26
payment which is to be applied to a contract not completed during
the taxable year. Sec. 1.451-5(a), Income Tax Regs.7 Advance
payments are includable in income in the taxable year in which
the gross receipts from the contract are properly includable
under the taxpayer's method of accounting. Sec. 1.451-5(b),
Income Tax Regs.8
6(...continued)
response to Hagen Advertising Displays, Inc. v. Commissioner, 407
F.2d 1105 (6th Cir. 1969), affg. 47 T.C. 139 (1966), which held
that advance payments on the sale of goods were taxable in the
year received. Gas Light Co. v. Commissioner, T.C. Memo. 1986-
118.
7 Sec. 1.451-5(a), Income Tax Regs., provides, in relevant
part, as follows:
� 1.451-5. Advance payments for goods and long-term
contracts.--(a) Advance payment defined. (1) For purposes of
this section, the term "advance payment" means any amount
which is received in a taxable year by a taxpayer using an
accrual method of accounting for purchases and sales or a
long-term contract method of accounting * * * pursuant to,
and to be applied against, an agreement:
(i) For the sale or other disposition in a future
taxable year of goods held by the taxpayer primarily for
sale to customers in the ordinary course of his trade or
business, or
(ii) For the building, installing, constructing or
manufacturing by the taxpayer of items where the agreement
is not completed within such taxable year.
8 Sec. 1.451-5(b)(1), Income Tax Regs., provides, in
relevant part, as follows:
(b) Taxable year of inclusion.--(1) In general.
Advance payments must be included in income either --
(i) In the taxable year of receipt; or
(ii) Except as provided * * * [for inventoriable
goods].
(continued...)
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011