- 17 -
contend, distorts income because it limits the deduction of the
expense associated with an EWA to a partial year’s portion when a
full year’s portion of associated income must be recognized
pursuant to Rev. Proc. 92-98, supra. Petitioners summarize their
argument as follows:
Because petitioner’s method of accounting is an
acceptable method which clearly reflects its income,
Respondent is not allowed to require petitioner to
change its method of accounting. Prabel v.
Commissioner, * * * [91 T.C. 1101, 1112 (1988), affd.
882 F.3d 880 (3d Cir. 1989)]; Hallmark Cards, Inc. v.
Commissioner, * * * [90 T.C. 26, 31 (1988)]. To force
a change from a method which clearly reflects
excessive[10] income to a method which materially
distorts income, is an abuse of discretion. Molsen v.
Commissioner, 85 T.C. 485, 498, 509 (1985). * * *
Petitioners’ position, in effect, is that they may report
their income from EWA’s in accordance with the provisions of Rev.
Proc. 92-98, supra, but with respect to the computation of
deductions arising from EWA transactions, they are free to
disregard the method outlined in Rev. Proc. 92-97, 1992-2 C.B.
510, and devise a method that more closely matches the income and
expense associated with the qualified advance payment amount.
Petitioners are wrong, for at least two reasons. First, it
is not an abuse of discretion for the Commissioner to establish
10 Petitioners’ reference to “excessive” income is
apparently an allusion to their belief that the imputed income
required to be recognized under Rev. Proc. 92-98, 1992-2 C.B.
512, is not appropriate.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011