Philip L. Firetag - Page 12




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                         (2) there shall be taken into account those                   
                    adjustments which are determined to be necessary                   
                    solely by reason of the change in order to prevent                 
                    amounts from being duplicated or omitted, except                   
                    there shall not be taken into account any                          
                    adjustment in respect of any taxable year to which                 
                    this section does not apply unless the adjustment                  
                    is attributable to a change in the method of                       
                    accounting initiated by the taxpayer.                              
          By its terms, section 481 applies only when there is a change in             
          method of accounting.  Section 1.446-1(e)(2)(ii)(a), Income Tax              
          Regs., describes a change in method of accounting as follows:                
          “A change in the method of accounting includes * * * a change in             
          the treatment of any material item * * *  A material item is any             
          item which involves the proper time for the inclusion of the item            
          in income or the taking of a deduction.”  In other words, a                  
          change in method of accounting does not involve whether or not an            
          item of income is included, but when.  See Knight-Ridder                     
          Newspapers, Inc. v. United States, 743 F.2d 781, 798 (11th Cir.              
          1984).  However, the regulations provide several specific                    
          limitations:                                                                 
               A change in method of accounting does not include                       
               correction of mathematical or posting errors, or errors                 
               in the computation of tax liability * * * .  Also, a                    
               change in method of accounting does not include                         
               adjustment of any item of income or deduction which                     
               does not involve the proper time for the inclusion of                   
               the item of income or the taking of a deduction.  * * *                 
               A change in the method of accounting also does not                      
               include a change in treatment resulting from a change                   
               in underlying facts. * * *  [Sec. 1.446-1(e)(2)(ii)(b),                 
               Income Tax Regs.]                                                       
                                                                                      







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