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In the case of those petitioners that had employed the
hybrid method of accounting for taxable years ended prior to
January 1, 1987, to the extent that the Uncollectible Amount was
attributable to the use of the cash method for taxable years
ended prior to January 1, 1987, each qualified petitioner reduced
taxable income for each of the years ended 1987 and 1988 by one-
tenth of the portion of accounts receivable estimated to be
uncollectible as of December 31, 1986, using the modified
periodic system. To the extent that the Uncollectible Amount was
attributable to the use of an accrual method for taxable years
ended prior to January 1, 1987, the Uncollectible Amount was
equal to the net positive section 481(a) adjustment relating to
the repeal of the reserve method of accounting for bad debts. As
calculated by petitioners, for taxable years ended 1987 and 1988
the negative section 481(a) adjustment relating to the election
of the nonaccrual-experience method was equal to the positive
section 481(a) adjustment relating to the repeal of the reserve
method of accounting for bad debts.
On audit, respondent disallowed all reductions in
petitioners' taxable income attributable to the use of the
nonaccrual-experience method, other than net writeoffs of bad
debts for each year, on the grounds that petitioners had failed
to provide documentation needed to compute the portion of
petitioners' income earned from the performance of services and
that they had not used the proper formula in applying the
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