Color Arts, Inc., John P. Csepella, A Person Other Than The Tax Matters Person - Page 7




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               The Code does not specifically define “accounting method”.6            
          However, “A change in the method of accounting includes a change            
          in the overall plan of accounting for gross income or deductions            
          or a change in the treatment of any material item used in such              
          overall plan.”  Sec. 1.446-1(e)(2)(ii)(a), Income Tax Regs.  A              
          method of accounting includes “the consistent treatment of a                
          recurring, material item, whether that treatment be correct or              
          incorrect.”7  H.F. Campbell Co. v. Commissioner, 53 T.C. 439, 447           
          (1969), affd. 443 F.2d 965 (6th Cir. 1971).  “A change in method            
          of accounting occurs even when there is a change from an                    
          incorrect to a correct method of accounting.”  Wayne Bolt & Nut             
          Co. v. Commissioner, 93 T.C. 500, 511 (1989) (citing First Natl.            
          Bank of Gainesville v. Commissioner, 88 T.C. 1069, 1085 (1987),             
          H.F. Campbell Co. v. Commissioner, supra; Dearborn Gage Co. v.              
          Commissioner, 48 T.C. 190, 197-198 (1967)).  “A material item is            
          any item which involves the proper time for the inclusion of the            

               6Sec. 446(c) dictates the accounting methods which taxpayers           
          may use in computing their taxable income.  Among the permissible           
          methods are “(1) the cash receipts and disbursements method; (2)            
          an accrual method; * * * or (4) any combination of the foregoing            
          methods”.                                                                   
               7Consistent treatment of an item is shown by 2 or more                 
          taxable years of application.  Johnson v. Commissioner, 108 T.C.            
          448, 494 (1997), affd. in part and revd. in part 184 F.3d 786               
          (8th Cir. 1999); Rev. Proc. 97-27, 1997-1 C.B. 680; cf. sec.                
          1.446-1(e)(2)(ii)(a), Income Tax Regs. (“Although a method of               
          accounting may exist under this definition without the necessity            
          of a pattern of consistent treatment of an item, in most                    
          instances a method of accounting is not established for an item             
          without such consistent treatment.”).                                       





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