Daniel E. and Karen A. Harkins - Page 10

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          written.  We therefore do not consider the parts of Mr. Goodson's           
          testimony which are inadmissible in deciding the issues before              
          us.  For simplicity, we set out and refer to Mr. Goodson's                  
          admissible and nonadmissible testimony below as we evaluate the             
          written language of the agreement.                                          
          II. The All Events Test                                                     
               A taxpayer may use the accrual method of accounting to                 
          report income.  See secs. 446(a), (c), 451(a).  If the taxpayer             
          elects to report its income in that manner, the taxpayer must               
          report income in the year in which “all the events have occurred            
          which fix the right to receive such income and the amount thereof           
          can be determined with reasonable accuracy.”  Sec. 1.451-1(a),              
          Income Tax Regs.; see also sec. 1.446–1(c)(1)(ii)(A), Income Tax            
          Regs.  Generally, all the events that fix the right to receive              
          income occur on the earliest of the following:  (1) The date                
          payment is received; (2) the date payment is due; or (3) the date           
          of performance.  See Schlude v. Commissioner, 372 U.S. 128                  
          (1963); Johnson v. Commissioner, 108 T.C. 448, 459 (1997), affd.            
          in part, revd. in part and remanded on another ground 184 F.3d              
          786 (8th Cir. 1999); Firetag v. Commissioner, T.C. Memo. 1999-              
               In addition, when applying the all events test, we consider            
          conditions precedent, which are required to be met before a fixed           
          right to receive income exists, but disregard conditions                    

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