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Income Tax Regs.; and any general theory of consistent
accountancy does not assist petitioner.
Petitioner’s position disregards the fact that it was tax
exempt for periods before January 1, 1985, and any interest which
might have been accrued on its books and records did not accrue
as taxable income. Petitioner was not required to file an income
tax return for years before 1985. See secs. 6011(a), 6012(a),
6072(b). Thus, petitioner’s interest accruals for the periods
before January 1, 1985, could not have been “returned as income”.
Petitioner cites no authority which supports its contention that
previously tax-exempt taxpayers which become taxable must, as a
general rule, adjust their regular adjusted cost basis upward to
account for items of interest that would have been accrued as
taxable income if those taxpayers had previously been taxable.
Nothing in section 166, the regulations interpreting that
section, or, more specifically, the transition rules of DEFRA
section 177(d) supports petitioner’s position.
Petitioner relies upon Rev. Rul. 55-437, 1955-2 C.B. 548,
and argues that under this ruling, adjustments to basis must be
made as if the taxpayer, in fact, had been subject to tax and
that these adjustments must be made according to the accounting
method that the taxpayer adopts in its first taxable year. We do
not read Rev. Rul. 55-437, supra, this broadly.
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