Laura E. Austin - Page 16

          1045; Bay State Gas Co. v. Commissioner, 75 T.C. 410, 422 (1980),           
          affd. 689 F.2d 1 (1st Cir. 1982).                                           
              At the outset, we note that the use of the cash method of              
          accounting has a long history of acceptance by the Congress.  See           
          sec. 8(g) of the Revenue Act of 1916, ch. 463, 39 Stat. 756, 763            
          ("An individual keeping accounts upon any basis other than that             
          of actual receipts and disbursements, unless such other basis               
          does not clearly reflect income, may * * *  make his return upon            
          the basis upon which his accounts are kept".). Moreover, section            
          446 specifically authorizes a taxpayer to use the cash receipts             
          and disbursements method of accounting (cash method) to compute             
          taxable income, provided it is the method of accounting the                 
          taxpayer regularly uses to compute his income in keeping his                
          books, and it clearly reflects income.  Sec. 446(a), (b), (c)(1).           
               Generally, under the cash method of accounting, an item of             
          income or expense is reported when received or paid without                 
          regard to the economic events giving rise to the item.  On the              
          other hand, under the accrual method of accounting, an item of              
          income or expense generally is reported for the accounting period           
          during which all the events have occurred which fix the                     
          taxpayer's right to receive the item of income or which establish           
          the fact of liability giving rise to the deduction, and the                 
          amount thereof can be determined with reasonable accuracy.                  
          Hallmark Cards, Inc. v. Commissioner, supra at 32; Secs. 1.446-             

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