The petition marked one of the cases on revenues declaration to be presented in the Tax Court. For the years that the commissioner had issues with the tax returns, the petitioner had used the cash method of the purpose of tax computations (“Jim Turin & Sons, Inc., Petitioner-appellee, v. Commissioner of Internal Revenue, Respondent-appellant, 219 F.3d 1103 (9th Cir. 2000)”, 2020). The cash method of accounting allowed the petitioner the liberty to defer recognition of revenue until when the actual payment was made. The commissioner was of the view that the petitioner deal with a product that could be classified as an inventory item. Thus, the petitioner met the requisite requirements to adapt accrual method of accounting and ensure that the correct taxable income was declared. Under the accrual method of accounting, a taxpayer should recognize income immediately when a particular assignment is completed irrespective of when the payment will be made (Hasibuan & Syahrial, 2019). The Turin firm objected the demands of the Commissioner; thus, it moved to the Tax Court to seek an interpretation. The court established that the method of accounting used by the petitioner reflected all its income, which would not necessitate the need for the taxpayer to adopt a different accounting method even if S 1.471-1 was applied (Sikka, 2017).
The Appellate Court ruled in favor of the petitioner. In its decision, it argued that the petitioner was a contractor and was only acquiring goods incidentally on the provision of services. Consequently, the petitioner was not required to keep records of inventories as there was none in the store. Consequently, S 1.471-1 could not apply in his case. (Brownlee, 2016). In his decision, the presiding Jury affirmed that the petitioner was only a paving contractor, and the asphalt they acquired could only be classified as “merchandise held for sale” as it was the case in the Galedridge Construction, Inc. V. Commissioner.30. He concluded that the commissioner had misused his powers in so requiring the Turin firm to use accrual accounting. The commissioner objected the ruling made by the Tax Court and appealed.
Delegate your assignment to our experts and they will do the rest.
Under the provisions of the Treas. Reg. S 1.471-1, a taxpayer should kepp a list of inventories that they use to generate revenues, and use the accrual method of accounting to report such revenues (Harris & Stern, 1994). This is the only sure way that the correct taxable income will be reflected. In the case under consideration, the Supreme Court confined itself whether, in the case of the taxpayer, the product in question was really a merchandise that required it to keep inventories. As a paving company that made use of asphalt immediately upon purchase, the firm cannot keep inventory of its asphalt, because it is physically impossible to hold the product for long. This affirmed the earlier decision made by the Tax Court that the petitioner could not keep inventories.
On making its decision, the Tax Court had relied adequately on precedents cases in Galedrige and RACMP Enterprises, where it had held that “the peculiar physical properties of emulsified asphalt make it impossible” for the taxpayer to keep it in inventory. Based on the above, the Tax Court had decided that the petitioner was not required to use an accrual method with respect to the asphalt. The precedent cases represent the ideal principle that S 1.471-1, the item that in question cannot be stored in inventory.
On his submissions, the appellant relied on cases where all the items involved could be stored in an inventory. The Appellate court dismissed him on the ground that in that particular case before them, asphalt nature did not qualify as an inventory item. The Supreme Court affirmed the Tax Court’s decision. Therefore, the appellee had abused his powers on insisting that the petitioner ought to have used accrual method of accounting on an item that did not fall under the scope of Treas. Red. S 2.471-1.
References
Brownlee, W. E. (2016). Federal taxation in America: A history . Cambridge University Press.
Harris, R. W., & Stern, R. W. (1994). When must a taxpayer keep inventories and use the accrual method of accounting. Taxes , 72 , 399.
Hasibuan, R. P., & Syahrial, H. (2019). Analysis of the implementation effects of accrual-based governmental accounting standards on the financial statement qualities. Proceeding ICOPOID 2019 the 2nd International Conference on Politic of Islamic Development , 1 (1), 18-29.
Jim Turin & Sons, Inc., Petitioner-appellee, v. Commissioner of Internal Revenue, Respondent-appellant, 219 F.3d 1103 (9th Cir. 2000) . (2020). Justia Law. https://law.justia.com/cases/federal/appellate-courts/F3/219/1103/532061/.
Sikka, P. (2017). Accounting and taxation: Conjoined twins or separate siblings? Accounting Forum , 41 (4), 390-405. https://doi.org/10.1016/j.accfor.2016.12.003
