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other requirements, (1) the taxpayer accounts for the advance
payments using a method described in section 1.451-5(b)(1)(ii),
Income Tax Regs.;5 (2) the advance payments are “substantial”;6
and (3) the taxpayer attaches to his or her income tax return for
each year an annual information schedule concerning advance
payments, sec. 1.451-5(d), Income Tax Regs. The record does not
show whether petitioners meet any of these requirements. We
conclude that petitioners had unreported income from layaway
sales of $39,469 in 1995.
c. Whether Petitioners Received But Failed To Report
$9,650 in Cash Income
Respondent determined that petitioners had cash income of
$9,650 which they did not report in income and which they used to
buy inventory. Petitioners contend that some of the $9,650 was a
5 A method is described in sec. 1.451-5(b)(1)(ii), Income
Tax Regs., if it results in including advance payments in gross
receipts no later than the time the advance payments are included
in gross receipts for purposes of the taxpayer’s reports
(including consolidated financial statements) to shareholders,
partners, beneficiaries, other proprietors, and for credit
purposes, or if the method of accounting for purposes of the
taxpayer’s reports results in advance payments (or any portion of
those payments) being included in gross receipts earlier than for
tax purposes, in the taxable year in which includable in gross
receipts pursuant to the taxpayer’s method of accounting for
purposes of those reports.
6 Advance payments are substantial if, under an agreement
for the sale of inventoriable goods, the advance payments
received during the taxable year plus the advance payments
received before the taxable year under the agreement, equal or
exceed the total costs and expenditures reasonably estimated as
includable in inventory with respect to the agreement. Sec.
1.451-5(c)(3), Income Tax Regs.
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