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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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