- 27 -
affd. 58 F.3d 413 (9th Cir. 1995). However, mismatches between
expenses and income will over time tend to cancel out provided no
attempt is made to unreasonably prepay expenses or purchase
supplies in advance. Van Raden v. Commissioner, 71 T.C. 1083,
1104 (1979), affd. 650 F.2d 1046 (9th Cir. 1981). Respondent did
not contend that petitioner attempted to unreasonably prepay
expenses or purchase supplies in advance. In fact, petitioner
paid its suppliers only after receiving payment from its
clients.15 Therefore, in this case, income and expenses were not
mismatched.16
Furthermore, respondent's determination that petitioner's
use of the accrual method of accounting would increase its income
tax liability for taxable years 1989 and 1990 by $111,613 and
$775, respectively, is not, per se, indicative that petitioner's
use of the cash method failed to clearly reflect income. RLC
15 Petitioner is billed by the asphalt supplier, and that
invoice is due within 30 days. When a job is complete,
petitioner bills its client and creates an account receivable.
Petitioner pays the invoice when the client pays petitioner.
Thus, we can conclude that if petitioner pays its supplier's
invoices on time, then petitioner receives payment from its
customers within 30 days of completing the paving job.
16 The accrual method requires a taxpayer to recognize
income in the taxable year when all the events have occurred that
fix the right to receive the income and the amount can be
determined with reasonable accuracy (the "all-events test"),
secs. 1.446-1(c)(1)(ii)(A), 1.451-1(a), Income Tax Regs., rather
than when the taxpayer actually receives payment. Accordingly,
under the accrual method petitioner would be required to
recognize income when petitioner completes each paving job; i.e.,
approximately 30 days earlier than when it recognizes income
under the cash method.
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