Unformatted text preview: Chapter 4
Gross Income ACCOUNTING METHODS—GENERAL RULES. Sec. 446 requires taxpayers to compute taxable income using the
method of accounting regularly employed in keeping books, provided
the method clearly reﬂects income. The Code recognizes the following
as generally permissible accounting methods: i 0 The cash method.
0 The accrual method.
0 A hvbrid method (a combination 0 cash and accrual). ACCOUNTING METHODS—CASH METHOD. A cash-method taxpayer accounts for income when any one of
three events occurs: 3 1. Cash is actually received. i2- Equivalent of cash is actually received (e.g., a check,
property, or a promissory note that is secured and
r transferable). ‘ 3. Constructive receipt of cash or its equivalent occurs. (a) Value “received” indeterminable. If the value of consideration
received cannot be determined, the value of consideration given in
exchange for it is treated as the amount of income received. Philadelphia Park Amusement Co. v. U.S., 54-2 USTC par. 9697
(1954). (b) Value “received and given” indeterminable. If consideration both i received and given is impossible to value, the transaction is treated l as open, and the consideration is not viewed as income until its
value can be ascertained. (e.g., an unsecured promise to pay from
a person with unknown creditworthiness, in exchange for the
renewal o a ranchise with historical losses.) Chapter 4 ...
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- Spring '09