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Commissioner, 63 T.C. 86, 95 (1974), affd. 539 F.2d 409 (5th Cir.
1976); S. Rept. 1622, 83d Cong., 2d Sess. 94, 385, 387 (1954). A
guaranteed payment is includable in a partner’s income in the
partner’s taxable year in which the payment’s tax accounting
treatment is determined at the partnership level. Cagle v.
Commissioner, supra at 95.
On its books, the partnership accrued, on a monthly basis,
petitioner’s management fees as amounts payable and as management
fees added to the cost of goods sold. The management fees
accruing to petitioner were capitalized into the partnership’s
inventory of condominiums each year and reduced the gross
receipts received by the partnership from the inventory’s sale.
Accordingly, pursuant to section 706(a) and section 1.707-1(c),
Income Tax Regs., the management fees were includable in
petitioners’ income in the years that they were included in cost
of goods sold by the partnership. Pratt v. Commissioner, supra
at 212-214.
Consequently, we hold that the $190,000 guaranteed payment
is not income to petitioner during 1987.
Respondent is concerned that petitioners will escape
taxation on the $190,000 guaranteed payment received from the
partnership during 1987 because the taxable years of petitioners
in which the management fees were included in cost of goods sold
by the partnership are now closed. Respondent seeks to avoid
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