- 5 - Discussion We are asked to determine whether petitioners are required to include the section 481 adjustments as built-in gain for the years at issue.3 Petitioners argue that they are not required to include the section 481 adjustments as built-in gain because they elected S corporation status before the end of the 4-year ratable inclusion period of the RRA amendments. Respondent, on the other hand, argues that petitioners are required to include the section 481 adjustments as built-in gain because the section 481 adjustments relate to items attributable to periods before petitioners became S corporations. We agree with respondent. Overview We begin by outlining the general rules of section 481 adjustments. When a taxpayer changes its method of accounting, section 481 requires the taxpayer to adjust its income to prevent items from being duplicated or omitted. Sec. 481(a). The Secretary is authorized to issue regulations indicating the taxable years over which the taxpayer is authorized to take these adjustments into account. Sec. 481(c). The Secretary has issued guidance under certain circumstances allowing taxpayers to take the adjustments into account ratably over several years. See, 3Petitioners have not asserted that they have any built-in losses for the years at issue. Our determination whether the sec. 481 adjustments are built-in gain therefore determines the net recognized built-in gain because there are no built-in losses to offset the built-in gain.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 NextLast modified: March 27, 2008