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127. In any event, petitioners have nowhere contended that the
various transactions should be treated differently.
A second basis for potential income deferral, to which
petitioners do make reference on brief as an apparent alternative
argument, is the recovery of cost approach. However, substantive
requirements for use of this method aside, we have refused to
allow taxpayers to switch to cost recovery accounting without
following the established procedures under section 446(e) for
requesting such a change from the Commissioner. See Wang v.
Commissioner, supra; see also Witte v. Commissioner, 513 F.2d 391
(D.C. Cir. 1975) (holding that section 446(e) requires that
consent be sought even for a change from an improper to a proper
accounting method), revg. in part and remanding T.C. Memo. 1972-
232. It is undisputed that petitioners have never filed the
requisite Form 3115. See sec. 1.446-1(e)(3)(i), Income Tax Regs.
The Commissioner thus was not obligated to consider this approach
in analyzing whether petitioners’ accounting clearly reflected
income or in determining a method which did so.
To summarize, respondent determined that gain of an accrual
method business must be reported consistently with that method in
order to clearly reflect income. Given the above, we now
conclude that such determination accords with settled law and
precedent. Hence, petitioners have not shown that the proposed
change is either clearly unlawful or plainly arbitrary. We hold
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