- 76 -
"Respondent's proposed adjustments do not represent a change in
the Dealerships' method of accounting".13 We disagree.
Respondent corrected the Dealerships' use of the accrual
method to report income and expense under the VSC program. If
the proper application of the accrual method to the collection
and ultimate disposition of the unreported portion of the
contract price and investment income would not change a
Dealership's lifetime taxable income, then correction of the
Dealership's erroneous practice constitutes a change in method of
accounting for purposes of section 481. The unreported amounts
were either applied to payment of expenses immediately following
13 In addition, petitioners contend that even if
respondent's adjustments do constitute a change in method of
accounting, a further adjustment will not be required in order to
prevent duplication or omission of income or expense. They
arrive at this conclusion by at least two lines of reasoning.
First, they point out that "there would not be any duplication or
omission due to the 'change' if the Dealerships are simply
permitted to continue their current practice for VSC's sold in
prior periods". This observation appears to be correct, but it
has no relevance whatever to the applicability of sec. 481.
Second, they observe that respondent computed the sec. 481
adjustment by initially increasing DFM Investment Co.'s gross
income by unreported receipts from the sale of VSC's and then
making "a second set of Code �481 adjustments to eliminate its
initial Code �481 adjustment over time. If, as Respondent
contends, these adjustments merely affect timing, then no
duplication or omissions will occur, and neither of these
proposed adjustments are required." This argument is difficult
to follow, but it appears either: (1) To confuse the sec. 481
adjustment with the adjustments to the Dealership's method of
accounting that necessitate the sec. 481 adjustment; or (2) to
deny the applicability of sec. 481 for the very reason that it
applies; or both. At any rate, the argument is plainly without
merit.
Page: Previous 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 NextLast modified: May 25, 2011