- 9 -
Petitioners, however, do not assert or show that section 7491(a)
shifts the burden of proof to respondent. Therefore, petitioners
bear the burden of proof. Rule 142(a); see also Thor Power Tool
Co. v. Commissioner, 439 U.S. 522, 532-533 (1979) (noting that
the Commissioner is afforded much latitude for discretion and the
taxpayer bears a heavy burden of proof with respect to accounting
issues).
B. Parties’ Assertions and Relevant Internal Revenue Code
Sections and Regulations
Respondent asserts that W.C. Houchin Corp. should recognize
the settlement payment from ARCO and Exxon as income in 1998.
W.C. Houchin Corp. was a C corporation in 1998. Petitioners
maintain that the settlement payment should be recognized in 1999
when W.C. Houchin Corp. elected to become an S corporation.
Section 451(a) provides that the amount of any item of
income shall be included in gross income for the taxable year in
which received by the taxpayer unless, under the method of
accounting used in computing taxable income, the amount is
properly accounted for as of a different period. Under the
accrual method of accounting, income is to be included for the
taxable year when (1) all events have occurred that fix the right
to receive the income and (2) 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. W.C. Houchin Corp. was an accrual
method taxpayer in 1998 and 1999.
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