Please help me with handling of the Section 263a costs on Form 1125-A. The client had Section 263a costs from PY that was on the tax balance sheet, but not on the books balance sheet. Let's say PY Section 263a Costs adjustment was $20,000 which was reflected by increasing the ending inventory balance (not recorded on books, only on the tax return). This year the S. 263a costs are computed at $30,000.
If I enter $30k on the Additional S.263a costs on the 1125-A form, it increased the COGS rather than reducing it. What would be the right way to adjust for these costs from PY and CY. I am planning to show the $10k difference as an M-1 adjustment as there are no plans to adjust the inventory amount on the books. Any help will be greatly appreciated.
If the inventory is different on the balance sheet versus the inventory on 1125-A, then the purchases line should be purchases + change in inventory (books balance sheet - beginning versus ending) + or - the 263A adjustment, then 263A adjustment should be recorded on 263A line on 1125-A and M-1 screen. Since your 263A went up by $30k, the purchases line should be reduced by the $30k. I hope this makes sense.