- 16 - accounting9 from one that clearly reflects income to a method that distorts income, or, alternatively, that the qualified advance payment amounts should be fully deductible in the year paid to Western General. We consider each in turn. B. Abuse of Discretion 1. In General Petitioners contend that respondent’s effort to limit their amortization deduction for insurance costs to a pro rata portion of the premium in the first year, measured by the portion of the year for which the policy was actually in force, constitutes an abuse of discretion. In petitioners’ view, the method of accounting for insurance costs for multiyear policies that they employed, which involved deducting a full year’s worth of premium in the first year, regardless of the actual date of commencement of coverage, effects a clear reflection of income because it more closely matches expense with associated income-–given the requirement of Rev. Proc. 92-98, 1992-2 C.B. 512, that the corresponding income be recognized under a convention that treats it as received on the first day of the year without regard to actual receipt. The method sought by respondent, petitioners 9 The parties do not dispute that the timing of petitioners’ deductions for the amounts paid to Western General constitutes a “method of accounting” within the meaning of sec. 446. See sec. 1.446-1(a)(1), Income Tax Regs. (“The term ‘method of accounting’ includes not only the over-all method of accounting of the taxpayer but also the accounting treatment of any item.”).Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
Last modified: May 25, 2011