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1999. Fifth, B&W and Kelso had a longstanding business
relationship, and Badell and Blume were friends. Sixth, Mr.
Kelso and Blume told the revenue agent who conducted the audit of
B&W and petitioners individually that B&W intended to “work off”
the cost of the roofing job. Blume said he did not recall making
this statement. We see no reason to doubt the revenue agent’s
testimony because it was based on the statements of both Mr.
Kelso and Blume, Blume did not deny making the statement, and Mr.
Kelso did not testify.3
Petitioners contend that “work off” means that B&W and Kelso
agreed to pay the other in money for their services. We
disagree. We construe “work off” to mean that B&W intended to
trade legal services for Kelso’s roofing services.
Petitioners contend that respondent’s barter theory would
improperly convert B&W from a cash basis of accounting to an
accrual basis. We disagree. Respondent’s barter theory
accelerates into B&W’s 1995 fiscal year income which B&W reported
in its 1997, 1998, and 1999 fiscal years. All items of gross
income, including cash, property, or services, are included in
the taxable year of the cash basis taxpayer in which the amount
was actually or constructively received. See sec. 1.446-
1(c)(1)(i), Income Tax Regs. B&W and Kelso entered into a
3 The parties agreed that Mr. Kelso was unavailable to
testify.
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