-179-
Commissioner, 97 T.C. at 128; Sandor v. Commissioner, 62 T.C.
469, 477 (1974), affd. 536 F.2d 874 (9th Cir. 1976).
Nevertheless, the regulations under section 446(b) contemplate
that a method of accounting “ordinarily” will clearly reflect
income when it “reflects the consistent application of generally
accepted accounting principles in a particular trade or business
in accordance with accepted conditions or practices in that trade
or business”. Sec. 1.446-1(a)(2), Income Tax Regs.; see also Am.
Fletcher Corp. v. United States, 832 F.2d at 439-440. Moreover,
as recognized by the Court of Appeals for the Seventh Circuit:
“Not only does the applicable regulation make generally accepted
accounting principles a pertinent criterion but the courts have
also applied that criterion to establish what method clearly
reflect[s] income under Section 446 of the Code.” Am. Fletcher
Corp. v. United States, supra at 439-440 (citations and quotation
marks omitted).
V. FNBC’s Mark-to-Market Book Method
A. Mark-to-Market Method Acceptable for Section 475
Consistent with the practice of the financial derivatives
industry, FNBC used a mark-to-market method to compute its swaps
income for financial accounting purposes.59 We believe that it
59 We refer to the specific mark-to-market method used by
FNBC as “a” mark-to-market method instead of “the” mark-to-market
method. As is true in the case of accrual accounting, for which
there is more than one accrual method, see sec. 446(c)(2), we
(continued...)
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