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A taxpayer on the cash basis is on that basis uniformly
as to both receipts and deductions, and he cannot be
permitted any irregular and sporadic variation from
that basis. The accruing and returning as income of
the interest, therefore, in the earlier years before it
was actually received was not, in accordance with
petitioner’s system of accounting, a charging of it on.
Interest is charged on under the regulations and the
decisions when the taxpayer is on a cash basis only
when it is actually received. It is charged on when
the taxpayer is on an accrual basis only when it is
properly accrued. The conditions for a bad debt
charge-off not being met here, the claim for it was
properly disallowed. [Id. at 714.]
Petitioner relies on these statements and contends that “the
court’s decision in W.L. Moody Cotton Co. explicitly holds that a
taxpayer’s method of tax accounting must be consistently applied
for basis purposes.” We might agree with petitioner’s contention
that W.L. Moody Cotton Co. requires consistency in accounting for
items of income and deduction. However, we cannot agree that
W.L. Moody Cotton Co. supports increasing petitioner’s regular
adjusted cost basis for interest accrued when petitioner was tax
exempt. Nothing in W.L. Moody Cotton Co. supports that position.
Indeed, the statements petitioner relies on were made in the
context of a broader discussion by the Court of Appeals of the
requirement that interest be properly “charged on” before it be
allowed as a bad debt deduction:
As to the first question, the deduction for loss of
interest as a bad debt loss, Art. 23(k)2 of Regulation
94 provides in part: “Worthless debts arising from
unpaid wages, salaries, rents and similar items of
taxable income will not be allowed as a deduction
unless the income such items represent has been
included in the return of income for the year for which
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