Robert and Lisa Morganstein - Page 6




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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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