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endorsed each joint check and forwarded it to the appropriate
supplier; petitioner did not deposit or otherwise cash this
check.
Second, the developer issued a check made payable only to
petitioner for the balance owed on its invoice.
E. Method of Accounting
Petitioner filed its Federal income tax returns using a
fiscal year ending on August 31. Petitioner used the cash method
of accounting to report its taxable income for the first year of
its incorporation, the one in issue. The parties stipulated that
petitioner’s gross receipts have not exceeded $5 million per year
since its incorporation.
Petitioner reported as income payments that it actually
received from developers during the taxable year and reported a
deduction for the cost of materials for which payments actually
were made. Petitioner did not report as income payments that it
did not receive nor did petitioner deduct the cost of materials
for which payment had not been made during the taxable year.
Petitioner reported $64,806 of taxable income, and the parties
stipulated that under the accrual method of accounting
petitioner’s taxable income would be $267,428.
For the taxable year at issue, petitioner reported gross
receipts of $1,564,045, which derived solely from the
construction, placement, and finishing of foundations and
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