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claims that its receivables, inventory, and payables have
remained consistent from the inception of the business and that
it has not attempted to distort its income by unreasonably
prepaying expenses, purchasing supplies in advance, or delaying
the receipt of payment from its customers. Respondent argues
that petitioner has failed to demonstrate that there is a
substantial identity of results between the cash method and
accrual method of accounting based on the differences in income
between the cash method and accrual method of accounting.
The substantial identity of results test is a judicial
creation that was first articulated in Wilkinson-Beane, Inc. v.
Commissioner, supra. In Wilkinson-Beane, Inc., a cash-method
taxpayer who was required to maintain an inventory and, thus,
report income on the accrual basis argued that the difference
in income that was determined by the method it used and the
method selected by the Commissioner was negligible. The Court
of Appeals held that, where the Commissioner has determined
that the accounting method that is used by a taxpayer does not
clearly reflect income, "the taxpayer must demonstrate
substantial identity of results between his method and the
method selected by the Commissioner" in order to prevail. Id.
at 356. In Ansley-Sheppard-Burgess Co. v. Commissioner, supra
at 377, this Court held that a taxpayer that is required to use
the inventory method of accounting must meet the substantial
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Last modified: May 25, 2011