- 15 -
In Rev. Rul. 55-437, supra, a building and loan association
became subject to Federal income taxation on January 1, 1952,
having been previously tax exempt. For its first taxable year,
beginning after December 31, 1951, the association adopted the
accrual method of accounting. As of January 1, 1952, the
association had outstanding balances of installment accounts
receivable of 500x dollars of which 200x dollars represented
unrealized profit with respect to such contracts. Rev. Rul. 55-
437, 1955-2 C.B. at 549-551, states:
the only election of accounting method binding upon the
association is that made in the return filed by it for
its first taxable year beginning after December 31,
1951. * * *
Accordingly, if the association selects the
accrual method of accounting in the return for its
first taxable year beginning after December 31, 1951,
the 200x dollars of unrealized profit received in such
and subsequent taxable years under the installment
contracts which were entered into in taxable years
beginning prior to January 1, 1952, would not
constitute taxable income insofar as the right to
receive such installment payments accrued during a
taxable year in which the association was exempt from
Federal income taxation. However, if the taxpayer
selects the cash or installment method of accounting in
such return, the payments received, to the extent of
the previously unrealized profits included therein,
would constitute taxable income in the year received.
Rev. Rul. 55-437, supra, does not support petitioner’s
position with respect to its pre-1985 interest accruals. Rev.
Rul. 55-437, supra, deals with the timing of income recognition.
The revenue ruling has nothing to do with the determination of
basis for purposes of a foreclosure-related bad debt deduction
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011