Richard D. Hudson and Betty L. Hudson - Page 10

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               Respondent argues that the adjustment in question is not an            
          adjustment to which section 481(a) applies.  We agree with                  
          respondent.  None of her $51,305 adjustment is an adjustment                
          under section 481(a).  Because respondent changed petitioner’s              
          method of accounting effective with his 1988 taxable year, the              
          change is considered to have been made on January 1, 1988.  Sec.            
          1.481-1(c)(1), Income Tax Regs.  On January 1, 1988, petitioner             
          had $10,000 of inventory.  Under the cash method, the cost of               
          this inventory was deducted by petitioner in a previous year.               
          Because petitioner would be allowed to treat the cost of this               
          inventory as an offset against receipts from sales again under              
          the accrual method, a $10,000 adjustment under section 481(a) is            
          necessary to prevent the amount from being duplicated.                      
          Respondent, however, does not contend that the $10,000 must be              
          included in petitioner’s income as a section 481 adjustment.                
          Accordingly, we consider the adjustment under section 481(a) to             
          be zero.  Cf. Jasionowski v. Commissioner, 66 T.C. 312 (1976).              
          Thus, we need not concern ourselves with the mechanics of section           
          481(b), because the adjustment under section 481(a) is zero.                

               To reflect concessions,                                                

          Decision will be entered                                                    
          under Rule 155.                                                             

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