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of petitioner’s BUF accounts into conformity with our holding in
Sebring constitutes a change in petitioner's method of accounting
for those accounts. A change in method of accounting is defined
as a “change in the overall plan of accounting for gross income
or deductions or a change in the treatment of any material item
used in such overall plan.” Sec. 1.446-1(e)(2)(ii), Income Tax
Regs. A “material item” is “any item which involves the proper
time for the inclusion of the item in income or the taking of a
deduction.” Sec. 1.446-1(e)(2)(ii)(a), Income Tax Regs. The
regulations further provide that “a change in method of
accounting does not include adjustment of any item of income or
deduction which does not involve the proper time for the
inclusion of the item in income or the taking of a deduction.”
Sec. 1.446-1(e)(2)(ii)(b), Income Tax Regs. Accordingly, where a
taxpayer’s practice permanently avoids reporting of income and
therefore distorts its lifetime income, the practice is not a
method of accounting, and section 481(a) is inapplicable to a
change of the practice. Schuster’s Express, Inc. v.
Commissioner, 66 T.C. 588, 596-598 (1976), affd. without
published opinion 562 F.2d 39 (2d Cir. 1977).
Petitioners attempt to bring themselves within the rule of
Schuster’s Express by arguing that petitioner's practice of
offsetting payments into the BUF accounts against gross receipts
was not a method of accounting but simply involved the claim of
offsets not allowable in any period. Petitioners argue that,
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