Mark N. Wright and Erica Y. Wright - Page 21

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               In the computation of Mr. Wright’s stock basis, respondent             
          did not allow the carryover of any basis that Mr. Wright may have           
          had in his stock for taxable years preceding 1999.  It is                   
          possible that Mr. Wright had a tax basis in his stock prior to              
          taxable year 1999.  However, petitioners did not produce any                
          evidence or provide any documentation, other than old tax returns           
          without any substantiation of their numeric content, to establish           
          the basis of Mr. Wright’s stock.  The Court therefore sustains              
          respondent’s determination that Mr. Wright was not entitled to              
          any carryover basis in his Wright & Associates stock for taxable            
          years preceding 1999.  The Court also sustains respondent’s                 
          determinations that petitioners received income in the amounts of           
          $8,774, $21,283, and $44,151 from Wright & Associates in 1999,              
          2000, and 2001, respectively.                                               
               C. Accounting Method                                                   
               An S corporation may use either the cash receipts and                  
          disbursement method (cash method) or the accrual method of                  
          accounting, with certain limitations.  See Rev. Proc. 2002-28,              
          2002-1 C.B. 815.  Under the cash method, all items which                    
          constitute gross income are to be included for the taxable year             
          in which actually or constructively received.  Sec. 1.446-                  
          1(c)(1)(i), Income Tax Regs.  Expenditures are deducted for the             
          taxable year in which actually made.  Secs. 1.446-1(c)(1)(i),               
          1.461-1(a), Income Tax Regs.                                                

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