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profitable until Timberline delivered the house kits to Eagle's
customers. This fact does not affect the outcome of this case;
the fact that some of Eagle's contracts lose money does not mean
that its customer deposits are not included in income. Standard
Television Tube Corp. v. Commissioner, 64 T.C. 238, 241-242
(1975).
Petitioner argues that section 1.451-1(a), Income Tax Regs.,
establishes that income is includable in the year earned (i.e.,
the year goods are delivered or services are performed) by an
accrual method taxpayer, not the year received. We have declined
to adopt petitioner's position that income is not includable
until earned. In Standard Television Tube Corp. v. Commissioner,
supra, we rejected the theory that reporting of prepaid income
should be deferred until the income is earned, citing Schlude v.
Commissioner, supra, American Auto. Association v. United States,
supra, and Automobile Club, Inc. v. Commissioner, 32 T.C. 906
(1959), affd. 304 F.2d 781 (2d Cir. 1962). See Herbel v.
Commissioner, 106 T.C. 392, 412-417 (1996); cf. Highland Farms,
Inc. v. Commissioner, 106 T.C. 237, 252 (1996) (refundable entry
fees paid to retirement community were not prepaid rent or
advance payments for services that had to be reported in year
received; taxpayer's method of accounting for the entry fees
clearly reflected income because taxpayer reported nonrefundable
portion of fees each year), affd. ___ F.3d ___ (5th Cir., Dec. 8,
1997).
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