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on the trade date or on the settlement date. Neither party
cites, nor did we find, any cases directly on point.5 The
question of when an accrual basis securities broker must accrue
commissions earned on securities transactions appears to be one
of first impression.
Petitioner kept its books and records and filed its income
tax returns using the accrual method of accounting. Under the
accrual method, income is to be included for the taxable year
when (1) all the events have occurred that fix the right to
receive such income, and (2) the amount can be determined with
reasonable accuracy. Secs. 1.446-1(c)(1)(ii), 1.451-1(a), Income
Tax Regs. The parties do not dispute that the second prong of
the test--that the amount of the commissions can be determined
with reasonable accuracy--is met as of the trade date. Our
discussion is thus limited to whether petitioner had a fixed
right to receive the commission income as of that date.
Under the all events test, it is the fixed right to receive
the income that is controlling and not whether there has been
actual receipt thereof. Spring City Foundry Co. v. Commissioner,
292 U.S. 182, 184-185 (1934). The taxpayer’s right to receive
income is fixed upon the earliest of (1) the taxpayer’s receipt
5We note that in Rev. Rul. 74-372, 1974-2 C.B. 147, the IRS
ruled that a stock brokerage business using the accrual method of
accounting must accrue commission income on the trade date,
rather than on the settlement date. Respondent's position herein
is consistent with this ruling.
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