- 5 - adjustment under section 481(a) should be made to avoid a duplication of the deduction.4 2. Section 481(a) Adjustment Section 481 mandates the imposition of an “adjustment” determined “to be necessary solely by reason of the change [in accounting method] in order to prevent amounts from being duplicated or omitted”. Sec. 481(a)(2). The required adjustment is made in the “year of the change”. Sec. 1.481-1(a)(1), Income Tax Regs. “The ‘year of the change’ is the taxable year for which the taxable income of the taxpayer is computed under a method of accounting different from that used for the preceding taxable year.” Id. Here, the year of the purported change is 1996. Without a section 481(a) adjustment of a like amount, Color Arts would receive a duplicate deduction of $271,671.04. Petitioner argues that there was no change made in Color Arts’s method of accounting, and therefore section 481 has no application. 3. Change of Accounting Method Generally, taxable income must be computed under the method of accounting by which the taxpayer regularly computes his income 4Respondent contends that if Color Arts is entitled to a deduction of $271,671.04 on its 1996 return for accrued vacation pay, without the imposition of a sec. 481 adjustment in the same amount, Color Arts will receive a double deduction. As stated above, Color Arts already deducted $271,671.04 as “accrued” vacation pay on its 1995 return.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011