- 25 -
In sum, we hold that petitioner has failed to establish that
the receivables at issue were bad debts pursuant to section 166.
E. Petitioner Was Required To Accrue Sales Income When All
Events Had Occurred That Fixed the Right To Earn the Income
and the Amount Was Determinable With Reasonable Accuracy
Petitioner further contends that it should not have to book
each sale as income in the year the sale took place because the
accounts receivable (from the related entities) were uncollectible.
Respondent argues that petitioner was required to accrue the sales
income in the year of sale and that the accounts were collectible.
We agree with respondent.
The general rule for the taxable years of inclusion of income
appears in section 451. Section 451(a) requires:
The amount of any item of gross income shall
be included in the gross income for the
taxable year in which received by the
taxpayer, unless, under the method of
accounting used in computing taxable income,
such amount is to be properly accounted for as
of a different period.
Section 1.451-1(a), Income Tax Regs., provides that if the taxpayer
is on the accrual basis, the income must be included in income when
all events have occurred that fix the right to receive such income
and the amount thereof can be determined with reasonable accuracy
(the "all-events test"). Section 446(a) provides: "Taxable income
shall be computed under the method of accounting on the basis of
which the taxpayer regularly computes his income in keeping his
books." The accrual method of accounting is one permissible method
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011