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Memo. 2001-120; Maki v. Commissioner, T.C. Memo. 1996-209. In
the present case, the application of that formula results in the
inclusion of benefits of $18,408 (i.e., 85 percent of $21,656) in
petitioners’ gross income for 2001.
Petitioners point out that a significant portion of the
Social Security benefits received by Mrs. Davis in 2001 was
attributable to 1999 and 2000. Petitioners contend that it would
be unfair to determine the taxable portion of the lump-sum
payment without regard to the prior years to which the payment is
attributable. Therefore, petitioners argue, they should be
entitled to amend their returns for 1999, 2000, and 2001 and
include in gross income for each of those years the amount of
benefits attributable to each of those years, and recompute their
tax liabilities for each of those years accordingly. We disagree
with petitioners’ approach because it is contrary to law.
Under income tax accounting principles, an item of gross
income must be included in income for the taxable year that it is
received by the taxpayer unless, under the taxpayer's method of
accounting, the amount is to be properly accounted for in a
different period. Sec. 451(a). For taxpayers such as
petitioners who use the cash receipts and disbursements method of
accounting, an item is includable in gross income when it is
actually or constructively received. Sec. 1.451-1(a), Income Tax
Regs.
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