The Kroger Company and Subsidiaries - Page 19

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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.,                             
                  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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Last modified: May 25, 2011