash. Are there any other ways for them to escape this. Can a C corp be formed - would there be a legitimate business purpose. Need some help in planning techiques which probably should have been addressed sooner. Thanks.

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>>a huge tax burden on them because on the acrrual they will have much more taxable income<<

Presumably accrual has the same taxable income as cash, except the timing is different. This might be a good time to invest in some collections activity.

One tax planning technique that is, in my opinion, greatly underutilized is installment payments. The IRS offers tremendous flexibility in this, and the interest rate is very reasonable,

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