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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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Last modified: May 25, 2011