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Video instructions and help with filling out and completing Form 2220 extraordinary items
Well if you've looked at enough income statements you might have come across something called an extraordinary item and you might be wondering well what is this what is so extraordinary about it well an extraordinary item is essentially a gain or loss that that has two critical properties and those properties are this so first of all it's unusual in nature it's not something that you would normally think that will be associated with your business's operations for example of volcano erupting and just wiping out one of your manufacturing plants that's something unusual that's not really related to your business and it's not really something it's kind of this freak event that you really didn't see coming and we saw week so that's unusual but it but it has not just be an unusual event it also has to have the second property which is that it has to be infrequent in occurrence so infrequent occurrence is key now we have to have both okay now here here's the reason so you might say well you know what we have this we have this terrible storm with this this hail damage so let's say you had some just awful hail damage but now we have to ask how frequent is that held it now does this happen three years ago if this a similar storm happened three years ago or it happens every 10 years well then we say well maybe that's not so infrequent maybe that's maybe that's not infrequent at all so then that's not extraordinary we can't say this an extraordinary I know it has it be unusual and not just you know something that happens in normal business operations but also some that it doesn't happen often so a good example of something that kind of is is it's kind of unusual but but it's not infrequent doesn't fall under this is so when we think of like growing crops like kind of like a freeze on crops in Florida so so you so you have a crop freeze or you have this this kind of you know early frost or something in Florida well the thing is that that might happen to you every four or five years it's not something that happens every year but you know it is unusual I mean we don't expect it but it but it does happen you know frequently enough that we can't say that this so this is this is not not infrequent so someone we have to meet both tests here need to be both of these these criteria in order for this to be an extraordinary item so an extraordinary item you can see already this involves a little bit of discretion in in determining what's extraordinary what's not extraordinary items are rarely reported on an income stick this is something that isn't on every firm's income statement maybe less than 1% of firms or something are actually reporting in an extraordinary.