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be referred to as category X loans. Petitioner held the category
X loans on December 31, 1989. During 1989, petitioner also made
some loans that were documented by promissory notes with a stated
maturity date that was less than 1 year from the date the notes
were issued. Such loans will be referred to as category Y loans.
Petitioner held the category Y loans on December 31, 1989. The
interest and principal payable on all categories X and Y loans
were due at maturity.
Petitioner reported its taxable income using the cash method
of accounting. Petitioner reported interest income from its
categories X and Y loans as it was received pursuant to the cash
method of accounting.
Petitioner had interest income of $60,086.89 during 1989
that had accrued, but was not yet paid, on its category X loans.
Petitioner had interest income of $65,687.11 during 1989 that had
accrued, but was not yet paid, on its category Y loans.
Discussion
Petitioner uses the cash method of accounting to report its
taxable income. Consistent with that method, it did not report
as income on its 1989 return any accrued interest or original
issue discount that was earned but unpaid at the end of 1989.
Respondent does not contest petitioner's general use of the cash
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