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books, with the exception that “if the method used does not
clearly reflect income, the computation of taxable income shall
be made under such method as, in the opinion of the Secretary,
does clearly reflect income.” In general, the accrual method is
designated a permissible method of accounting for purposes of
section 446. Sec. 446(c)(2).
Under the accrual method, income is to be included for the
taxable year when all events have occurred that fix the right to
receive the income and the amount of the income can be determined
with reasonable accuracy. Secs. 1.446-1(c)(1)(ii), 1.451-1(a),
Income Tax Regs. Typically, all events that fix the right to
receive income have occurred upon the earliest of the following
to take place: The income is (1) actually or constructively
received; (2) due; or (3) earned by performance. Schlude v.
Commissioner, 372 U.S. 128, 133 (1963); Johnson v. Commissioner,
108 T.C. 448, 459 (1997), affd. in part, revd. in part and
remanded on another ground 184 F.3d 786 (8th Cir. 1999).
As caselaw applying the above standards has evolved, it has
become well established that amounts constituting advance
payments for goods or services are includable in gross income in
the year received. Schlude v. Commissioner, supra; AAA v. United
States, 367 U.S. 687 (1961); Auto. Club of Mich. v. Commissioner,
353 U.S. 180 (1957); RCA Corp. v. United States, 664 F.2d 881 (2d
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