Richard D. Hudson and Betty L. Hudson - Page 2

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                additions thereto under sections 6653(b)(1)(A) and (B)1 (for                                                                  
                1987) and section 6653(b)(1) (for 1988).  Respondent reflected                                                                
                this determination in a notice of deficiency issued to Richard D.                                                             
                and Betty L. Hudson on December 8, 1993.  The notice of                                                                       
                deficiency shows the following deficiencies and additions                                                                     
                                      Additions to Tax                                                                                        
                                                          Sec.             Sec.                             Sec.                              
                Year   Deficiency   6653(b)(1)(A)   6653(b)(1)(B)   6653(b)(1)                                                                
                1987    $12,989                   $9,742                              1                     ---                               
                1988     19,483  ---  ---     $14,612                                                                                         
                         150 percent of the interest due on $12,989.                                                                          
                         Following concessions, we must decide:                                                                               
                         1.      Whether respondent abused her discretion in requiring                                                        
                petitioner's business to use an accrual method of accounting for                                                              
                purchases and sales.  We hold she did not.                                                                                    
                         2.      Whether petitioner may compute his adjustment under                                                          
                section 481(a), which results from the change to an accrual                                                                   
                method, by reference to the 3-year rule under section 481(b).                                                                 
                We hold he may not.                                                                                                           
                         Unless otherwise stated, section references are to the                                                               
                Internal Revenue Code in effect for the years in issue.  Rule                                                                 
                references are to the Tax Court Rules of Practice and Procedure.                                                              
                Dollar amounts are rounded to the nearest dollar.  We use the                                                                 

                         1 Respondent’s notice of deficiency erroneously referred to                                                          
                sec. 6653(b)(2)(B).                                                                                                           

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