Screen which federal income-tax accounting method the business may use
Key facts
- Human involvement
- YellowClose supervision
- How AI is used
- Record whether the books use the cash method or an accrual method, and whether the entity is one the publication says generally cannot use the cash method.
- What the lawyer must review
- Publication 538, revised January 2022, says the cash method generally reports income in the tax year it is received and deducts expenses in the tax year they are paid, and an accrual method generally reports income in the year it is earned and deducts expenses in the year they are incurred. A corporation other than an S corporation, and a partnership that has a corporation other than an S corporation as a partner, generally cannot use the cash method, including a combination that includes the cash method. A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. The January 2022 publication states that test as average annual gross receipts of $26 million or less for the three prior tax years, and says the figure is indexed for inflation. An entity that fails the test must change to an accrual method and file Form 3115. IRS Office of Professional Responsibility Issue 2026-19 says Circular 230 § 10.22 requires due diligence in papers and in representations to the IRS and to clients, and that the practitioner must review AI-created text and verify facts, citations and calculations before anything is delivered to a client or submitted to the IRS. Do not put tax return information into a public tool: Issue 2026-19 maps unauthorized use or disclosure to IRC §§ 6713 and 7216.
- Written for / version
- United States versionUS
Who does what
| Role | What they do |
|---|---|
| Assistance | Do not begin AI assistance until the responsible lawyer has defined and confirmed its permitted scope. |
| Lawyer | Set the scope, supervise the work closely, verify every part relied on, resolve omissions and exceptions, and approve the exact output. |
Checklist
- Open each relied-on authority independently. Confirm its existence, current status, proposition and any quotation or pinpoint reference.
- Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.
- Confirm the output against the client’s instructions and the complete relevant source material, including omissions or contradictions.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.