Metro Leasing and Development Corporation, East Bay Chevrolet Company, a Corporation - Page 5




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            Petitioner reported the sale under the installment method.3                                 
            Under that method, a taxpayer reports the taxable portion of each                           
            installment in the year received.  Petitioner received $28,376 in                           
            installments for 1995, of which only $20,303 was included in                                
            income by petitioner on its 1995 Federal income tax return.                                 
            Petitioner “deferred” the inclusion in income of the remainder of                           
            the $1,569,211 installment sale gross profit until future                                   
            installments were paid/received.4                                                           
                  In arguing that the tax on future installment income had                              
            “accrued”, petitioner relies on section 1.535-2(a)(1), Income Tax                           
            Regs.  That regulation contains the following elaboration on the                            
            deduction as being “for taxes accrued during the taxable year,                              
            regardless of whether the corporation uses an accrual method of                             
            accounting, the cash receipts and disbursements method, or any                              
            other allowable method of accounting.”                                                      





                  3 Petitioner’s 1995 Federal return contains the notation                              
            that it uses the accrual method of accounting for tax purposes.                             
            With respect to the real estate sale, however, petitioner elected                           
            the installment method.                                                                     
                  4 Petitioner reflected an amount in excess of $500,000 in                             
            connection with the installment sale as “deferred income taxes”                             
            (a current liability) on the balance sheet which was part of its                            
            1995 return.  In addition, for financial reporting purposes,                                
            petitioner included the “deferred” installment sale income in its                           
            1995 income.  However, no part of the income that may be realized                           
            from subsequent years’ installments was included in petitioner’s                            
            1995 Federal income tax base.                                                               





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