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is warranted by its pertinence to the Court’s analysis of
petitioner’s case.
II. General Rules
A. Federal Taxation Principles
The Internal Revenue Code imposes a Federal tax on the
taxable income of every corporation. Sec. 11(a). Section 61(a)
specifies that gross income for purposes of calculating such
taxable income means “all income from whatever source derived”.
Encompassed within this broad pronouncement are all “undeniable
accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion.” Commissioner v. Glenshaw
Glass Co., 348 U.S. 426, 431 (1955). Stated otherwise, gross
income includes earnings unaccompanied by an obligation to repay
and without restriction as to their disposition. James v. United
States, 366 U.S. 213, 219 (1961).
Section 451(a) provides the following general rule regarding
the year in which items of gross income should be included in
taxable income:
The amount of any item of gross income shall be
included in the gross income for the taxable year in
which received by the taxpayer, unless, under the
method of accounting used in computing taxable income,
such amount is to be properly accounted for as of a
different period.
Consistent with the principle of section 451, section 446(a) and
(b) directs that taxpayers are to compute taxable income using
the method of accounting regularly employed for keeping their
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