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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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