There was a
case in the Tax Court on this issue within the last week or two. The case makes clear that the Service believes that the actual use of a method is important:
Respondent replies that petitioner elected the accrual method of accounting, that it actually used that method, and that it was required to use that method because it was “necessary to use an inventory.”
Given this case, I think that if we had an unusual fact pattern, i.e. a taxpayer whose books are consistent with both cash and accrual, I think initially and subsequently checking the box would control the method used when they first had A/R in a later year. It would appear to be a doctrine of election issue.
The doctrine of election as it applies to federal tax law consists of two elements: (1) There must be a free choice between two or more alternatives; and (2) there must be an overt act by the taxpayer communicating the choice to the Commissioner, i.e., a manifestation of the choice. See Grynberg v. Comm'r, 83 T.C. 255, 261 (1984).
In this situation, I've tended to say that there should be an attached statement so that a human reviewer can see why a different box was checked and avoid the need for an audit. On the other hand, if the Service switches to automated notices for changes in the checkbox unaccompanied by a Form 3115, an attached statement or even a Form 8275 would probably be ineffective. And we are probably closer to the latter than any of us would like.
Edit: I could also be wrong and there may be case law on point that I am forgetting late on this Friday evening.