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and that to accrue revenue from gas costs for the period
following the December meter-reading date to December 31
(unbilled period) results in double counting. Respondent
contends that petitioner’s method of accounting fails the
requirements of section 451(f) and that petitioner must include
in taxable income amounts attributable to utility services, gas
costs and nongas margin, provided during the taxable year,
including the unbilled period.
Section 446(a) generally provides that taxable income shall
be computed under the method of accounting that the taxpayer
regularly uses to compute income for financial accounting
purposes. If such method of accounting does not clearly reflect
income, “the computation of taxable income shall be made under
such method as, in the opinion of the Secretary, does clearly
reflect income.” Sec. 446(b).
Prior to the passage of section 451(f) in the Tax Reform Act
of 1986, Pub. L. 99-514 sec. 821, 100 Stat. 2372, petitioner
recognized taxable income from utility services based on the
taxable year in which its customers’ utility meters were read
(the cycle meter-reading method). See Rev. Rul. 72-114, 1972-1
C.B. 124. Under the cycle meter-reading method, utility services
provided to customers during the unbilled period were not
recognized as income until the following taxable year. See id.
Recognizing that the cycle meter-reading method allowed utilities
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