Errors and Omission
One of the errors and omissions on the Corporate Income Tax Return is Transportation. According to the IRS Standards, transportation errors occur when the value of two digits has been interchanged. Identification of the error is problematic in the books of accounts but worth fixing the balanced value and reducing fraud. One of the approaches that can be used to identify errors and omissions is making a solid comparison between the total values stated in the trial balance and the one in the bank statement (IRS, 2020a). For instance, in the income statement, the value of net income is written as 575,000 instead of 557,000. The penal code CAP 360 suggests that an error in transportation is punishable by law. The auditors are mandated to identify such errors and omissions to recognize any fraudulent activities within the organization. The general rules of criminal responsibility will treat the errors as ignorance that will lead to misinterpretation of the information in the books of accounts.
M-3
An entity or organization that files from 1065 is expected to use schedule M-3, where four primary considerations are put into perspective. One of the requirements for using the form is when the amount of total assets and the end of the financial years that have been reported in schedule L, Line 14 column (d) is equivalent to the value of $10 million or more (IRS, 2020b). Secondly, the adjusted total assets within the fiscal tax duration are equal to $10 million or more. The third criterion in using the section is when the total value of the receipts for the ending year equals $35 million or more. According to the needs, the total receipts in the situation will have to be defined and be available in the Code for Principles Business Activities and the Principles that appertain to products and services behind rendered. The last consideration in using M-3 is that the entity or organization will have to be reportable concerning their partnership with others in deem for their own (IRS, 2020a). More so, the financial user will have a clear picture of how the reconciliation of the financial statement is taking place. The main focus will be on identifying the losses in the net income for the consolidated financial statements compared to that of the partnership.
Two IRS Approved Methods
The IRS has approved two methods that can be used to estimate an organization’s tax payment (IRS, 2020b). They include the cash method and the accrual approach. In the cash method, general reporting of the income is the same financial years that it has been received. The deduction of the expenses in the tax years will be in the fiscal years in which the payment for the expenses was made. The situation is entirely different in the accrual method since the revenue will be accounted for in the duration that it was earners. There is no need to wait for the financial years to come to an end for the inclusion to be done (IRS, 2020a). Therefore, the recording of the revenue is done at a time when there are no changes in the money hands. So, the expenses for goods and services will be recorded despite the lack of cash paid out on the accumulated expenses. The most appropriate and recommended method for Zeus Inc. is the accrual approach. This is because their financial statements are made at the end of the year. It will be possible to know the expenses that have contributed to the opening and closing balance in the books of accounts.
Relationship between Corporation Tax Year and Financial Reporting Year
Financial tax years are when an organization accounts for all its business operations. In most instances, it starts in the first month of the year and ends in the twelfth period. Financial reporting years is different as it represents the period in which an organization presents all books of accounts for verification by the auditor. The relationship between the financial and tax years is outcomes that are anticipated. In both instances, the main goal is to increase the transparency of the operation taking place in the company while reporting on their gains and losses (IRS, 2020b). One of the complications between financial and tax years is the period’s intersection. While the tax years will end on the 12th month, the financial reporting years can end on the 12th. Therefore, reporting on the outcomes of the two-period might be interfering with each other. The second complication is on the outcomes submitted at the end for each. The main agenda in the corporation tax year is to realize credibility and compliance with the tax regulation. The situation is different for the corporation’s financial reporting years, where a key consideration is transparency in the business operation. The target audience in such instances is the stakeholder and not the government, as is the situation for the tax years reporting. Therefore, the relevance of each duration depends on the goals and objective of a company.
References
IRS. (2020a). Instructions for Schedule M-3 (Form 1065) (2020). https://www.irs.gov/instructions/i1065sm3.
IRS. (2020b). Publication 538 (01/2019), Accounting Periods and Methods. https://www.irs.gov/publications/p538.
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