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consideration in Rule 155 proceedings. See Home Group, Inc. v.
Commissioner, supra at 269, 271.
Petitioner contends that a section 481 adjustment is
improper in this case. Petitioner argues that the first mention
of section 481 in this case was in respondent's brief; therefore,
section 481 is a new issue, and it is inappropriate for
consideration in a Rule 155 computation.
Respondent counters that the section 481 adjustment is not a
new issue; it is a mathematical or mechanical adjustment that is
patent from the statute. Respondent argues that once respondent
raised the issue of change in the method of accounting it
automatically triggered a section 481 adjustment.
Section 481 provides that in order to prevent income from
escaping taxation due to a change in the method of accounting,
the Commissioner may make an adjustment by including the omitted
income in the year of change. See Graff Chevrolet Co. v.
Campbell, 343 F.2d 568, 570 (5th Cir. 1965). Section 481 applies
only if there is a change in the "method of accounting". See id.
Section 481 includes a change in the accounting treatment of a
material item as well as a change from one overall system of
accounting to another as from the cash method to the accrual
method. See id.; Primo Pants Co. v. Commissioner, 78 T.C. 705,
721 (1982). Section 481 is applicable herein because respondent
has determined, and we have sustained, a change in method of
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