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United States v. Gen. Dynamics Corp., 481 U.S. 239, 243-244
(1987).
A deduction shall be taken for the year which is the proper
year under the taxpayer’s method of tax accounting. Sec. 461(a).
It is not entirely clear what method of accounting Wright &
Associates was using for its 1999, 2000, and 2001 taxable years.
Both cash and accrual method were checked on Schedule B of Wright
& Associates’ 1999, 2000, and 2001 Forms 1120S. Mr. Wright
indicated at trial that the returns were in error and that Wright
& Associates was on the accrual method. However, Wright &
Associates had no trade notes or accounts receivables on its
balance sheets or Schedule L of Forms 1120S for 1999, 2000, or
2001. Mr. Wright noted that hypothetically a business could be
on the accrual method and have no trade notes or accounts
receivables if they were all paid or collected. Based on Wright
& Associates’ lacking any trade notes or account receivables on
its 1999, 2000, and 2001 balance sheets and Schedule L of its
Forms 1120S, the Court concludes that Wright & Associates,
despite Mr. Wright’s knowledge of tax and accounting, had no
consistent method of accounting.
Mr. Wright contends that Ms. Mohr’s claim, although not made
against Wright & Associates, was a liability of that corporation,
which reduced its income for 1999 by $50,000, and as a result,
reduced petitioners’ 1999 taxable income by the same amount. It
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