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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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Last modified: May 25, 2011