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section 1.471-2(a), Income Tax Regs.), is synonymous with GAAP.
Petitioner followed the same accounting practices for both
Federal income tax and financial reporting purposes. We find,
therefore, that the retailers’ systems of book inventories
conform to the best accounting practice within the meaning of
section 471(a) and section 1.471-2(a), Income Tax Regs.
VI. Clear Reflection of Income
A. Methods of Accounting and the Legal Requirement of
Clear Reflection of Income
The general rule for methods of accounting is set forth in
section 446(a):
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.
A taxpayer has latitude, however, in selecting a method of
accounting. Section 1.446-1(a)(2), Income Tax Regs., provides:
It is recognized that no uniform method of accounting
can be prescribed for all taxpayers. Each taxpayer
shall adopt such forms and systems as are, in his
judgment, best suited to his needs. * * *
The accrual method is a permissible method of accounting.
Sec. 446(c). Section 1.446-1(c)(1)(ii)(A), Income Tax Regs.,
provides:
Generally, under an accrual method, income is to be
included for the taxable year when all the events have
occurred that fix the right to receive the income and
the amount of the income can be determined with
reasonable accuracy. Under such a method, a liability
is incurred, and generally is taken into account for
Federal income tax purposes, in the taxable year in
which all the events have occurred that establish the
fact of the liability, the amount of the liability can
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