"Drop-down" technique allows change in accounting method without IRS approval.
An existing corporation desiring to change its accounting method but unable to secure IRS approval may nevertheless be able to accomplish its goal through the use of the "drop-down" technique. This method allows the corporation to place assets in one or more new corporations that are free to select the desired accounting method. However, use of the technique is fraught with peril for the uninitiated. This article explains various ways the technique can be used and attendant considerations and planning.
In certain situations, a corporation may benefit from a change in accounting method; for example, if an accrual-basis C corporation provides services on account, with payment received