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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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