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pursuant to section 1.466-1(c)(2)(i), Income Tax Regs., to
reflect accurately the income of its business activities.
Petitioner maintains that its cash method of accounting
more clearly reflects the income and expenses of its business.
Petitioner argues that respondent may not change its method of
accounting from one that clearly reflects income to another
method of accounting because the Commissioner determines that
the alternate method will reflect petitioner’s income more
clearly.
Section 446 provides:
SEC. 446. GENERAL RULE FOR METHODS OF ACCOUNTING.
(a) General Rule.–-Taxable income shall be
computed under the method of accounting on the basis
of which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions.–-If no method of accounting has
been regularly used by the taxpayer, or if the method
used 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.
(c) Permissible Methods.-–Subject to the
provisions of subsections (a) and (b), a taxpayer may
compute taxable income under any of the following
methods of accounting-–
(1) the cash receipts and disbursements
method;
(2) an accrual method;
(3) any other method permitted by this
chapter; or
(4) any combination of the foregoing methods
permitted under regulations prescribed by the
Secretary.
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Last modified: May 25, 2011