Service firms are examined for a consistent set of issues: when revenue is earned, how owners are paid, whether client funds are income, how contractors are classified, and whether the cash method remains available.
Time-and-materials, fixed-fee and retainer arrangements each recognize revenue differently; work performed but not billed is a contract asset.
ASC 606
Amounts held for clients, such as trust or escrow deposits, are liabilities, not revenue.
ASC 606; ASC 405
A C corporation may use the cash method only if it meets the gross-receipts test or is a qualified personal service corporation.
IRC §448(b), (c), (d)(2)
Compensation of officers must be reasonable for services rendered and is reported on Form 1125-E when total receipts reach $500,000.
IRC §162(a)(1); Form 1120 instructions, line 12
Business meals are generally 50% deductible; entertainment generally is not deductible.
IRC §274(a), (n)(1)
Payments for services to non-corporate payees may require Form 1099-NEC; payments of attorneys’ fees are reportable even to corporations.
IRC §6041, §6045(f)
The differences between the two are Schedule M-1 adjustments.
And they are where examinations tend to look first.
Each industry has a knowledge pack that sits in the stable, cached part of every prompt, so most of its cost is incurred once per return rather than on every round. Knowledge packs are in development.
Capitalized earnings with key-person and client-concentration considerations.
Stated as at November 2026 for general information only; not tax, legal or accounting advice. Rules change and their application depends on facts. NGTAX.AI currently prepares Form 1120 only; other forms listed are identified for the reviewing professional and may not yet be prepared by NGTAX.AI. See the disclaimer.
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