Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 18

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          year.  Prior to and during 1990, Winery's offices were located in           
          a building at the Hillview Vineyard, which was rented from                  
          Vineyards for $500 per month.  As a condition for the renewal of            
          Winery's line of credit, Bank of America required that payment of           
          rent by Winery to Vineyards be suspended during 1986 and 1987.              
          After Winery ceased dealing with Bank of America during 1988,               
          rent payments resumed.                                                      
               The issue to be decided is whether respondent's                        
          determination, pursuant to section 446(b), that Vineyards must              
          use the accrual, and not the cash, method to account for its                
          income from the sale of grapes and other property in order to               
          clearly reflect its income constitutes an abuse of respondent’s             
          discretion.  Vineyards was a farmer for purposes of the Code and            
          used, pursuant to sections 1.61-4 and 1.471-6(a), Income Tax                
          Regs., the cash receipts and disbursements method of accounting             
          to compute its income.                                                      
               Respondent contends that use of the cash method materially             
          distorted Vineyard's income because of the large and increasing             
          account receivable from Winery, which did not pay for its grape             
          purchases until wine made from the grapes was released for sale             
          or sold, between 2 and 5 years afterwards.  Respondent points out           
          that Vineyards did not give the same terms to unrelated buyers of           
          its grapes and argues that the deferred payment arrangement                 
          served no business purpose of Vineyards.                                    

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