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Yes, inventories are involved but the annual receipts are under 1MM.

Ok, that clears that up. You would be able to report on the cash basis if that method was originally adopted on your first return.

So the question becomes what method was adopted. You seem to think that by checking the cash box, you adopted the cash method, even though the figures were all computed on the accrual basis. I disagree. The adoption of an accounting method is determined by examining both the books of account and the tax return. Regulation 1.446-1(d)(1) says.....
The method first used in accounting for business income and deductions in connection with each trade or business, as evidenced in the taxpayer's income tax return in which such income or deductions are first reported, must be consistently followed thereafter.

I don't know how you keep your books, but reporting the figures on the accrual basis on your first return determines your method, IMHO.

Once established, you may not change, even from an erroneous method, by filing an ammended return. You must get permission.

19.4. Rev Rul 90-38 , 1990-1 CB 57 .
Unless the Commissioner consents, a taxpayer may not change from an erroneous method of accounting retroactively by amending prior returns, even if the period for amending the return for the first year in which the erroneous method was used has not expired.

You said....

I'm not trying to give you a hard time and it obvious I want to justify being a cash basis taxpayer, but so far I have only heard an opinion not the tax code being referenced.

Well, this is a 'free' online forum, so what you are likely to get is opinions. However, I have endeavored to give you the authorities. Do with it what you will.


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