Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 24

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          transaction challenged by the Commissioner.  Packard v.                     
          Commissioner, supra at 428.  Furthermore, a material distortion             
          of income is likely to be found where the amount of an item                 
          differs substantially from what might normally be expected in an            
          arm's-length transaction structured without special regard to tax           
          consequences.4  Lewis v. Commissioner, 65 T.C. 625, 629 (1975).             
          Moreover, we have recognized that the interval of time between              
          the reporting of the payment of expenses and the receipt of                 
          associated income can be so great that the use of the cash method           
          of accounting by a taxpayer results in an impermissible                     
          distortion of income.  Silberman v. Commissioner, T.C. Memo.                
          1983-782, affd. without published opinions sub nom. Appeal of               
          David Whin, Inc., Appeal of Giordano, Appeal of Malanka, Stamato            
          v. Commissioner, 770 F.2d 1068, 1069, 1072, 1075 (3d Cir. 1985)             
               Where related parties deal with each other on the same terms           
          as with unrelated parties, a method of accounting will not be               
          considered to materially distort income simply because the                  
          parties to a transaction are related.  Gold-Pak Meat Co. v.                 
          Commissioner, supra at 1057.  Nonetheless, it is also well                  
          established that transactions between related parties are closely           
          scrutinized.  Spicer Accounting, Inc. v. United States, 918 F.2d            
          90, 92 (9th Cir. 1990); Hulter v. Commissioner, 91 T.C. 371, 394            

          4    We note that an accounting method can produce a material               
          distortion of income even where a taxpayer does not have a tax              
          avoidance motive in employing it.  Anderson v. Commissioner, T.C.           
          Memo. 1975-302, affd. 568 F.2d 386 (5th Cir. 1978).                         




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