Sherlock Holmes’ uncanny knack for solving cases actually comes from a combination of broad knowledge, keen logic, and a close attention to detail. Similar to the consulting detective of 221B Baker Street, the Sherlock Holmes of Tax Practitioners would combine equal parts deep knowledge of tax law and strong research skills, says Annette Nellen, San Jose State University professor and CPE Link instructor on tax research.
So don your deerstalker cap and get your magnifying glass. Here’s a mystery for you to ponder. A new internet company, which we’ll call Printers to Go, has formed to sell computer printers on line. What method of accounting should the company adopt on its first tax return?
You discern the following facts:
- The form of operation and business plan has already been created.
- The company has arrangements with several printer manufacturers.
- It has a website where customers can search for printers by features, obtain product specs, and place orders.
- Manufacturers might set some limit on pricing and other sales terms.
- Printers to Go expects first-year sales of $1.5M.
So what method of accounting is best for the company’s first tax return? How would you go about solving the mystery? What questions would you ask? What tax issues are involved? What do you already know about the topic and issues? What general rules are relevant? What IRC sections apply? And if you don’t get an answer in the Code, where else might you need to look for answers?
The client is waiting for your solution.