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years must be added back. The purpose of these adjustments is to
find the amount by which income has been allowed to accumulate
beyond the needs of the business for a particular tax year.
Respondent’s interpretation of the regulatory phrase accomplishes
that end. Petitioner’s interpretation, on the other hand,
addresses the question of future tax liability.8
Under established tax accounting principles for accrual, a
liability is incurred and/or taken into account in the year in
which all the events have occurred that establish the fact of the
liability. See sec. 1.461-1(a)(2), Income Tax Regs. All the
events have occurred when the amount of the liability can be
determined with reasonable accuracy and economic performance has
occurred with respect to the liability. Id. All of the events
have not occurred with respect to petitioner’s tax liability on
future years’ installment sale income. Accordingly, petitioner
is not entitled to deduct tax on post-1995 installment sale
income from taxable income in arriving at accumulated taxable
income for 1995.
8 To the extent that petitioner receives installment income
in future years, the tax and income would be matched in the same
taxable year and have a direct bearing on whether that income was
allowed to accumulate beyond its needs for that future year.
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