Jeffrey D. and Bonita L. Woodlee - Page 5

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          block checked on the Schedule C indicating that the cash method             
          of accounting was used to compute the items of income and                   
          deductions reported thereon, argues that petitioners’ 1994                  
          deduction for supplies is limited to the amount paid for such               
          expenses by the close of that year.  Petitioners, however, claim            
          that, for 1994, petitioner’s business was on the accrual method             
          of accounting, under which the deduction for supplies would be              
          allowed as claimed on their 1994 return.  See sec. 1.446-                   
          1(c)(1)(ii), Income Tax Regs.                                               
               We disagree with petitioners’ claim that petitioner’s                  
          business was on the accrual method of accounting for 1994.  The             
          claim is inconsistent with the express representation made on the           
          Schedule C and inconsistent with petitioner’s testimony that his            
          “checkbook was * * * [his] bookkeeper”.  Furthermore, there is              
          nothing in the record that suggests that other deductions were              
          computed on the accrual method of accounting, and it is clear               
          that the income reported on the Schedule C was not.  “[A]                   
          taxpayer who uses the cash method of accounting in computing                
          gross income from his trade or business shall use the cash method           
          in computing expenses of such trade or business.”  Sec. 1.446-              
          1(c)(1)(iv)(a), Income Tax Regs.                                            
               In accordance with the cash method of accounting,                      
          petitioners are entitled to a deduction for supplies only to the            
          extent that such expenses were paid during 1994.  Respondent’s              

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