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Respondent’s primary argument is that BMP must include the
disputed amounts in gross income in the year in which they are
received because they are “advance payments” rather than
“deposits”. Gross income generally includes income from whatever
source derived, including compensation for services. Sec.
61(a)(1). For cash basis taxpayers, payments received in advance
of performing services generally are included in income in the
year in which the payments are received. Sec. 451(a); sec.
1.451-1(a), Income Tax Regs. In contrast, certain deposits
received by taxpayers are not included in income where the
taxpayer lacks “complete dominion” over the deposits.
Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203, 209
(1990). However, we need not decide whether the downpayments
made by BMP’s customers in this case constitute advance payments
or deposits (or a combination of both), for the reasons discussed
infra. Instead, we turn to respondent’s alternative argument.
Respondent’s alternative argument is that BMP changed its
method of accounting without prior consent when it began
deferring recognition of income until the performance of the
related services. Subject to various restrictions, a taxpayer
generally is entitled to compute taxable income for Federal
income tax purposes under the method of accounting regularly used
in keeping his books. Sec. 446(a). However, when a taxpayer
changes the method of accounting regularly used in keeping his
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Last modified: May 25, 2011