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could take as long as 5 months to pay medical providers on bodily
injury settlements. An estimate was made to determine the amount
of the funds held in the client trust accounts at yearend which
did not belong to the firm, and this amount was backed out in
determining the gross receipts on petitioner's Schedule C. The
accrual entry is the amount that petitioner backed out of gross
income each year to reflect amounts that he believed did not
reflect income.
The following table compares the amount of petitioner's
“accrual entry” to the yearend balance in petitioner's client
trust accounts for each year in which respondent has proposed an
adjustment:
Petitioner's Yearend Trust Respondent's
Year Accrual Entry Account Balance Adjustment1
1988 N/A N/A N/A
1989 $109,000 $112,556 $40,750
1990 262,207 311,535 153,207
1991 100,000 109,208 (162,207)
1 Respondent's adjustment to petitioner's yearend accrual
entry is included in respondent's adjustment to petitioner's
Schedule C gross receipts.
Petitioner did not review in detail each year's Schedule C
prepared by the accountants but rather focused on the gross
receipts and net income to determine whether the amount seemed
reasonable on the basis of his recollection of the previous year
and the amount of income which petitioner was able to receive
from the firm.
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