- 9 - Respondent determined (and reflected in her notice of deficiency) that petitioner’s inventory had increased from an opening inventory of zero on January 1, 1988, to a closing inventory of $61,305 on December 31, 1988. Thus, respondent determined that petitioner’s 1988 gross income should be increased by $61,305 to reflect this adjustment. See Hitachi Sales Corp. of America v. Commissioner, T.C. Memo. 1995-84. Respondent did not determine that any of this increase qualified as an adjustment under section 481(a). Respondent has since conceded that petitioner’s opening inventory was $10,000 on January 1, 1988. Respondent further concedes that petitioner’s gross income for 1988 should be increased by only $51,305. Petitioner does not dispute the fact that he must recognize $51,305 of income in 1988 on account of this adjustment. The parties disagree on whether the $51,305 adjustment is subject to section 481(a). If it is, petitioner claims that he can account for this adjustment under the rules of section 481(b). Section 481(b) applies when: (1) A taxpayer changes a method of accounting, (2) the taxpayer’s income in the year of the change is increased by more than $3,000 solely by reason of the change in order to prevent amounts from being duplicated or omitted, and (3) the taxpayer used the former method of accounting during the 2 taxable years immediately preceding the year of the change. Sec. 481(b)(1).Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011