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Significant Court Cases, Revenue Rulings, Internal Revenue Codes, and Treasury Regulations - Methods of Accounting

Trans-Box Systems Inc. v. United States, 84 AFTR 2d 99-6479 affd. 225 F.3d 664 (9th Cir. June2, 2000) Payments to Drivers Do Not Comply With Accounting Plan Rules

Ruling:

  • Amounts paid to employee drivers as reimbursements for mileage expenses were not paid pursuant to the accountable plan. Rejected plaintiff's assertion that a substantial compliance rule applies to accountable plans.

Esobar de Paz vs. Commissioner, T.C. Memo 2000-176, May 26, 2000 Payments to Drivers are Wages, not Wages and Lease Income

Ruling:

  • All amounts paid to employees for transporting cargo in employee-owned trucks were wages. The employees were not engaged in two separate activities of leasing trucks to their employer and driving the trucks.

Revenue Procedure 2001-23 - This procedure provides an optional LIFO inventory computation method for taxpayers who sell used automobiles or used light-duty trucks. The link-chain, dollar value LIFO inventory method is designed to simplify the dollar-value LIFO computation of used vehicle dealers.

Revenue Procedure 2001-10, 2001-2 I.R.B. as modified by announcement 2004-16 and Revenue Procedure 2016-29 section 15.03 - This revenue procedure supercedes Revenue Procedure 2000-22 (below). This procedure provides that the Commissioner of Internal Revenue will exercise his discretion to except a qualifying taxpayer with average annual gross receipts of $1 million or less from the requirements to account for inventories. This revenue procedure also provides the procedures by which a qualifying taxpayer may obtain automatic consent to change to the cash receipts and disbursements method of accounting (the cash method) and to a method of accounting for inventory as materials and supplies that are not incidental.

The Qualifying Small Business Exception provided by Rev. Proc. 2002-28 applies to businesses within certain industry classifications and having average annual gross receipts of $10 million or less to use the cash method of accounting and treat inventory as materials and supplies that are not incidental. A taxpayer that satisfies the gross receipts criteria must also determine whether its principal business activity code is an eligible code under the North American Industry Classification System (NAICS). The following NAICS codes are ineligible for the Qualifying Small Business Exception:

  • Mining activities within the meaning of NAICS codes 211 and 212;
  • Manufacturing within the meaning of NAICS codes 31–33;
  • Wholesale trade within the meaning of NAICS code 42;
  • Retail trade within the meaning of NAICS codes 44 and 45; and,
  • Information industries within the meaning of NAICS codes 5111 and 5122.

Revenue Procedure 2015-13 - Procedures are provided under which a taxpayer may obtain automatic consent of the Commissioner to change certain methods of accounting.

Internal Revenue Code Section 446  - General rule for methods of accounting. Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his/her income in keeping his/her books.

Internal Revenue Code Section 461  - General rule for taxable year of deduction. The amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.

Internal Revenue Code Section 481  - Adjustments required by changes in method of accounting.


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Page Last Reviewed or Updated: 24-Aug-2016