Problem:
I think this problem may concern accrual accounting vs cash accounting for tax purposes. However, the argument has to be structured for the taxpayer to win in Tax Court. If you know the IRC Code(s), please provide.
A taxpayer, who uses the cash method of accounting for tax purposes, received income in 1989, 1990, 1991 and 1992 for illegal espionage activities performed in 1985. He received a deficiency notice for the above years from the IRS. He disputed the deficiency in those years. His argument was that he constructively received the bulk of the money in 1985 when it was allegedly promised. Therefore, he does not feel that he should be penalized in the years he actually received the money. By the way, he never reported the income to the IRS. Using the tax code, the respondent was able to dispute the taxpayer's claim and the decision was entered for the respondent. Could the taxpayer have structured his argument differently in order to win in tax court? I was thinking that he should have claimed that he made a mistake and should have used the accrual method of accounting for tax purposes. However, I am uncertain that would work.