- 16 -
fact of inclusion. It is therefore a change in method of
accounting, and section 481 applies.
We next consider the in-house account. Under petitioner’s
method, he would have been required to include in income in the
year of disbursement any funds disbursed from the in-house
account for his benefit.11 He would be entitled to take
deductions for all allowable business expenses. Further,
petitioner would ultimately receive any funds remaining in the
in-house account.12 Under respondent’s method, petitioner would
be required to include in income the funds in the account in the
year of deposit, but he would be entitled to take deductions for
amounts used to pay all allowable business expenses, so the total
amount required to be included in income would be the same. Once
again, respondent’s method alters only the timing of inclusion,
not the fact of inclusion. It is therefore a change in method of
accounting, and section 481 applies.
Section 481(a)(2) authorizes “those adjustments which are
determined to be necessary solely by reason of the change [in
method of accounting] in order to prevent amounts from being
11 That is, any funds used to satisfy a liability in the
event of forfeiture, to satisfy required increases in the amounts
in the Charleston County Court and U.S. District Court accounts,
to pay business expenses, or to pay petitioner’s “salary”.
12 The precise nature of the in-house account is not clear.
In testimony, petitioner refers to it as an “escrow account”.
However, there is no evidence, or suggestion, that petitioner
would not receive any funds remaining in the account.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011