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sale in question were income to the taxpayer in the year 1918.”
Parish-Watson & Co. v. Commissioner, 2 B.T.A. 851, 860 (1925);
see also sec. 15A.453-1(d)(2), Temporary Income Tax Regs., 46
Fed. Reg. 10717 (Feb. 4, 1981). But see sec. 1.1001-1(g), Income
Tax Regs., for sales or exchanges occurring on or after August
13, 1996.
We additionally point out that, to the extent petitioners
argue no income is required to be recognized because the voidable
notes evidencing the debt have no fair market value and thus are
not the equivalent of cash, this consideration has no place in
the analysis of an accrual method entity. The following
explanation clearly distinguishes between accrual and cash
accounting in this regard:
An agreement, oral or written, of some kind is
essential to a sale. If payment is made at the same
time that the obligation to pay arises under the
agreement, then the profit would be reported at that
time no matter which method was being used. However,
the situation is different when the contract merely
requires future payments and no notes, mortgages, or
other evidence of indebtedness such as commonly change
hands in commerce, which could be recognized as the
equivalent of cash to some extent, are given and
accepted as a part of the purchase price. That kind of
a simple contract creates accounts payable by the
purchasers and accounts receivable by the sellers which
those two taxpayers would accrue if they were using an
accrual method of accounting in reporting their income.
But such an agreement to pay the balance of the
purchase price in the future has no tax significance to
either purchaser or seller if he is using a cash
system. [Johnston v. Commissioner, 14 T.C. 560, 565
(1950).]
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