Kaps Warehouse, Inc. - Page 26

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            of computing taxable income. Sec. 446(c)(2).  Section 1.446-                              
            1(c)(ii), Income Tax Regs., provides:                                                     
                        Accrual method.  Generally, under an accrual                                  
                        method, income is to be included for the                                      
                        taxable year when all the events have occurred                                
                        which fix the right to receive such income and                                
                        the amount thereof can be determined with                                     
                        reasonable accuracy. * * *                                                    
            The accrual method does not focus on the time of payment or                               
            receipt, but rather upon the time there is an obligation to pay or                        
            a right to receive.  See United States v. Hughes Properties, Inc.,                        
            476 U.S. 593, 599 (1986); Spring City Foundry Co. v. Commissioner,                        
            292 U.S. 182, 184-185 (1934).                                                             
                  Petitioner, an accrual method taxpayer, booked all its sales                        
            at the time the merchandise was shipped.  At that time, petitioner                        
            had a legally enforceable right to receive payment for the                                
            merchandise.  At the end of the year, petitioner decided the amount                       
            of rebates it would extend and reversed the sales entries, thereby                        
            not accruing the sales income previously booked. Under the all-                           
            events test, petitioner was required to accrue the income in the                          
            year the sales were made to its related entities.                                         
                  Petitioner failed to prove that the amounts were not                                
            collectible  during  the  years  at  issue.    Furthermore,  any                          
            uncertainty as to collection that would justify nonaccrual of                             
            income must be substantial and not simply technical.  See Stephens                        
            Marine, Inc. v. Commissioner, 430 F.2d 679, 685 (9th Cir. 1970),                          

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Last modified: May 25, 2011