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Respondent maintains that petitioners' records do not properly
allocate accounts receivable between income earned from the sale
of services and income earned from the sale of inventory;
therefore, petitioners cannot use the nonaccrual-experience
method because they cannot establish the portion of their income
that is derived solely from the performance of services.
The question is one of first impression.
The Nonaccrual-Experience Method Formula
The temporary regulations apply the nonaccrual-experience
method formula to each separate trade or business of a taxpayer.
Sec. 1.448-2T(e)(1), Temporary Income Tax Regs.,10 52 Fed. Reg.
10 Sec. 1.448-2T(e), Temporary Income Tax Regs., as amended,
provides in pertinent part as follows:
(e) Use of experience to estimate uncollectible
amounts--(1) In general. In determining the portion of
any amount due which, on the basis of experience, will
not be collected, the formula prescribed by paragraph
(e)(2) of this section shall be used by the taxpayer
with respect to each separate trade or business of the
taxpayer. No other method or formula may be used by a
taxpayer in determining the uncollectible amounts under
this section.
(2) Six-year moving average--(i) General rule.
For any taxable year the uncollectible amount of a
receivable is the amount of that receivable which bears
the same ratio to the account receivable outstanding at
the close of the taxable year as (A) the total bad
debts (with respect to accounts receivable) sustained
throughout the period consisting of the taxable year
and the five preceding taxable years (or, with the
approval of the Commissioner, a shorter period),
adjusted for recoveries of bad debts during such
period, bears to (B) the sum of the accounts receivable
earned throughout the entire six (or fewer) taxable
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