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adjustment allocated to the year of change. Sec. 1.481-2(b)(3),
Income Tax Regs. A taxpayer must establish from its books of
account and other records what its taxable income would have been
pursuant to the new method of accounting for one or more of the
consecutive years immediately preceding the year of change. Sec.
481(b)(2); sec. 1.481-2(b), Income Tax Regs.
The record contains petitioners’ Federal income tax returns
for the years 1970 through 1987, but not for the years 1968 and
1969. Petitioners could not produce copies of their 1968 and
1969 returns and concede that the portion of the section 481(a)
adjustment allocable to those years is to be taken into account
in 1988, the year of change. The record also contains the
surety's ledgers for each of the BUF accounts in issue, which
reflect the payments into and disbursements from each account.
Petitioners maintain that those documents contain sufficient
information to perform the computations called for by section
481(b)(2) and that those computations may be performed as part of
the Rule 155 computation for the instant case.
Respondent maintains that such evidence is insufficient to
verify the accuracy of any computation pursuant to section
481(b)(2) and to ascertain petitioners' correct tax for the prior
taxable years. Respondent argues that there might be errors in
petitioners' prior year returns besides the incorrect method of
accounting for the BUF accounts that cannot be identified and
that prevent computation of the correct tax for those years.
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