Tax File Memorandum To: Peaceful Pastures Funeral Home From: Whomever Date: 2/17/2013 Re: Peaceful Pastures Tax Payer Engagement
Confidential I SPOKE WITH PEACEFUL TAX PAYER ABOUT THE AUDIT NOTICE THE IRS HAD SENT. IT CONTENDS THAT THE AMOUNT PREPAID UNDER PEACEFUL’S PROGRAM CONSTITUTES PREPAID INCOME THAT MUST BE INCLUDED IN PEACEFUL’S INCOME (AND THEREFORE SUBJECT TO TAX) IN THE YEAR IN WHICH IT IS RECEIVED. THE TAX PAYER WANTED TO KNOW IF THE IRS FINDINGS WERE CORRECT.
FACTS: Peaceful, an accrual basis taxpayer, provides a full line of funeral services and sells goods related to those services. Peaceful has attempted to design an
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Consistent with the principle of section 451, section 446(a) and (b) directs that taxpayers are to compute taxable income using the method of accounting regularly employed for keeping their books, with the exception that “if the method used does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary, does clearly reflect income.” In general, the accrual method is designated a permissible method of accounting for purposes of section 446. Sec. 446(c)(2). Under the accrual method, income is to be included for the taxable year when all events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy. Secs. 1.446-1(c)(1)(ii), 1.451- 1(a), Income Tax Regs. Typically, all events that fix the right to receive income have occurred upon the earliest of the following to take place: The income is (1) actually or constructively received; (2) due; or (3) earned by performance. Schlude v.