In the case of Thrasys, Inc. v. Commissioner, TC Memo 2018-199, the Tax Court found that the IRS was not entitled to summary judgment on the agency’s argument that the taxpayer had engaged in a prohibited change of accounting method.
A taxpayer is prohibited from changing an accounting method without IRS permission. As the Tax Court explained:
A taxpayer generally “may adopt any permissible method of accounting” when filing his first return. Id. para. (e)(1); see Pac. Nat'l Co. v. Welch, 304 U.S. 191, 194 (1938). But a taxpayer who “changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.” Sec. 446(e); see Silver Queen Motel v. Commissioner, 55 T.C. 1101, 1105 (1971) (“[T]he notion of changes in accounting method necessarily implies that a new accounting method is being substituted for a previously regularly used accounting method.”).
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