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We're gonna take a slightly different look at the comparison between form 1120 H and 1120 that is normally presented the normal presentation does this one right here which shows that hey you pay 4000 in tax on form 1120 H you only paid 2000 attacks on form 1120 that's the difference between a 30 percent tax rate and a 15 percent tax rate smart move right well not necessarily not if you've got any problems in what you've done and all these problems occur long before you ever file a tax return the most common accusation by the IRS is that you didn't follow the proper procedures for making an election under Revenue Ruling 70 - 604 and they're gonna disallow that election and all of a sudden all that income you thought you were gonna roll over to the next year gets taxed this year and instead of a tax savings of $2,000 you can have an extra tax bill of over $5,000 and it's too late to file form 1120 H you're already stuck you're gonna pay some extra tax but what if it gets worse what if the IRS says you know what you didn't follow the six steps that are required under code section 118 for qualifying your reserve assessments as capital assessments and therefore we're going to drag them in as current your income and all of a sudden you're gonna pay an extra ninety nine thousand dollars of taxes but if the IRS has done that it's a certainty that they are going to you then assert the inappropriate tax accounting under Code section 481 and then you've got some disastrous results because now your attempt to save $2,000 has just cost you three hundred and fourteen thousand dollars of additional taxes how can that be coach Section 481 is a tool whereby the IRS says you had inappropriate tax accounting in other words you're set aside of capital reserve assessments was not appropriate we're going to go back for all the years open under the statute of limitations and pick up your beginning reserved balance at that date and all of the assessments that have occurred since then which in this case happens to be 628 thousand dollars and guess what that gets taxed at the highest tax rate of thirty four percent I this is a real nasty one and you've got to realize I have seen this asserted on virtually every IRS audit on form 1120 that I've ever worked on and that's about 40 of them in this slide here what we're doing is correlating the risk analysis that we've talked about on the previous slides here to where this risk comes from if you look at the bottom of this slide this is your form 1120 checklist and what we're looking at here is where does the tax risk come from the biggest tax risk comes from not separating your non-capital reserve accounts from your capital reserve