Hachette USA, Inc., As Successor to Hachette Publications, Inc. and Curtis Circulation Co., Subsidiary - Page 6

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          to HPI and HDI.  In the notice sent to HDI respondent disallowed            
          the claim for refund with respect to the HDI 1987 taxable year.             
          On July 5, 1994, Hachette USA, as successor to HPI and HDI, and             
          Curtis timely filed petitions with the Court.                               
               All of the deficiencies and overpayments in dispute turn on            
          the application of the Regulation to the computation of gross               
          income under the section 458 election.  The parties agree that if           
          Curtis was required to follow the Regulation, there are                     
          deficiencies of $665,225 for HPI's 1987 taxable year, $135,804              
          for HDI's 1987 taxable year, and $2,535,928 for HDI's 1988                  
          taxable year.  If the Regulation is invalid, and Curtis was not             
          required to secure the Secretary's consent to recompute its                 
          taxable income on the Forms 1120X, there are no deficiencies, and           
          there is an overpayment for HDI's 1987 taxable year in the amount           
          of $1,165,475.                                                              
                               Legislative Background                                 
               Section 458 was added to the Code by section 372(a) of the             
          Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2763, 2860.  The              
          specific problems to which it was addressed are explained in the            
          legislative history.  Under general tax principles accrual basis            
          taxpayers must include sales revenues in income for the taxable             
          year when all events have occurred which fix the right to receive           
          the income and the amount of the income can be determined with              
          reasonable accuracy.  See sec. 451(a); sec. 1.451-1(a), Income              
          Tax Regs.  The seller has some flexibility in determining when to           




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