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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.
OPINION
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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