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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-
355.
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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