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and 1996. Respondent treated the $125,000 sponsor fee received
in 1996 as income to the partnership for 1996.
OPINION
Section 451 provides the general rule that items of income
are to be included in taxpayers’ income in the year of receipt,
unless the items of income are properly includable in a different
year under the taxpayers’ method of accounting. Section 446
provides generally that taxpayers are to compute taxable income
using the method of accounting that they use in computing income
for book purposes, unless such method does not clearly reflect
income.
Under section 446(c), the accrual method is a permissible
method of accounting. Sec. 446(c)(2).
Specifically, under the accrual method of accounting, where
funds are received by taxpayers as deposits on services to be
rendered in the future the funds generally are to be included in
the taxpayers’ income in the year of receipt, as opposed to being
deferred until the year in which taxpayers perform the related
services. See Schlude v. Commissioner, 372 U.S. 128 (1963);
AAA v. United States, 367 U.S. 687 (1961); Auto. Club of Mich. v.
Commissioner, 353 U.S. 180 (1957).
In both Auto. Club of Mich. v. Commissioner, supra (Auto.
Club), and AAA v. United States, supra, accrual basis taxpayers
included prepaid membership dues they received in income ratably
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