Smarthealth, Inc. - Page 7




                                        - 7 -                                         




          of such balances grew to $1,049,610.  Gross sales during the 1996           
          taxable year were $40,045,119.4                                             
               Money received by petitioner which gave rise to a customer             
          credit balance was deposited to petitioner’s general                        
          non-interest-bearing bank account.  The funds in this bank                  
          account were available to and used by petitioner for regular                
          operating needs.  Although petitioner did not maintain a separate           
          account for funds attributable to the customer credit balances,             
          such amounts were reflected as a liability on petitioner’s                  
          general ledger for financial accounting purposes.                           
          Petitioner’s Method of Accounting and Respondent’s Determination            
               In the course of an audit of petitioner’s 1989 taxable year,           
          respondent determined that petitioner was required to include in            
          income the amount of customer credit balances that had been                 
          outstanding for 2 years or more.  During the years at issue,                
          petitioner continued this practice by including in income for               
          financial and tax accounting purposes the amounts represented by            
          customer credit balances which had aged for 2 years.5  By way of            

               4  The record does not reflect what portion of the credit              
          balances were attributable to customer returns as opposed to                
          customer overpayments.                                                      
               5  Petitioner nonetheless continued to consider the amounts            
          of the customer credit balances that were brought into income as            
                                                             (continued...)           





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011